How the Affordable Care Act Impacted Healthcare Revenue Cycle

August 18, 2016 - From the transition to value-based care to the rise in patient consumerism, the Affordable Care Act has significantly changed the healthcare revenue cycle management landscape since its passage in 2010. Healthcare providers restructured how they deliver care and collect payments as well as refocused their revenue cycles to maximize profit in a value-based industry.

While some physicians have experienced positive changes with the transition to value-based care models (e.g., higher care quality, opportunity for shared savings), others have faced some challenges, including lack of data analytics infrastructure and increases in unpaid patient payments.

Despite some setbacks, many providers would agree that the Affordable Care Act has changed and will continue to change the face of healthcare revenue cycle.

Here are four key ways that the legislation has impacted the bottom lines of providers.

The rise in patient consumerism challenged collections, empowered patients

While the Affordable Care Act enabled more individuals to gain healthcare coverage, it also sparked an increase in patient financial responsibility. Almost three-quarters of providers reported that patients became more accountable for medical payments in 2015, according to an Instamed survey.

As a result of health insurance exchanges, the number of individuals with high-deductible plans also drastically increased. CMS reported that 90 percent of 12.7 million consumers enrolled in a high-deductible plan during the 2016 open enrollment period. The popularity of high-deductible plans has caused out-of-pocket expenses to rise 225 percent since 2006.

However, many providers are finding it difficult to collect full payments from patients, especially since out-of-pocket expenses are much higher than a decade ago. Providers only expect to collect 50 to 70 percent of a patient’s balance after a visit, reported a McKinsey & Company report.

“They're buying high-deductible plans to benefit from the lower premiums in an attempt to control their cost,” Mark Owen, Director of the Division of Emergency Medicine for Payor Login, said in a 2015 interview. “But they don't lock in on the fact that the cost still exists. They're just going to have to pay it down the road on a per-service basis. The high-deductible doesn't necessarily change the total out-of-pocket amount, but it changes when you owe it and when we should try to collect it.”

In addition to affecting bottom lines, the rise in patient consumerism has also empowered individuals to select providers based on their expectations and needs. Providers must improve patient satisfaction scores to attract and retain patients as well as maximize quality-based incentive payments under many value-based care models.

Hospitals that provided a “superior” patient experience increased their net margins by 50 percent compared to provider organizations that delivered an “average” experience, reported an Accenture study in May.

“Consumer expectations have really increased,” Michael Ruiz, Vice President and Chief Digital Officer for MedStar Health, said in May. “Your expectation when you go to a healthcare system is that I should be able to find the doctor I need, get the appointment that I require, be able to get my way to that office in the most effective way possible, see that doctor with the smallest amount of wait, and be able to have an exceptional experience where I walk away from it having my issue resolved.”

Ruiz added that MedStar Health has worked to meet consumer needs by decreasing wait times, matching patients to the most appropriate doctor, improving online scheduling tools, and helping patients get to their offices by a car service.

After the Affordable Care Act, providers have focused on not only how to delivery safe and effective care but also how they can improve the consumer experience to retain customers, boost their reputation, and increase patient revenue.

With more consumers insured, uncompensated care costs declined for providers

As more individuals enrolled in healthcare insurance plans under the Affordable Care Act, many providers have experienced in increase in hospital profitability because of declining uncompensated care costs.

For example, the Oregon Health Authority reported in July that hospital profitability rose by 35 percent since 2015. The state added that hospital profitability has steadily increased since the passage of the Affordable Care Act.

Decreases in charity care and bad debt largely contributed to the rise in hospital profitability, the state health department added. Uncompensated care costs decreased by 39.4 percent, or $342 million, in 2015. With more patients insured under the Affordable Care Act, the report explained, hospitals collected more revenue.

Another study from the Henry J. Kaiser Family Foundation found that uncompensated care costs dropped by nearly $6 billion in 2014 after some state’s implemented Medicaid Expansion programs, which were authorized under the Affordable Care Act.

While providers received more revenue as a result, the study indicated that some stakeholders are concerned that declining uncompensated care costs may be offset by higher volumes of Medicaid reimbursements that are normally lower than hospital costs.

“Early analysis of the Medicare Care Report data show national declines in uncompensated care, especially in expansion states, although the data do not permit reliable estimates of trends in Medicaid payment amounts,” wrote the authors of the report. “However, hospital margins are influenced by numerous factors, the health care and policy environment is in flux, and some hospitals will be better able to adapt to these changes than others.”

