Journal of Healthcare Management - January/February 2013 - (Page 8)

R E F O R m Net Revenue per Adjusted Discharge Continues to Drive Success Nathan S. Kaufman, managing director, Kaufman Strategic Advisors LLC, San Diego, California visit approximately 80 healthcare systems per year. many of these systems have been touted as “models for the future.” as a strategic adviser with a particular interest in the intricacies of physician engagement and managed care negotiations, I have been privy to confidential information that has led me to conclude that highperforming “model” health systems have one common, essential element: exceptionally high net revenue per adjusted discharge driven by high managed care rates. In addition to the confidential, proprietary data I have collected over the years, public reports support my hypothesis that high commercial rates are the essential component driving the ability of a health system to achieve consistently strong financial performance. Without high commercial reimbursement rates, health systems will not have the dollars necessary to fund innovation; successfully employ a large group of physicians; develop a high-functioning, clinically integrated network; and gain national recognition for excellence in care delivery. I S i G N i F i C a N t Va r i at i o N S i N M a N a G E d C a r E r at E S healthLeaders media (2009) reported that, in 2008, the most profitable hospitals gained their financial advantage primarily from revenue generation—a function of high negotiated commercial rates and a large proportion of nongovernment patients—not from cost-cutting or efficiency. The top quartile of the most profitable hospitals reported a case-mix-index–adjusted net operating revenue per discharge that was $854 higher than for hospitals in the bottom quartile ($8,924 vs. $8,070). however, the expense differential per discharge between the high and low financial performers was only $316 ($8,018 for the top quartile vs. $8,334 for the bottom quartile). The data suggest that the variation in negotiated payer rates is not related to superior quality or service but rather is a function of “market clout.” The 2011 Examination of Health Care Cost Trends and Cost Drivers report, released by the massachusetts attorney general’s office, notes (Office of attorney General, 2011, p. 15): The difference in prices each major health insurer pays to its lowest paid physician groups versus its highest paid physician groups exceeds 145%, and for two health insurers, exceeds 230%. Similarly, the difference in payments made to the lowest paid versus highest paid hospital in each major health insurer’s network exceeds 170%, and for two health insurers, exceeds 300%. 8

Table of Contents for the Digital Edition of Journal of Healthcare Management - January/February 2013

Journal of Healthcare Management
Interview
Reform
Integrated Health Systems
Post-Acute Care and Vertical Integration After the Patient Protection and Affordable Care Act
Challenges and Facilitators of Community Clinical Oncology Program Participation: A Qualitative Study
The Application of Hospitality Elements in Hospitals
Thirty-Day Readmission Rates as a Measure of Quality: Causes of Readmission After Orthopedic Surgeries and Accuracy of Administrative Data
Abstract from the Academy of Management

Journal of Healthcare Management - January/February 2013

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