Get a handle on costs of care to succeed in the next century

Your technology may need upgrading

(Editor's note: What's the future really going to be like? Will your facility still be around when the new millennium starts? Rehab Continuum Report discussed these questions with experts versed in how rehab reimbursement will change the way you do your job over the next five years. Their message is simple: Change or prepare to lose everything. How you've done business in the past and the way many providers think they'll survive in the future could be a recipe for doom. In reality, you'll need technology and lots of it. Also, the idea of prospective payment may be moot with much of the country moving to managed Medicare and Medicaid while the trend toward managed care and capitation continues to grow in the commercial payer sector as well. Read what the experts have to say and prepare to change.)

It doesn't matter what prospective payment system (PPS) the Health Care Financing Administration (HCFA) selects for rehabilitation; you must change the way you do business to survive in the next century. In fact, all the hand-wringing over whether HCFA will choose the Minimum Data Set-Resource Utilization Groups (MDS-RUGS) system or the Functional Independence Measure-Functional Related Groups (FIM-FRG) as a basis for reimbursement may be a waste of time.

By the time HCFA finally starts reimbursing under a PPS for rehab, the vast majority of your Medicare patients likely will be under a capitated managed care plan. That means you'll receive a per member per month payment from the Medicare managed care organization (MCO) to cover all the patients in that particular Medicare plan.

"In the future, rehab providers will have very limited access to traditional Medicare and Medicare fee-for-service. They must prepare to survive in a managed care capitated environment," warns Steve Forer, MA, MBA, president of Quality and Outcomes Management, a health care consulting firm in San Ramon, CA.

By 2000, the deadline for implementation of the new PPS for rehab, HCFA anticipates 60% of senior citizens will have assigned their Medicare benefits to a capitated managed care plan.

"It varies by regions, but seniors with Medi-care benefits are enrolling in capitated HMO plans at a rapid rate. HCFA figures show that 35% of Medicare beneficiaries already are in such plans," Forer says.

In addition, in early 1998 there were more than 500 Medicaid managed care programs in 34 states, he says. That figure also is expected to grow.

"It's not simply a problem of a PPS under Medicare alone. It's a combination of dealing with a PPS and managed care contracts and how they will be handled," adds Malcolm Morrison, PhD, president of Morrison Informatics, a consulting firm in Mechanicsburg, PA.

To survive, rehab providers will need a cost accounting system that takes information on the components of costs and links it with where those costs are incurred, Morrison says. Otherwise, you'll never know what's happening with the money from those capitation payments you get every month.

"Most providers don't now have this capability because they haven't needed it. Under current reimbursement, they knew what they were going to get, and as long as they could keep the average costs below what they were going to receive, they had a margin," Morrison says.

Under the new PPS, providers will be reimbursed under many rates instead of just one.

"Providers are going to have to find out what the components of costs are for patients in each group and ascertain if they can manage under the rates they are going to be paid for those groups," Morrison says.

To survive under managed care capitated contracts, providers must be able to manage their patients across all aspects of care and move them quickly through the system, Forer explains.

"Providers will received a limited amount of money to provide services. They have to make sure they are getting the best return for their investment by placing patients in the most cost-effective venue of care," he adds.

Learn to predict the future

Providers must be able to assess clearly the potential utilization of their services and the cost of providing treatment to avoid losing money on capitated contracts, Forer says.

You need to know the incidence and prevalence of each disease entity, such as stroke, in your community and in the insured population. From that, you need to determine how many patients would be appropriate for each venue in your health care system, such as acute rehab, subacute, outpatient, or home health. You also need to know the cost per day or per procedure for treating patients in each venue to arrive at an estimated cost of providing health care for each HMO's patient population.

Cost accounting across the continuum

Providers must be able to compare costs of caring for patients throughout the entire continuum of care, from inpatient and subacute programs to outpatient, day treatment, and home health, Morrison says.

"Managed care requires you to manage within certain payment limits, and you need to know whether you can afford to do it. You have to know how much patients cost and to identify the key costs of treatment," he says.

Regardless of whether future reimbursement comes from HCFA or from an MCO, providers are unlikely to think they're being paid enough, Morrison predicts.

"There's got to be efficiency," he says. "With-out a system, it's hard to see how to become efficient. You have to understand the cost and resource use."

In the future, providers will need to manage patients in more than one venue of care. They must know what the patient expense is and how much progress the patient is making, and they must use protocols to make the correct decisions about length of stay and discharge.

That kind of information is essential to lowering costs while maintaining quality, he says. "Every time costs have been examined, whether it is in one venue or in multiple venues, patients with the same diagnoses incur widely varying levels of expense."

Morrison recommends "enterprisewide applications" or computer networks that link inpatient, outpatient, subacute, home health, and other venues to help providers understand their resource use for patients in more than one location.

If you're contracting with managed care for the whole episode of care, you need to be able to understand the components of care by length, cost, and other variables through the venue of care. That's why all the components of your system must be linked, he adds.

Technology investment a must

Most organizations will have to face the fact that more investment in technology is going to be required. "This is not the old world. Technology is going to be critical in the new health care environment, not only for a PPS but for care management and managing resources under capitation," Morrison says.

He estimates it will take most providers two or three years for strategic planning, purchasing, installation, and training to complete a full technological upgrade. He recommends leasing equipment, so when the computer chips are upgraded, you can get the new technology installed quickly.

"You can change the front end, but if you don't have the servers, the wiring, and the communications technology, you won't be in the game at all."

[For more information on the financial future of rehabilitation services, contact Malcolm Morrison at (717) 795-8410. Or contact Steve Forer at (510) 866-1025.]