Focus and Leverage Part 160

In the next several postings I want to present a series on how the Theory of Constraints, Lean and Six Sigma (a.k.a. TLS) can help hospitals overcome the looming ramifications of the Affordable Care Act (ACA).  In this first posting I will attempt to summarize some of the new regulations associated with this new law and how they might impact the profitability of hospitals and other medical facilities as well as small businesses.

We all know that healthcare costs have been growing to unsustainable levels for the past decade or more.  And while healthcare costs continue to increase dramatically, healthcare quality continues to be a significant problem for many institutions.  The reform measures initiated by the ACA will most certainly drive an increase in medical costs which will further stress an already stressed industry as well as tax payers and employers.  The ACA will most definitely force hospitals to make fundamental changes in the way they operate and deliver healthcare at more affordable rates.  So what are the ramifications of the ACA to business owners?

If you are a small business owner, for example, in 2014 the implications of this new law can be devastating when the impending penalties for not providing healthcare coverage.  The implications of the ACA are determined by the size of the business and the number of full-time employees with an emphasis on “full-time.”  The potential penalties are as follows:

·         0-25 Employees:  The business will receive a tax credit to offset the cost of purchasing healthcare coverage for employees, but there will be no penalty if they don’t provide coverage.

·         26-49 Employees:  The business will not be penalized if they do not provide coverage, but they won’t receive a tax credit if they do provide coverage.

·         50+ Employees:  The business will have to pay a fine ($2,000 to $3,000 per employee) if they do not provide coverage.

Several things jump out at me immediately.  The expression full-time employees, tells me that one of the ways to avoid the above scenario is to cut back hours on employees to less than 40 hours per week to make them part-time.  There have already been unsubstantiated reports that some restaurants (e.g. Red Lobster) are doing just that.  If you have a business full of part-time employees (i.e. less than 40 hours), then you can avoid all penalties.  Another thing that becomes obvious is that if you currently have say 55 employees, then you might be tempted to reduce that number to say, 49 employees or make everyone a part-time employee.  In these days of high unemployment what choices would employees have?  They probably couldn’t go to a competitor since they may be taking the same or similar actions to hold down penalties and the expense of adding insurance coverage.

The tax credits I mentioned earlier fit the following three conditions:

·         They cover at least 50% of the cost of single healthcare coverage to each employee.

·         They have fewer than 25 full-time employees.

·         They pay average annual wages below $50,000.

So, at least to me, the ACA doesn’t offer much of an incentive for small business owners to provide medical coverage to employees, especially when you consider just how much insurance premiums cost small businesses.  In fact, based upon everything I’ve read, it provides no incentives to stimulate any kind of job growth.

In addition to the costs associated with the ACA, there are penalties that are supposedly tied to quality of care by hospitals.  For example, if a patient is admitted to a hospital, treated and released and is then re-admitted in less than 30 days, there is a huge financial penalty assessed to the hospital.  And although this portion of the law is aimed at improving healthcare, I don’t understand how it will.  Suppose a patient is admitted for chest pains, but the hospital sees no signs of a heart attack on the EKG or other tests.  The patient is released and ten days later is re-admitted for chest pains again.  This time the hospital sees an abnormal EKG or other tests and begins treatment for a minor heart attack.  Even though the hospital followed normal protocol during the first admittance, they get penalized because the patient was re-admitted within the 30 day window.  I can see hospitals avoiding admitting the patient and over-crowding the out-patient area just to avoid the potential financial penalty.

Patient satisfaction is another area of concern under the ACA.  It seems that reimbursements for Medicare will now be based on a sort of “report card.”  These report cards are based upon how the hospital met the patient’s expectations and the lower the satisfaction rating, the lower the reimbursement dollars to the hospitals.  This includes hospital emergency rooms where I can see low satisfaction ratings as more and more patients take this route and waiting times become extended.   The Hospitalist reported that some of the most prestigious hospitals in the US receive bad patient reviews and yet they get high scores on clinical quality metrics.  On the other hand, some hospitals that have gotten great patient satisfaction ratings have scored significantly lower than the national average on mortality rates from heart attacks, heart failure or pneumonia.  I’ve read that 30% of the ACA financial incentive is based upon how well a hospital scores on patient satisfaction.

The launch of the ACA started in October of this year when hospitals were the first to implement it with medical reimbursements being distributed starting in 2013.  The reimbursements will be dependent upon a hospital’s score from 17 different “process-of-care” measures as well as 8 different patient-care measures.  This law will no doubt result in increased transparency as hospital performance is required to be publicly reported for care dealing with heart attacks, heart failure, pneumonia, surgical care, healthcare associated infections , and patient’s perception of the care they received.  One thing for certain…..if there are waiting rooms full of patients, they will be dissatisfied and if they are, hospitals will pay the price in reduced reimbursements.

So there you have what I have read about the Affordable Care Act.  There are probably other important things to consider, but these are some of the more important items.  In my next few postings we’ll take a look at how hospitals might improve the flow of patients while at the same time looking at ways that they might positively impact the patient’s perception of their treatment.

Bob Sproull