Practice Economics

Reimbursement Readiness


Doctors shouldn’t have to worry about financial issues. The welfare of our patients should be our only concern.

We should be able to devote our full attention to studying how best to serve the needs of the people we care for. We shouldn’t need to spend time learning about healthcare reform or things like ICD-9 (or ICD-10!)—things that don’t help us provide better care to patients.

But these are pie-in-the-sky dreams. As far as I can tell, all healthcare systems require caregivers to attend to economics and data management that aren’t directly tied to clinical care. Our system depends on all caregivers devoting some time to learn how the system is organized, and keeping up with how it evolves. And the crisis in runaway costs in U.S. healthcare only increases the need for all who work in healthcare to devote significant time (too much) to the operational (nonclinical side) of healthcare.

Hospitalist practice is a much simpler business to manage and operate than most forms of clinical practice. There usually is no building to rent, few nonclinical employees to manage, and a comparatively simple financial model. And if employed by a hospital or other large entity, nonclinicians handle most of the “business management.” So when it comes to the number of brain cells diverted to business rather than clinical concerns, hospitalists start with an advantage over most other specialties.

Still, we have a lot of nonclinical stuff to keep up with. Consider the concept of “managing to Medicare reimbursement.” This means managing a practice or hospital in a way that minimizes the failure to capture all appropriate Medicare reimbursement dollars. Even if you’ve never heard of this concept before, there are probably a lot of people at your hospital who have this as their main responsibility, and clinicians should know something about it.

So in an effort to distract the fewest brain cells away from clinical matters, here is a very simple overview of some components of managing to Medicare reimbursement relevant to hospitalists. This isn’t a comprehensive list, only some hospitalist-relevant highlights.

Medicare Reimbursement Today

Accurate determination of inpatient vs. observation status. Wow, this can get complicated. Most hospitals have people who devote significant time to doing this for patients every day, and even those experts sometimes disagree on the appropriate status. But all hospitalists should have a basic understanding of how this works and a willingness to answer questions from the hospital’s experts, and, when appropriate, write additional information in the chart to clarify the appropriate status.

Optimal resource utilization, including length of stay. Because Medicare pays an essentially fixed amount based on the diagnoses for each inpatient admission, managing costs is critical to a hospital’s financial well-being. Hospitalists have a huge role in this. And regardless of how Medicare reimburses for services, there is clinical rationale for being careful about resources used and how long someone stays in a hospital. In many cases, more is not better—and it even could be worse—for the patient.

When it comes to the number of brain cells diverted to business rather than clinical concerns, hospitalists start with an advantage over most other specialties.

Optimal clinical documentation and accurate DRG assignment. Good documentation is important for clinical care, but beyond that, the precise way things are documented can have significant influence on Medicare reimbursement. Low potassium might in some cases lead to higher reimbursement, but a doctor must write “hypokalemia”; simply writing K+ means the hospital can’t include hypokalemia as a diagnosis. (A doctor, nurse practitioner, or physician assistant must write out “hypokalemia” only once for Medicare purposes; it would then be fine to use K+ in the chart every other time.)

Say you have a patient with a UTI and sepsis. Write only “urosepsis,” and the hospital must bill for cystitis—low reimbursement. Write “urinary tract infection with sepsis,” and the hospital can bill for higher reimbursement.

There should be people at your hospital who are experts at this, and all hospitalists should work with them to learn appropriate documentation language to describe illnesses correctly for billing purposes. Many hospitals use a system of “DRG queries,” which hospitalists should always respond to (though they should agree with the issue raised, such as “was the pneumonia likely due to aspiration?” only when clinically appropriate).

Change Is Coming

Don’t make the mistake of thinking Medicare reimbursement is a static phenomenon. It is undergoing rapid and significant evolution. For example, the Affordable Care Act, aka healthcare reform legislation, provides for a number of changes hospitalists need to understand.

I suggest that you make sure to understand your hospital’s or medical group’s position on accountable-care organizations (ACOs). It is a pretty complicated program that, in the first few years, has modest impact on reimbursement. If the ACO performs well, the additional reimbursement to an organization might pay for little more than the staff salaries of the staff that managed the considerable complexity of enrolling in and reporting for the program. And there is a risk the organization could lose money if it doesn’t perform well. So many organizations have decided not to pursue participation as an ACO, but they may decide to put in place most of the elements of an ACO without enrolling in the program. Some refer to this as an “aco” rather than an “ACO.”

Value-based purchasing (VBP) is set to influence hospital reimbursement rates starting in 2013 based on a hospital’s performance in 2012. SHM has a terrific VBP toolkit available online.

Bundled payments and financial penalties for readmissions also take effect in 2013. Now is the time ensure that you understand the implications of these programs; they are designed so that the financial impact to most organizations will be modest.

Reimbursement penalties for a specified list of hospital-acquired conditions (HACs) will begin in 2015. Conditions most relevant for hospitalists include vascular catheter-related bloodstream infections, catheter-related urinary infection, or manifestations of poor glycemic control (HONK, DKA, hypo-/hyperglycemia).

I plan to address some of these programs in greater detail in future practice management columns.

Dr. Nelson has been a practicing hospitalist since 1988 and is co-founder and past president of SHM. He is a principal in Nelson Flores Hospital Medicine Consultants, a national hospitalist practice management consulting firm ( He is also course co-director and faculty for SHM’s “Best Practices in Managing a Hospital Medicine Program” course. This column represents his views and is not intended to reflect an official position of SHM.

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