Traverse City Record-Eagle

December 9, 2012

A sea change in health industry

'... Home care, telemedicine, email. It's a whole new redesign'


---- — TRAVERSE CITY-- The nation's sweeping Affordable Care Act will cause a dose of financial discomfort to Munson Medical Center, but will help remedy an "unsustainable" health care model, the hospital's top official said.

"Before the election, I said these issues are going to be faced no matter who is president," said Ed Ness, president and CEO of Munson Medical Center. "The Republicans and Democrats may go at it in different ways, but the current costs and model for this country are not sustainable."

The Affordable Care Act served as a political lightning rod since its inception, but President Barack Obama's re-election effectively dashed opponents' hopes of overturning the law. Now comes a sea change from the "old world" health care model that rewards hospitals for patient volume, lab tests, and surgeries to a "new world" model that gives incentives for keeping people healthy, Ness said.

One big change: hospitals will try to avoid return customers, Ness said.

"We have to figure out how to do that — home care, telemedicine, email. It's a whole new redesign," Ness said. "The shift is to keep people healthy at the lowest cost possible," Ness said.

Bracing for reimbursement cuts

Government insurance programs will force change because they wield enormous financial sway, he said. Munson's annual revenue is roughly $500 million. Of that, 62 percent comes from Medicare and Medicaid reimbursements. Michigan potentially could add another half-million uninsured people to Medicaid rolls if Gov. Rick Snyder agrees to more liberal eligibility requirements.

A key challenge for hospitals across the country will involve lower reimbursement rates for Medicare. Munson Medical Care is bracing for a $125 million cut in Medicare and Medicaid reimbursements over the next 10 years based on its current mix of volume and patients, according to a Plante & Moran study Munson commissioned six months ago.

Softening the blow are higher revenues from an expected increase in Medicare patients or type of services they receive, Ness said.

The Affordable Care Act doles out incentives and penalties for better patient care. For example, if a patient is readmitted for heart failure, heart attack or pneumonia within 30 days, hospitals are not paid for readmission costs, Ness said.

"I can tell you that once Medicare takes this kind of action, the other payers quickly pick it up," Ness said.

Another initiative: if someone is admitted to the hospital and picks up a new malady — a staph infection, for example — the hospital will not be paid for treating the hospital-induced problem.

Munson expects $15 million less in Medicare reimbursements this fiscal year alone, Ness said. He also fears a potential 2 percent cut if Congress fails to come to terms with the so-called "fiscal cliff."

Munson, the largest employer north of Grand Rapids, can absorb that and other threatened cuts, but Ness worries about smaller, rural hospitals.

Lyn Jenks of the Charlevoix Area Hospital said she's very concerned; even a 1 percent cut is serious.

"We run very close to a break-even margin, so it's a big concern," she said. "We are a small hospital and run close to the bone."

Searching for efficiencies

Munson paid several hundred thousand dollars to Truven Health Analytics to analyze its efficiencies throughout the hospital down to the clinical diagnosis of a patient. For example, what is the quality and cost of treating a patient admitted for pneumonia compared to 100 other similar sized hospitals?

"If a patient stays three days longer than best practice, then we ask, why is that?" Ness said.

Future salaries will come into play since that expense comprises half the budget, Ness said.

"Our goal is to reduce salaries whenever possible by not filling open positions and by reassigning staff to areas of the hospital that may be growing," he said.

Ness sees such "benchmarking" as key to better care.

"We are really trying to position ourselves for this new world, which is value. The trick is we have to keep a foot in the present, prepare for the future, and live in the present, and that's what we're doing."