iProtean—Pursuit of Value, Part 2

Last week’s blog introduced Moody’s Investors Service Pursuit of Value paper (Lisa Goldstein, Special Comment: Pursuit of Value, May 8, 2013), and focused on the four key components a hospital/system must exhibit to create value:

  • Achieving breakeven performance with Medicare rates
  • Building scale through non-traditional methods
  • Improving patient experience
  • Cultivating informed leadership


This week, we continue with the second component inherent in pursuing value:  measuring and proving value, and the six new indicators Moody’s will use to measure quality and demand in a value-based payment structure. Ms. Goldstein notes in her paper that “measuring and proving value will become necessary for healthcare systems to maintain operating stability and distinguish themselves as market leaders.” (Special Comment: Not-for-Profit Hospitals: The Pursuit of Value, Moody’s Investors Service, May 8, 2013)


Three of the new indicators measure demand and three measure reimbursement risk.  These new indicators complement Moody’s historical volume-based statistics and “add new ways to measure value.” Additional indicators may be added over time.


New indicators measuring demand

Unique patients: this captures the number of individual patients who receive care at the hospital in a 12-month period, irrespective of inpatient or outpatient care. “Unique patients” differs from annual hospital admissions, which count an individual’s multiple stays at a hospital in a 12-month period. Moody’s anticipates that unique patients will be a key measurement of a hospital’s market capture as population health management accelerates.


Covered lives: similar to unique patients, this measures the number of individuals or beneficiaries for whom the hospital is responsible, either through an exclusive contract, ACO contract, or through an ACO-like structure through Medicare, Medicaid and commercial payers. “Covered lives” also includes the members and beneficiaries of a hospital-owned health insurance plan.


Employed physicians: this is a count of the number of physicians paid by the hospital or associated foundation or clinic through a salary or management fee. It serves as a cursory predictor of referrals. Moody’s includes hospital-based physicians and hospitalists, but excludes faculty practice groups and contracted groups.


New indicators measuring reimbursement risk

Medicare readmission rate (%): Medicare readmissions reflect readmissions within 30 days of discharge as a percentage of total Medicare admission excluding readmissions that are part of the plan of care (based on CMS criteria and definition as of reporting date). Note: since last October, CMS has penalized hospitals with high Medicare readmission rates for three clinical diagnoses: congestive heart failure, heart attack and pneumonia.


All-payer readmission rate (%): Moody’s expects that commercial payers will follow Medicare, placing a hospital’s entire payer mix at risk. All-payer readmissions are within 30 days of discharge excluding readmissions that are part of the plan of care and include all payers and all clinical diagnoses.


Risk-based revenues (%): Moody’s has added a new section in its annual data form that asks hospitals to provide data on the type of reimbursement methodology in its contracts. Along with the traditional forms of payment such as DRGs, per diems and traditional capitation in which hospital receives a per member/per month payment, Moody’s is also including a risk-based revenue category. Risk-based revenues includes most of the emerging reimbursement models such as bundled payment and pay-for-performance, whereby reimbursement is based on the ability of the provider to deliver care at a cost lower than has been agreed with the negotiating partner (e.g., Medicare, commercial insurers, etc.).


Ms. Goldstein notes that these new indicators, introduced earlier this year, are “part of our commitment to publish forward-looking, anticipatory research and ratings that look beyond the near term.” Executives and board members should become familiar with and consider reviewing these indicators in advance of a credit rating review.


iProtean subscribers, please note the new advanced Mission & Strategy course in your library, Affiliation & Consolidation Strategies, Part Two, featuring health experts Lisa Goldstein, Marian Jennings, Dan Grauman and Monte Dube. The experts discuss how to analyze alignment, regulation implications and the ratings impact of a consolidation.



For a complete list of iProtean courses, click here.



iProtean Symposium & Workshop

Mark the Date!! October 2 – 4, 2013 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Michael Irwin (Citigroup), Todd Sagin, M.D., J.D. (Sagin Healthcare Consulting), Dan Grauman (DGA Partners), Pam Knecht (ACCORD LIMITED), Barry Bader (Bader & Associates), Ed Kazemek (ACCORD LIMITED).  For more information, click here.


For more information about iProtean, click here.