Perspectives

Once seen as a cost driver, technology is now helping hospitals control costs

Health Care Current | November 7, 2017

This weekly series explores breaking news and developments in the US health care industry, examines key issues facing life sciences and health care companies and provides updates and insights on policy, regulatory, and legislative changes.

My Take

Once seen as a cost driver, technology is now often helping hospitals control costs

By Sarah Thomas, managing director, Center for Health Solutions, Deloitte Services LP

Throughout my career in health care policy, many health economists have been pretty emphatic that technology is a cost driver for hospitals and health systems. It is an obvious conclusion. The fee-for-service model led to a medical arms race where the institutions that had the newest and greatest technology (mostly clinical) often garnered the best reputation and strongest bottom line.

In the last decade, the focus around technology in hospitals has shifted somewhat, to electronic health records (EHRs). Like past technologies, the adoption of EHRs translated to higher costs for hospitals – at least in the near term. At some point, however, I expect we could see a net savings (as well as other benefits) for health care systems that have the most fully functional and interoperable EHRs.

So what about the next phase? As we explore ways of getting better value in health care, many hospitals are looking to shift care from the most expensive inpatient settings to providing care in ways that reduce spending while improving outcomes. Of course, this is likely to have a significant impact on a health system’s bottom line.

The Center for Health Solutions recently published an up-to-date view of health system performance and found that current and projected margin challenges are considerable:

  • Between 2011 and 2015, US hospitals, on average, had positive operating margins ranging from 4.1 percent to 4.8 percent. However, about 30 percent of US hospitals had negative operating margins during this period.
  • Commercial health insurance payments – as a percentage of hospital and health systems’ total payments – are expected to drop from 37 percent to 33 percent by 2024. At the same time, the percentage of revenue from historically lower-margin Medicare is projected to increase from 35 percent to 40 percent of total payments.
  • Labor costs will likely continue to rise due, in part, to patient-volume growth from an aging and more chronically ill US population.

In addition to these concerning stats, shrinking margins are also at the top of the agenda among many hospital and health system CEOs, as outlined in our new hospital CEO series. Emerging technologies could help navigate the potentially bumpy road ahead and alleviate increasing margin pressures. Here are a few examples of how technology can help address key issues:

Hospitals should consider strategies to reduce costs and improve revenue.

Technology can help: When hospitals have high vacancy rates, they often turn to high-cost solutions – overtime, agency staff, and travel nurses – to bridge the gap. This practice can make contract labor one of the highest variable costs for hospitals and health systems. Moreover, these short-term solutions can produce damaging effects on employee morale, patient experience and outcomes, and overall expenses. One large health system profiled in our report applies real-time analytics to manage its workforce, reportedly checking labor statistics every two hours, and staffing its workforce based on acuity and productivity targets. To accurately identify its staffing needs, the health system uses a dashboard enabled by predictive analytics to look at projections and historical patient figures.

Hospitals should consider ways to optimize internal support services and processes by using predictive and responsive platforms that are efficient, automated, and move in real time.

Technology can help: Organizations can use robotic process automation (RPA) to streamline administrative work and tedious back-office tasks. RPA might be appropriate when a task involves repetitive action, such as copying and pasting information from a spreadsheet into a software application. Applying RPA can free employees to focus on more important tasks, and reduce the error rate at the same time. RPA also can help reinvigorate employees because it shifts their job away from monotonous duties and toward those that require human interaction and oversight. A first step for health care organizations might be to assess how RPA could transform the revenue cycle function and then move to other functional areas.

Hospitals should consider looking for ways to reduce administrative costs around claims processing and billing disputes.

Technology can help: Hospitals should consider moving further along the cognitive computing spectrum to more advanced technologies, such as machine learning and artificial intelligence (AI). Unlike RPA, machine learning technologies can recognize patterns in data. Applied in health care organizations, machine learning can help identify payment variance and remediate complex payment methodologies.

Hospitals should consider developing innovative ways to improve work flow.

Technology can help: Exponential technologies can improve staff productivity. Robotics and automation, for example, can help nurses complete routine tasks such as collecting blood samples. This technology can cut task time, reduce the risk of error or injury, and improve the patient experience. And as organizations progress from relying on manual tasks to using RPA and cognitive computing, a workforce of doers can become a workforce of reviewers. In the long run, organizations might be able to reduce their reliance on contract labor.

I love these ideas and am encouraged to see that some of them are already showing positive impacts. I’m hoping that despite continued challenges, health systems and other health care organizations that are wrestling with high costs can leverage some of these emerging technologies to deliver on the promise of efficiency and better bottom-line results.

