Financial Considerations

Implementation of the components of the BOOST toolkits may impact utilization of inpatient resources—either positively or negatively. Attending to the logistical issues outlined in the toolkit could help eliminate unnecessary beds days if your hospital currently does not address patients’ post-hospitalization needs until at the time of discharge. Alternately, assessing and intervening on the wide range of issues that influence discharge preparedness might actually increase hospital stays for some patients. Creating a generally higher-quality discharge should (we hope!) reduce readmissions. Because of these potential effects, it will be useful for you to develop an understanding of the financial impact of changing length of stay (LOS) and admission patterns for the patients who will likely be touched by BOOST. To do so, you should partner with hospital staff who are expert in cost and reimbursement issues. In this partnership it will be the clinical team’s job to articulate what you are trying to achieve (i.e., “reduce unnecessary readmissions”) and identify the patients you are targeting (i.e., “all patients discharged from the medical service.”) Your partner in Decision Support, or the CFO’s office, or even staff in Utilization Review or Performance Improvement will have access to the utilization, cost and revenue information you will want to analyze to understand the financial issues pertinent to your proposed project.

Payer mix and occupancy rate are two variables that will influence the financial consequences of your proposed project. Since BOOST is specifically designed to address the special needs of older adults, it is quite likely that the patients you are targeting will be significantly older than the general hospital population, or even the medical service as a whole. Given that most older patients have Medicare as a primary payer, the impact of your efforts should consider this. The significance relates to the mechanism of Medicare payment—such cases are reimbursed through the prospective payment system, so your hospital gets a fixed amount of money for each admission determined by the DRG to which the case is assigned. Most of the time, the size of the payment won’t change, no matter how much it actually costs your hospital to provide care. Your partner in administration will know the details of the prospective payment system, but interventions that reduce LOS will in general carry a financial benefit, interventions that increase LOS will cost your hospital money.

The other key payer mix issue is if your hospital is part of an integrated system (like the Veterans Administration or Kaiser, for example) where a single entity is financially at risk for providing all types of care for a population of patients. Hospitals in such systems typically operate on a fixed, global budget, so they do not gain extra revenue for each admission – rather they have to stretch their resources to take care of as many patients as are admitted to the hospital in a given period of time. In such systems, it might well be that reducing utilization of inpatient resources (by reducing readmissions) would always carry a financial benefit because doing so avoids costs without having significant influence on revenues. Of note, preliminary research indicates that readmission of Medicare patients often cost hospitals more than the reimbursement.

Another issue to consider is your site’s occupancy rate. If your hospital is typically full then reducing readmissions could be considered fiscally neutral, (someone else will fill that bed, so there will be no net loss of revenue) or it could convey financial benefits (reducing readmissions might making room for more complex patients, which might be more profitable than the general medical admissions your project is preventing.) Alternately, reducing the number of readmissions might help your site make more efficient use of inpatient resources. Many public hospitals have very high occupancy rates, so while there may be no direct financial benefit associated with reducing readmissions, doing so might help the hospital make more efficient use of scarce inpatient beds.

Keep in mind that readmission rate is an outcome in which many payers are quite interested. Your site might be able to reference BOOST outcomes as evidence that your hospital is doing all it can to prevent readmissions, data that can be used in negotiations with payers. Similarly, your hospital administrators will be interested to know that the Medicare Payment Advisory Commission (MedPAC) recommended to Congress in June 2007 that hospital readmission rates be reported publicly, and that these rates eventually be tied to hospital reimbursement (MedPAC. Payment policy for inpatient readmissions. In: Report to the Congress: Promoting Greater Efficiency in Medicare. Washington, DC: MedPAC; June 2007:103-20. http://www.medpac.gov/documents/Jun07_EntireReport.pdf ).

Generally speaking the more dedicated resources your project needs (i.e., staff time needed to carry out interventions) and the more patients you expect to impact the more interested your site will be in evaluating expected financial outcomes for your project. Partnering with appropriate representatives in hospital administration to explore financial issues is an important job for your project team, a role that is commonly tackled by the project director. You do not need to become an expert in health economics; you just need to develop a basic understanding of the financial variables your hospital administrators will consider when deciding if they can afford to fund and support your project.