Sharpen pencils to survive managed care, PPS
September 1, 1998 4 minutes read
Sharpen pencils to survive managed care, PPS
Make cost accounting your new watchword
It's no longer enough for subacute providers just to know what kind of care provides the best outcomes for their patients. In addition to concentrating on clinical issues, savvy providers also must focus on financial concerns, such as determining the cost of delivering care, to prosper in the next few years. And after you determine the actual cost of providing care, you'd better figure out ways to get good outcomes at a lower cost, before your competition beats you to it.
"People who don't want to look at their cost structure and determine how to deliver care for less money may be looking at new careers next year," warns Nancy Beckley, MS, MBA, president of Bloom ingdale Consul ting Group in Valrico, FL.
Your best friend in the future may be the hospital's cost accoun t ing expert. You'll need his or her knowledge to nego tiate payment contracts and determine where you can cut costs.
"In addition to just delivering good care, we need to understand how we do it, why we do a particular thing, what the cost is, and how it will impact our reimbursement," says Doris Reinhart, principal of Chesapeake Consulting, an Alexandria, VA, health care consulting firm specializing in post-acute providers.
Whether you are looking at managed care, capitation, or Medicare as a source of reimbursement in the future, you're going to have to cut costs and reduce the bottom line if you're to stay in business, the experts say. "Currently, providers get reimbursed by Medicare on a cost basis, but managed care plans couldn't care less what your costs are," Beckley says.
Neither will Medicare under a prospective payment system (PPS). When the PPS for some services goes into effect in 2000, reimbursement will be based on resource utilization.
"People think that Medicare reimbursement has been cost-based, but those costs are not real. All we've done in the past is look at what is the revenue we are going to get and how long will it take to deliver that care before we exceed our revenue," Reinhart points out.
To get a handle on the real cost of your care, you must examine all resources used for each diagnosis and each level of acuity. "Real cost is something most providers don't have a handle on. They have an idea of what their expenses are but not an idea of what the true costs are," Reinhart says.
Providers need to determine what it really costs to deliver care. The costs don't just include hands-on administration of care, but the cost of downtime for the staff. They also need to find out how to determine the cost of care, what goes into determining the costs, what resources are needed for each diagnosis and level of acuity, and how much it costs to deliver those resources to get the patient ready for discharge or the next step in the continuum.
"We don't have a good handle on the actual costs of providing services throughout the industry. We're going to have to be able to say what resources we need for a particular type of patient in order to deliver the types of care and obtain the types of outcomes we want," Reinhart says.
The paradigm has shifted from volume in selling services to outcomes and providing solutions to problems, Beckley says. To survive in a managed care market, providers must determine the market price of service delivery, and they may have to redefine their definitions of service delivery, she adds. "Think of what it cost to buy an Apple II computer 15 years ago. That's what we're talking about."
Eliminate hospital overhead
If you run an inpatient unit in an acute care hospital, remember that your competition doesn't have to bear the overhead of a helicopter, neonatal intensive care unit, or transplant program. Your challenge is going to be to determine the true costs of providing subacute care, minus all of the overhead costs the hospital may allocate to your unit.
If an inpatient subacute hospital uses fully loaded costs, it will never be market competitive because it is carrying the overhead of the hospital, Beckley adds. "Managed care providers are saying: 'Why should we pay for hospital overhead?' . . . They doncare if you have a trauma center or a neonatal unit," she explains.
Look at the cost of doing business in the subacute center, with a reasonable overhead allocation, and look at contracting with managed care providers with that as the bottom line, she advises. "When you are spreading the hospital costs out, you don't see your true cost of doing business."
Lowering costs has not been an incentive under Medicare; it has been to get reimbursed for your cost. The incentive under managed care is to get paid the market rate. To survive under managed care, providers have to increase their volume and deliver their increased volume at a lower cost.
"Providers are struggling with the issues the doctors had to face three to five years ago. In some specialties, physician income decreased by 30% to 40%. They made the adjustment and changed the way they were doing business," Beckley says.
[You can contact Nancy Beckley at (813) 654-4130. Doris Reinhart may be reached at (703) 212-0040.]
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