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In the news

CMS issues MACRA rule, finalizing changes to the Quality Payment Program for 2018 performance year

On November 3, the US Centers for Medicare and Medicaid Services (CMS) published a final rule, which covers aspects of the Quality Payment Program (QPP) under the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) for the 2018 performance year (clinicians’ payments in 2020 will reflect performance in 2018). The rule is largely consistent with the proposed rule (see the June 27, 2017 Health Care Current), but the agency will use cost measures in the formula; the proposed rule would have left these out.

CMS had proposed delaying cost measures in the Merit-Based Incentive Payment System (MIPS). But in the final rule, CMS said that cost measures will make up 10 percent of the total score for the 2018 performance year. Quality measures will make up 50 percent of the total. Stakeholders had commented that leaving cost measures out this year would lead to a large change for clinicians the following year, when statute requires the category to make up 30 percent of the total score.

CMS finalized several additional changes for the second performance year under the QPP, including:

  • Increasing the low-volume threshold, leaving more clinicians out of the system: CMS is exempting more clinicians from MIPS by raising the low-volume threshold from $30,000 in allowed charges under Medicare Part B, to $90,000; and from 100 or fewer Medicare Part B patients to 200 or fewer. CMS estimates that approximately 622,000 clinicians will be in MIPS and 540,000 clinicians will be exempt due to the low-volume threshold.
  • Finalizing the rules that qualify clinicians as participants in other payers’ alternative payment models (APMs) beginning with payment year 2021: CMS finalized the Payer Initiated Other Payer Advanced APM Determination Process, which the agency will use to determine whether payment arrangements through health plans – including Medicaid and MA plans and plans participating in CMS multi-payer initiatives – qualify as Other Payer Advanced Alternative Payment Models. Clinicians will also be able to initiate a CMS review of other payer arrangements using the Eligible Clinician Initiated Process.

CMS expects between 185,000 and 250,000 clinicians will qualify as participants in Advanced APMs in 2018. As such, they would be exempt from MIPS reporting and would qualify for a 5 percent bonus payment in 2020.

New CMS rule cuts payments to some hospitals under the 340B program

CMS released its final 2018 hospital outpatient payment rule which increases hospital outpatient payments by an average of 1.35 percent and makes major changes to the 340B program.

Under the 340B Drug Discount Program, hospitals that serve a disproportionate share of low-income patients can buy drugs at a discount under Medicare Part B (these tend to be physician-administered drugs). The new Medicare outpatient payment rule raises the cost of 340B drugs for hospitals through the 340B program and redistributes the savings by increasing payments for other hospital outpatient services.

Under the old rules, CMS paid all hospitals serving low-income patients the average sales price (ASP) of the drugs plus 6 percent (the standard Medicaid rate) even if the hospitals paid much lower prices to drug companies under the 340B program. Starting in 2018, CMS will pay ASP minus 22.5 percent (see the November 3, 2017 Reg Pulse blog). Because the savings are redistributed across all non-drug reimbursement rates under Part B, some hospitals – those serving rural areas, nonteaching, and for-profit hospitals – will see higher payments while hospitals that serve enough low-income patients to qualify for 340B prices will see far less in Part B drug revenue.

Major hospital groups oppose the change, which they say will cause many hospitals to lose money. The American Hospital Association, the Association of American Medical Colleges, and America's Essential Hospitals, are suing CMS over the rule.

The Outpatient rule also:

  • Removes quality reporting requirements for certain hospital outpatient and ambulatory surgery measures
  • Removes total knee arthroplasty from the inpatient only list
  • Reduces rates for off-campus departments
  • Reverses a policy and instead will provide for separate codes for biosimilars, unlike generic drugs, and reimburse each biosimilar based on its own ASP

Accounting for all changes in the rule, CMS estimates Outpatient Prospective Payment System (OPPS) payments to providers will increase $5.8 billion from 2017 and total roughly $70 billion next year.

House tax bill keeps ACA taxes and research credit, drops medical expense deduction

On November 2, House Republicans released their tax-reform proposal, the Tax Cuts and Jobs Act. The bill contains a number of policies that would affect health care stakeholders, but does not address Affordable Care Act (ACA) provisions – such as the Medical Device Tax and the individual insurance mandate.

