By Brian Baker

The noise level around health care related to cost seems to be increasing of late, while initiatives to drive interoperability and quality are missing the mark and losing their leaders. Meanwhile, individual hospitals are facing millions in cuts while enduring increasingly invasive payment or RAC audits. The bottom line here was expressed recently by a physician at the AHRA Physician Leadership Day: "Medicine isn't the problem, it's the business of medicine."

We have identified the enemy and it is us
Back before DRGs (Diagnosis-Related Groups) were implemented, around 1982, payments in health care were based on cost reporting and were paid on a "cost plus" methodology. Critical Access Hospitals ("CAH") still operate this way today, getting paid 101 percent of reasonable costs. Other reimbursement options exist for CAHs, but that's another article. The DRG system unified the payments based on groupings of services provided. Come in to the ER with a possible heart attack? Medicare has a code that pays one amount, regardless of how many aspirin are consumed. As a result of this payment grouping, providers haven't paid as close attention to the cost reports any longer. They are still filed, as it's a requirement, but may not have the same level of attention to accuracy paid to them. As an organization that consults for hospitals, we rarely see an accurate expression of procedural costs.

Fast forward to today. Cost reports are used by Medicare under advice by groups such as the RUC (Specialty Society Relative Value Scale Update Committee) to adjust Medicare reimbursement. To be fair, that description is a gross oversimplification of the effort and information utilized. But what is important to know is this: The cost reports, as explained recently by one member of the RUC, while variable between submitter, indicate a low cost to deliver things like medical imaging that is not representative of true costs.

So if Medicare and its advisers are using the cost reports, among other things, to help determine reimbursement, and the reports show a steady or declining cost, it might make sense then that Medicare is reducing reimbursement. Have we missed something along the way?

Your credit line has been exceeded

The sustainable growth rate (SGR) originally created in 1997 to help limit spending from Medicare for physician services has been exceeded every year since 2002. The fix was intended to be what are called "negative updates", which means reduced reimbursement. But for the last ten years Congress has passed a series of short term fixes (kicking the can down the road) to prevent these cuts from happening. So today the estimated cost to fix the disparity between the original SGR formula from 2002 and where Medicare spending is now is estimated by the Congressional Budget Office to be significantly more than $140 billion. Yes that is a "B". While the House Energy and Commerce committee voted 51-0 to repeal or fix the SGR on July 31, 2013, no plan has been developed to pay for this fix...yet. If a fix is not in place by the end of 2013, physicians who treat Medicare beneficiaries will see cuts estimated at 25 percent. If history is any indication, expect the can to be kicked again. What we really need is a solution. Most physicians today don't have a profit margin of 25 percent. Without a fix or a kick of the can, this is unsustainable.

Healthcare Act