Hospitals, Systems Spend $39B Annually on Regulatory Compliance

October 31, 2017 - Hospitals, health systems, and post-acute care providers spend almost $39 billion annually on administrative tasks related to regulatory compliance, the American Hospital Association (AHA) reported.

“As a result of this extraordinary burden, providers are struggling to balance the administrative activities necessary to comply with regulatory requirements against the clinical, operational and financial activities necessary to fulfill their clinical missions,” the hospital association stated. “Despite investing significant resources to comply with federal regulations, these providers feel overburdened with regulatory requirements, many of which have limited direct positive impacts on patient care.”

A review of federal laws and regulations revealed that providers had to comply with 629 discrete regulatory mandates in nine domains as of March 2017. The domains were quality reporting, value-based reimbursement models, meaningful use, conditions of participation (CoP), program integrity, healthcare fraud and abuse, privacy and security, post-acute care, and medical billing and coverage verification.

The rules included 341 hospital-specific and 288 post-acute care-specific requirements. Hospitals and health systems with post-acute care services had to abide by all 629 regulations.

The regulations primarily stemmed from four federal agencies: CMS, the Office of Inspector General (OIG), the Office for Civil Rights (OCR) and the Office of the National Coordinator for Health Information Technology (ONC).

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To ensure regulatory compliance, the average-sized community hospital, which had 161 beds, spends almost $7.6 million each year on administrative tasks, a survey of 190 hospitals and health systems showed.

That amount increases to $9 million for hospitals with post-acute care beds.

In addition to administrative spending, the hospitals and health systems reported spending nearly $3.7 billion, or $760,000 per hospital, on additional health IT investments to support regulatory compliance.

The total amount spent on regulatory compliance equated to an annual cost of over $47,000 per hospital bed and $1,200 per admitted patient.

The majority of regulatory compliance spending (81.1 percent) went to staff salaries. Hospitals and health systems employed 58 full-time-equivalent (FTE) staff, on average, to perform administrative activities associated with regulatory compliance across the nine categories.

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Organizations with post-acute care beds employed another 8.1 FTEs to help meet post-acute care-specific requirements.

Of the staff tasked with regulatory compliance duties, a little over one-quarter of the FTEs were clinicians, including physicians (e.g., MD, DO) and nursing/allied health professionals (e.g., registered nurses, physician assistants, nurse practitioners).

“Interviewees expressed concern that this trend is pulling clinical staff away from patient care responsibilities and the providers’ clinical missions,” the report stated. “Several hospitals reinforced this finding, stating that their clinical staff are spending increasing amounts of time on administrative activities related to regulatory compliance with the CoPs, such as designing and implementing new processes and participating in mandatory trainings. This significantly limits the time they could be spending with patients.”

Specifically, CoP compliance activities significantly detracted from direct patient time. Physicians, nurses, and allied health professionals performed about 45 percent of the administrative tasks related to CoPs, hospitals reported.

Hospitals also spent an average of $3.1 million on administrative and compliance activities related to CoPs, making it the most expensive of the nine domains.

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The majority of CoP compliance spending ($2.6 million) went to staff salaries, while some of the funds were invested in staff supports, such as engaging contractors, educating employees, and implementing health IT systems.

CoP compliance costs also supported administrative activities, including developing policies for hospital governance and responsibilities, creating patient notices to inform patients of their rights, implementing staff training programs, establishing an emergency preparedness program, maintaining medical records, and creating quality assurance and performance improvement initiatives.

However, the $3.1 million in CoP compliance spend did not reflect related hospital activities. Most hospitals reported that their organization invests in voluntary compliance activities, such as earning accreditation, partaking in patient safety organizations, and implementing federal and state hospital association quality improvement programs.

Medical billing and coverage verification requirements also topped the list of costly regulatory compliance domains.

On average, hospitals spent about $1.6 million each year on billing and coverage verification.

The majority of billing and coverage verification spending represented staff salaries.

But about 18 percent of the budget was spent on third-party contractors or consultants. Over one-half of hospitals and health systems reported using an outside contractor for eligibility and disenrollment verifications and 39 percent of the organizations used contractors for confirming benefit coverage.

While the industry is working on streamlining manual benefit verifications, the amount spent on compliance indicated that the industry has a way to go. For example, payers still do not use a standardized electronic transaction standard for coverage verifications, causing providers to use a myriad of communication methods to send information to health plans.

AHA noted that the regulatory burden of medical billing also continued after the hospital or health system received reimbursement. Medical billing audits, improper payment recoupments, and claim denial appeals added to the regulatory burden.

In addition to CoP, medical billing, and coverage verification compliance, hospitals and health systems also stated that regulatory burden and costs stemmed from misaligned and inefficient quality reporting, healthcare fraud and abuse laws that impeded value-based care, and meaningful use attestation.

Organization leaders feared that administration and regulatory burdens would not decrease because of the timing and pace of regulation creation.

Hospitals and health systems must comply with regulations coming from multiple federal agencies. Leaders may have as little as 60 days to understand the policy and implement compliance workflows as was the case with the 2017 Medicare Physician Fee Schedule rule, which was released in November 2016 and implemented on Jan. 1, 2017.

To reduce regulatory and administrative burdens on providers, AHA recommended the following to policymakers, federal agencies, and payers:

• Align and consistently apply regulatory requirements within and across federal agencies and programs and regularly review the requirements to ensure the public good benefits outweigh the compliance burden

• Develop clear, concise guidance and reasonable timelines for rule implementation

• Make CoPs that are evidence-based, align with other industry standards and requirements, and flexible enough to support different patient populations and communities

• Accelerate the transition to automated administrative transactions, including prior authorizations

• Streamline meaningful use requirements and emphasize interoperability without placing accountability on providers for the actions of others

• Assess quality reporting requirements across all programs to find which measures provide meaningful and actionable information to patients, providers, and other stakeholders

• Review and simplify post-acute care requirements

• Reconsider the Stark Law, Anti-Kickback Statute, and other healthcare fraud and abuse laws and ensure that fraud prevention regulations are flexible enough to support value-based care and care coordination efforts

The association also called on policymakers to enforce immediate changes, including the suspension of the hospital star rating system and electronic clinical quality measure submission, as well as the elimination of Stage 3 meaningful use, long-term care hospital 25-Percent Rule, direct supervision requirements, critical access hospital 96-Hour Rule, and mandatory free-text fields in the Medicare Outpatient Observation Notice.

Policymakers should also expand Medicare reimbursement for telehealth services, create additional regulatory flexibilities in alternative payment models, change Medicare CoP to permit hospitals to recommend post-acute care providers, and establish healthcare fraud and abuse law exceptions that support clinical integration.