The Affordable Care Act also calls for reductions in supplemental Medicaid payments, such as those intended to support uncompensated care costs. Safety-net hospitals are especially vulnerable to these cuts because they rely on Medicaid revenue for viability.

Providers face lower reimbursement rates under value-based care legislation

One of the goals of the Affordable Care Act was to reduce wasteful healthcare spending by reforming how providers are paid for delivering care. However, some hospitals and physician practices received less than expected from claim reimbursements under the legislation.

Providers reported that lower reimbursement rates in the midst of increasing patient volumes was the top concern post-Affordable Care Act, according to 2015 LocumTenens.com survey.

“In our survey, physicians cited lower reimbursement for treating patients as a particular challenge,” Chris Franklin, Executive Vice President of LocumTenens.com. “Since so many practices and hospitals were already operating on razor-thin margins prior to the implementation of the ACA, ensuring that their operations are as efficient as possible will be very important going forward. Physicians will also need to follow how the reimbursement landscape is changing from that of a fee-for-service to outcome-based reimbursement.”

Some Medicare and Medicaid reimbursement rates declined under the Affordable Care Act to transition the industry away for fee-for-service. While rates were reduced, CMS developed value-based incentive payments and alternative payment models to reward high-quality and affordable care rather than volume.

However, many eligible professionals participating in value-based initiatives through CMS are not ready to manage the data- and quality-driven programs. The increase in administrative reporting and data collection has resulted in financial penalties for many providers.

CMS reported that only 129 out of 8,395 eligible physician groups received a positive payment adjustment through the Value Modifier program in 2016. Another 13,813 groups received a two percent decrease because they failed to satisfactorily report quality measures.

On the other hand, CMS also implemented financial penalties for providers who did not comply with various value-based initiatives. For example, the Hospital Readmissions Reduction Program penalizes hospitals for excessive readmissions by reducing their based Medicare reimbursements by three percent.

While transitioning away from fee-for-service, many providers should start to implement more value-based care necessities, such as data analytics tools to monitor quality improvements, more robust population healthcare management techniques, and upfront patient billing strategies.

Providers focus on medical billing compliance to avoid healthcare fraud investigations

With the Affordable Care Act, the Department of Health & Human Services (HHS) ushered in a new age of preventing healthcare fraud and improper payments. The legislation assigned $350 million for healthcare fraud prevention and enforcement efforts, which marked a shift from the federal agency's pay-and-chase approach.

Through the act, HHS expanded several initiatives designed to identify and correct improper payments, such as the Recovery Audit Programs. The department also developed a predictive analytics tool that analyzes about 4.5 million Medicare pre-paid claims each day to identify potential payment issues before providers are reimbursed.

Healthcare fraud and improper payment prevention systems have saved Medicare and Medicaid millions of dollars, but many providers have questioned the effectiveness of the new proactive approach. For example, six out of ten claims reviewed by the Medicare Recovery Audit Program in 2016 did not have an overpayment despite being identified as one, reported the American Hospital Association in June.

As more Medicare reimbursements are being flagged as improper payments, hospitals are appealing nearly half of all claim denials, according to the report. However, the claims appeal process is resource-consuming, costing more than $10,000 for 43 percent of hospitals in the first quarter of 2016.

The shift in healthcare fraud prevention under the Affordable Care Act has caused providers to focus on medical billing compliance to avoid expensive fraud or improper payment investigations. With more eyes on claims reimbursements, healthcare organizations must ensure that their compliance programs are actively monitoring their medical billing process.

Federal investigators examine a provider’s compliance system to determine how to resolve any healthcare fraud issues and a robust program could save providers from a criminal case, according to Gejaa Gobena, former Chief of the Healthcare Fraud Unit in the Department of Justice Criminal Division.

“Where I've seen companies get into trouble is if that reporting takes place and nothing else is done afterwards,” he said in a recent interview. “So asking questions, finding out the details of proposed business practices, showing that they are taking their jobs seriously, and that they really want to make sure that the company is operating as legally and ethically as possible. Being proactive is only going to be considered a positive from the government's perspective.”

Dig Deeper:

• Preparing the Healthcare Revenue Cycle for Value-Based Care

• How the Affordable Care Act Impacts Patient Engagement