August 2008

Healthcare to reach $4.3 Trillion by 2017

The total cost for healthcare in 2007 was approximately $2.2 trillion, or sixteen percent of the USA’s Gross Domestic Product (GDP). CMS predicts that healthcare spending will reach over $4.3 trillion per year by 2017 representing twenty percent of the total economy. This growth in medical spending is equal to an estimated 6.7% plus yearly increase compared to the overall economy which is expected to grow at 4.7% for the same ten year period.

With proposed budget cuts in the Medicare and Medicaid funds slated for 2009 and beyond this appears to be a train wreck waiting to happen. If the CMS predictions are accurate about  spending over $4 trillion in healthcare by the year 2017, and projecting cutbacks in government backed health care programs, how will these increases be paid for?

As the population continues to live longer and the baby boomer population moves ever closer to retirement, the need for healthcare will become even greater. Patients will have to be responsible for a good portion of the costs, much like their employers will be forced to have employees pay a portion of the healthcare coverage premiums.

Perhaps one of the most frustrating issues healthcare provider and patients face is trying to get the managed care payors to pay per the terms of their contract. Managed Care payors have been underpaying for decades, raising premiums on the average 20% every year, and have now become an attractive investment for retirement portfolios.

Complicating financial woes for providers, CMS has hired RAC teams to take back reimbursements for services rendered. Many hospitals operate on razor thin margins and the battle for the recovery of overpayments may deepen reductions of cash flow and services.

It will be interesting to see how these financial issues will impact our health care system.

RAC, how will you survive…?

The Centers for Medicare and Medicaid Services (CMS) reported that Medicare has resolved more than $1 billion in improper payments through the Recovery Audit Contractors (RAC) program that was initiated in 2005, and it was determined that the majority of payment issues came from hospitals. After viewing the pilot program as a success, CMS plans to expand RAC coverage to most states by the end of 2009. According to 2007 CMS calculations, they estimate close to $10 billion a year of improper payments are occurring. The cost to health care providers can be significant depending on what path they take to defend against RAC.

Many hospitals are hiring teams of physicians and nurses to defend against potentially devastating take back of reimbursements, some are hiring auditing firms to help them defend against RAC’s and some are purchasing new software programs. No matter what direction the provider takes, cost is involved.

Hospitals in the states that have not been impacted by RAC to date are establishing task groups or are consulting with auditing firms well in advance to figure out how they are going to deal with these audits. Some of the early targeted hospitals took a defensive position and entered the lengthy appeals approach with little success. For the next round, providers should be better prepared to minimize their exposure. A few things healthcare providers can do to reduce the effects of RAC are to create proactive programs to test compliance, self disclosure and steps to reduce errors.

Hospitals witnessed what has happened to their fellow providers and are taking positive steps to reduce the impact of a RAC audits. Being prepared for RAC can reduce the financial risks associated with such audits. No matter what the final results of a RAC audit are, the cost to the healthcare provider can be staggering. Now is the time to prepare a plan to reduce your risks.

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