Like the administration’s tax reform proposal, the House plan would cut the corporate tax rate from 35 percent to 20 percent (see the October 10, Health Care Current). The House plan also would require American businesses to pay a one-time tax on accumulated offshore earnings at a two-tiered rate (12 percent on cash, 5 percent on non-liquid earnings), which was higher than anticipated. Under the bill, US and foreign-based companies in the life sciences and health care industry would lose the special orphan drug credit for developing new rare disease therapies. The bill also would eliminate the medical expense deduction for expenses greater than 10 percent of a person’s income and the medical student interest deduction.

Other provisions include disallowing deductions for net interest expenses, limitations on the use of tax loss carryforwards, a 20 percent excise tax on payments to foreign affiliates and a 10 percent minimum tax on so-called “high returns” earned by foreign subsidiaries of US-based multinationals, among several other provisions.

House Ways and Means Chairman Kevin Brady (R-Texas) said he expects the measure will be brought to a vote on the House floor during the week of November 13 (see our Tax News & Views for more details).

CMS to allow states to define essential health benefits

On October 27, CMS released a proposed rule that would authorize states to define Essential Health Benefits (EHBs), or the services that exchange plans must cover.

The proposed rule, which would go into effect for plan year 2019, would give insurers more flexibility in benefit design if states decide to change their rules. If states defined the benefits more narrowly, insurers could reduce coverage and sell plans with lower premiums. The agency said that it does not know exactly how much money this would save, as that would vary by state and the benefit structure. In addition, the agency said states should consider potential spillover effects, such as increased use of emergency services. If enacted, the rule would not oblige states to change EHBs.

The proposal contains other proposed policies, including:

  • Giving states more power in certifying qualified plans 
  • Removing some Small business Health Options Program (SHOP) requirements 
  • Allowing states to set medical loss ratios below 80 percent
  • Exempting student health insurance from rate review 
  • Adjusting risk adjustment methodology

CMS is accepting comments on the proposal through November 27, 2017.

HELP Committee chairman urges delay of meaningful use stage 3

Senators want to reduce the burden of electronic health records (EHRs) and improve interoperability, according to an October 31 discussion on the implementation status of the 21st Century Cures Act. Chairman Lamar Alexander (R-Tenn.) cited a 2016 American Medical Association study, which estimates that for every hour with patients, physicians spend two hours charting and working on EHRs.

At the Health Education Labor and Pensions (HELP) Committee hearing, officials from the Office of the National Coordinator for Health IT (ONC), CMS, and the Department of Health and Human Service’s Office of Inspector General (OIG) discussed how to improve health information exchanges. ONC is still defining provisions around information blocking, as required by the Cures Act. The OIG said it is ready to enforce such provisions and has already looked into some complaints of information blocking.

Alexander said that while physicians may have been included in the development of the standards of meaningful use, many feel like their voices have not been heard. He encouraged the administration to delay implementation of stage 3 of the meaningful use program until ONC could better engage with physicians and hospitals.

Ranking member Senator Patty Murray (D-Wash.) said she is concerned about the lack of tracking in EHRs and Medicare on medical device-specific information. A recent OIG report said current Medicare claims forms do not allow CMS to identify or track costs related to recalled or failed medical devices.

(Source: “Shortcomings of device claims data complicate and potentially increase Medicare costs for recalled and prematurely failed devices,” HHS Office of Inspector General, September 2017)

White House opioid commission says Congress should allocate more funding

The White House’s Commission on Combating Drug Addiction and the Opioid Crisis, led by Governor Chris Christie (R-N.J.), released its final recommendations to combat opioid abuse, and urged Congress to appropriate sufficient funding to implement its 56 recommendations.

Recommendations include:

  • Transitioning federal funding programs for opioid and substance use disorders to a block grant program
  • Removing pain questions entirely when assessing consumer experiences in hospitals
  • Giving the Department of Labor more authority to regulate and enforce insurance parity in reimbursement between physical and mental health care

In response to earlier recommendations from the commission (see the October 31, 2017 Health Care Current), the administration and CMS announced that two states would receive Medicaid waivers to expand coverage for substance abuse treatment. In Utah, the waiver will allow a limited expansion of Medicaid to childless adults (at 105 percent of the federal poverty level or below) who are either homeless, involved in the criminal justice system, or need substance abuse treatment. In New Jersey, the waiver will allow for Medicaid reimbursement at mental inpatient facilities with more than 16 beds. CMS encouraged more states to apply for similar programs.

CMS announces new quality measurement initiative

CMS’s new quality measurement initiative, “Meaningful Measures,” was announced by Administrator Seema Verma on October 30. Meaningful Measures will focus on using quality measures that are most related to the quality of patient care, according to Verma. She noted that the agency would focus on using outcomes measures and easing regulatory burdens associated with MACRA.

