Public hospitals are generally under financial stress since they perform far more uncompensated care than for-profit or other not-for-profit systems. That leaves public hospitals with fewer resources to make the investments needed to meet CMS requirements under its Value-Based Purchasing Program, which penalizes or rewards hospitals based on their performance on a set of quality standards. Another incentive program, the Hospital Readmission Reduction Program, will soon penalize hospitals up to 2% of Medicare reimbursements if they fail to bring down 30-day readmission rates.
Those programs could take a huge hunk of revenue out of public hospitals in 2014. “Public hospitals, a lot of people believe, could be not particularly well-situated to make sure that they hit those readmission targets,” Zuckerman said. “Public hospitals tend to be located in areas where there's less community-based care that patients can hook up with once they are out of the hospital.”
That leaves public hospitals with the option of accepting the penalty, which will exacerbate their reimbursement woes. Or they can lose money a different way—by investing in care coordination efforts that reduce readmissions, which increases costs while lowering payments under the fee-for-service reimbursement system.
Despite the challenges, Zuckerman said it was unlikely the changes would lead to a wave of closures among government-owned hospitals. “There's always a risk of public hospitals closing, but I think the communities and the states that they're in just don't want to see that happen and are always able to work something out,” he said.
Some public hospitals in areas where redundancies exist are likely to cope in the coming year by consolidating with neighboring facilities. Yet some may respond to the financial pressures by increasing their participation in accountable care organizations, recognizing they must eventually adapt to the new reimbursement environment.
“There are a lot of things going on in the healthcare system now,” Zuckerman said. “And public hospitals can be a part of them.”
Follow Steven Ross Johnson on Twitter: @MHsjohnson