How to balance patient choice and preferred provider networks

With the 2018 Medicare Hospital Inpatient Prospective Payment System final rule due to be released soon, health systems are trying to predict how they will be affected by Medicare’s continued attempts to control health care spending. Medicare is just starting to focus attention post-acute care (PAC) spending. This is because 23% of total Medicare dollars go towards care that follows a hospital discharge. 43% of Medicare patients are discharged from hospitals to at least one level of post-acute care (skilled nursing facility, home health, etc.), and per capita spending on PAC has increased 90% since 2000. Medicare has also uncovered variation by region in PAC spending, which could be an indicator of excess cost. Some parts of the country spend more on PAC than others, raising the question of whether costs in those geographic areas can be reduced.

Medicare’s strategy to reduce costs has focused on developing payment models for health systems, such as bundled payments for episodes of care and accountable care organizations. Success in these new payment models increasingly requires strong relationships between hospitals and PAC providers to reduce the overall cost of providing care to a patient while also ensuring patients receive high-quality care. In recent years, Medicare payment models have encouraged these hospital-PAC relationships by measuring inpatient length of stay and introducing penalties for 30 day readmissions. In the future, additional incentives for strong relationships will likely include measures around prompt patient transfer and requirements around quality metrics and patient satisfaction for both hospitals and post-acute providers. The IMPACT Act required PAC providers to report quality measures to Medicare beginning last fall.

One challenge facing hospitals as a result of these new payment models is how to reconcile the need to send patients to high-quality facilities that will collaborate on controlling costs with patient choice requirements. Current regulations are somewhat vague on the extent to which hospitals are allowed to steer a patient’s PAC decision. The anti-kickback statute prohibits hospitals from taking a payment from a post-acute provider in exchange for a referral. In a specific example of an anti-kickback violation, the Office of the Inspector General (OIG) ruled against a for-profit corporation that allowed PACs to pay a fee in order to receive and respond to hospital referral requests electronically. The OIG concluded that this arrangement gave an unfair advantage to PACs that paid the fee.

It seems to be generally allowed for a hospital to have a preferred provider network, but the manner in which the list of available PACs is displayed to patients can increase the hospital’s exposure to risk of violating the anti-kickback statute. As a general rule, the more a patient is incentivized or steered towards selecting a particular PAC, the more likely the hospital is to be at risk of violating the statute. If a hospital gives patients a full list of available PACs that puts the preferred provider PACs first, this is probably a low-risk arrangement. Giving patients a list that only has preferred provider PACs and omits any PACs that the hospital does not consider preferred would be much higher risk.

The delicate balance will continue. Hospitals will continue to face pressure to build strong relationships with PAC providers and to discharge patients to high performing facilities. Meanwhile, Medicare will likely continue to require that patients be allowed to make the decision on where they will be discharged. It will be important to keep watching the Medicare requirements in order to remain compliant while still referring patients to high quality providers.

For more information about the balancing patient choice and provider networks, listen to our recent webinar, “Preferred Providers in the Era of Patient Choice and the IMPACT Act.”

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