Related: In a recent post from A view from the Center, David Betts explains the implications of CMS’s recent announcement that it is delaying the 2017 hospital star ratings.

Report: Almost one third of health care payments are going to Alternative Payment Models

About 29 percent of all US health care payments were made to alternative payment models (APMs) – roughly $354.5 billion dollars, according to a new report from the Health Care Payment Learning and Action Network (LAN). APMs can provide incentives for cost-saving, higher quality, and collaboration of care between different clinicians in the health care system.

These results achieve the LAN goals of tying 30 percent of all US health care payments to alternative payment models by 2016, and 50 percent by 2018.

The survey defined alternative payment models as both:

  • Models based on fee-for-service that compare cost with a target, and provide mechanisms for care management and;
  • Models with per member per month payments that work to meet certain cost and quality goals. 

(Source: “Measuring Progress: Adoption of alternative payment models in commercial, Medicaid, Medicare Advantage, and fee-for-service Medicare programs,” Health Care Payment Learning and Action Network, October 2017)

CMS nursing facility initiative decreases hospitalizations and saves millions

Nursing facilities participating in the CMS Initiative to Reduce Avoidable Hospitalizations saw a 17 percent relative reduction in potentially avoidable hospitalizations, and generated nearly $50 million in savings to the government. CMS recently released the results of its three-year program in which 143 long-term care facilities across seven states participated in phase one of the program.

The initiative focused on long-stay residents in long-term care facilities who were enrolled in both Medicare and Medicaid. Under the initiative, nursing facilities implemented evidence-based interventions to provide preventive services and to improve the management of medical conditions.

Phase two of the model began in late 2016 and allows participating organizations to test whether a new payment model, combined with the interventions from phase one, can reduce avoidable hospitalizations and reduce spending.

Related: Last month, another CMS Innovation model, accountable care organizations (ACOs), reported net savings of $70.6 million in 2016 (see the October 24 Health Care Current). The agency said that more than half of the ACOs in the Medicare Shared Savings program reduced spending and roughly a third were eligible for bonuses.

Breaking Boundaries

Metastatic Breast Cancer Project reaches major milestone with release of public data

The Metastatic Breast Cancer (MBC) Project, a crowdsourced, social media-driven initiative to engage women and men with metastatic breast cancer in research, released its first public data last week. The MBC Project has 4,000 participants who contribute genomic data, treatment history, and other information from patient medical records and their own reports of their treatment experience. The data is de-identified and publically available at the MBC Project website and new data will be released regularly to share with patients and the research community using several public data platforms. Through public data, the project hopes to further the discovery of new clinical, molecular, and therapeutic insights for metastatic breast cancer.

Approximately 155,000 women and men across the US are currently living with metastatic breast cancer. The median survival is about three years. More than 40,000 people in the country die from metastatic breast cancer each year. Treatments are improving, but there is currently no cure.

The project is run through the Broad Institute of MIT and Harvard in collaboration with Dana-Farber Cancer Institute and several nonprofit and patient partners. To make it easier for more patients to participate in research, the project launched a large-scale social media and advocacy partnership-based outreach campaign. In the project’s first seven months, more than 2,000 patients from across the country participated, and many provided valuable input into the project’s scope. Patients can provide basic demographic data and medical information, as well as give permission to have researchers obtain and analyze medical records, saliva samples, blood samples, and tumor tissue.

Last week marked the first time researchers released data publically, via the portal for cancer genomics. The de-identified data includes:

  • Whole exome sequence data from 103 tumor samples obtained from 78 patients
  • Data highlights mutations and changes in genes' copy number demographic, diagnostic, detailed pathology, and treatment history data from medical records
  • Self-reported demographic, diagnostic, treatment response, treatment experience, and other information from patient surveys

The team is releasing the data so that other researchers can work in parallel to conduct analyses. The project team plans to release new data every six months.

Analysis: Patient engagement has become an important topic for researchers, industry, and regulators. Emerging technologies such as social media and others have the potential to transform how patients are engaged, enabling expedited enrollment, adherence, retention, and improvements in study design and data quality. This project is an example of how leveraging social media and a shared database can break down some of the traditional siloes that exist in the health care system and potentially reduce the burden not only on patients but also on companies and investigators. For example, researchers are figuring out ways to conduct research through an online platform, with data collected through apps, wearables, and connected devices, and visiting nurses traveling to patient homes to collect bio-specimens. When the data is de-identified and shared, the wisdom of the crowd can contribute to newer, faster insights.

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