Medicare Conversion Factors
Impacts on Healthcare Budgets
Summary:
Just when health systems and providers start to think the skies will turn blue because COVID regresses, the US Healthcare system faces inflation with no end in sight. PCG summarizes what may be on the forecast for Plans, IPAs, and Providers come 2023.
Statutory Pay-As-You-Go Act of 2010
THE PAYGO Act passed by Congress in 2010 has essentially been a law on the books but with no enforcement. It was passed to avoid mandatory spending revenue legislation to limit the federal deficit from climbing the next 5-10 years or at the very least no greater than 4%. With multiple laws passed since then like the American Rescue Plan Act of 2021 of $1.9 trillion for COVID-19 relief, Congress continues to defer waiving of PAYGO. While Congress has made its decision for 2023, they can still defer their current decision up to December 31, 2022.
Notes Prior to Congress' November 2, 2022 Decision
Hospitals and Doctors have faced the hardest among all healthcare entities. Growing turnover of staff and the increased cost of recruitment and training, coupled with declining reimbursement has led much smaller to medium-sized clinics, IPAs, and MSOs to have to hold their growth goals in favor of survival. If Congress does enforce a 4% Medicare reimbursement decrease (link) we will likely see a larger increase in the acquisition of small to medium-sized practices and hospitals entering into the merger and acquisition space. Why? When margins go down, only those with deeper pockets can afford to expand while the others may cut to their existing budgets to survive. Secondly and most importantly, by cutting their staff and resources to ensure profitability and sustainability you see a greater provider-to-patient ratio, and longer wait times and even providers who should take on more patients will elect to keep their practice’s patient count the same until they can further predict their financial viability.
Congress' Decision on Physician Conversion Factors
The 2023 Physician Fee Schedule (PFS) has been settled. The new CY 2023 PFS conversion factor is $33.06 which accounts for a decrease of $1.55 from 2022 or a decline of 4.5% (link). While broadening the ability to bill for E/M Visits, behavioral health, and other aspects of preventative care, we see that Congress is attempting to expand access to providers, but this small yet enforceable decline in reimbursements will make Providers look at their clinics, medical groups, IPAs, MSOs, and hospitals from a business perspective.
Healthcare Costs Continue to Climb
The Stats and Costs of Provider Turnover
During COVID Providers searched for new companies at staggering rates amounting to 43% of providers switched jobs and 8% retired as to no longer battle patient outcomes vs profits vs burnout. In fact, healthcare overall prior to COVID, was 2.7% but during COVID it skyrocketed to 10.3% (link). Even more suprising is that 3% of all Providers left Healthcare altogether to pursue other careers (link). The cost to recruit, hire, onboard, and train a new provider is now averaging 25% of the annual salary of the provider hired. If the average Provider salary is $225,000 or higher... that's $56,250 per provider! Many small clinics and underfunded hospitals simply can't afford to hire a provider through professional services and thus must place that burden on already overworked Human Resources department. If they don't have an HR Department... it falls on the Provider or owner themselves.
The Stats and Costs of Nurse Turnover
Over the past five years, over 100% of Nurses from hospitals asked for reassignment or left to another organization. (link) In 2021 alone, nurse turnover grew 8.4% compared to 2020, and there's no end in sight. The average cost to replace a nurse vacancy is now $40,000 to $50,000 with recruitment fees, training, and possible relocation fees, and that's not including their salaries and signing bonuses.
Office Support Staff Turnover is Mission Critical
Yes turnover is everywhere and in fact a company in 2022 and beyond should plan for 18% turnover in its workforce due to resignations, retirement, and other factors (link). For hospitals, IPAs, and medical clinics they must find great talent and pay them fairly because due to inflation there are non-medical jobs paying $2 to $10 more per hour. A front desk receptionist or medical assistant won't stay with your organization if they can make $5 more per hour flipping burgers or being a cashier. In California alone the average Medical Assistant's hourly wage is $18 per hour, but Fast Food Restaurants will now be paying $22 per hour in 2023! (link).
Every Healthcare Entity Needs a Financial Analyst
MSO as a possible solution
If a provider is to be paid $1.55 less then they must take a hard long look at their monthly collections and evaluate what are the most profitable services they can provide their general public and possibly double down on outbound local marketing attempts to gain more patients in those higher profit services. This is where MSOs come into play as they can vet marketing agencies and resources to ensure that Clinics and Hospitals can provide an ROI on their new marketing sprints and campaigns towards selective illnesses, treatments, all which provide new revenues and hopefully for them, new profits.
SUMMARY:
While the $1.55 reimbursement decline isn't huge, healthcare providers are being forced more and more to hire either MSOs or internal business managers, which they should, to help identify their profit and loss statements to understand how they make money and how they can make more profit to avoid the pitfalls of employee turnover and rising healthcare costs.
