In the World of Value-Based Purchasing, Good is the Enemy of Great

Healthcare costs

Value-Based Purchasing continues to squeeze the budgets of hospitals in the US. There are two distinct methods to mitigate these budget issues: reduce spending or invest. For most hospitals, the answer is a combination of both. Many hospitals, however, tend to cut spending in key areas where they would actually see considerable return on investment. By settling for Case Management, CDI, and Coding departments that are simply adequate, hospitals not only rob themselves of considerable ROI, they also set themselves up to face the same struggles when the next budget year rolls around.

Value-Based Purchasing

The goal of value-based purchasing is to develop a system where increased quality of care is rewarded and achieved at the lowest possible cost (Stillman, 2016). Few will argue that this is not a noble and worthwhile pursuit. In practice, however, value-based purchasing is often penalizing hospitals that see the sickest patients and treat disadvantaged populations according to the American Hospital Association (Belliveau, 2016). The Centers for Medicare and Medicaid Services (CMS) project that the number of hospitals receiving an increase from this program will be greater than the number that receive a decrease (CMS, 2016).

This is likely true because the 2% discount taken from a very large inner-city trauma center will easily cover the “bonuses” for several smaller hospitals that serve lower-risk populations and will simultaneously allow CMS to see a reduction in overall cost. The AHA and others continue to lobby for changes to the value-based purchasing model to account for the challenges of treating high-risk populations, but, in the meantime, hospitals that are receiving decreased reimbursement need to find creative ways to remain afloat.

Case Management: The First Line of Defense

Case Managers do not perform surgeries or provide direct medical care, so they are not often assigned any form of contribution margin in hospital budgets. As such, they appear as an expense that, though necessary, often finds itself on the list of budget cuts during trying times. Highly functioning case management departments can play a huge role in loss prevention, but because it is difficult to draw a straight line towards their impact in a budget, they are often overlooked when it is time to invest. In a healthcare industry where the script has been flipped and empty beds are a good thing, Case Managers are key.

Whether they are monitoring the course of care to ensure compliance that would withstand a RAC audit, or providing an effective discharge plan so happy patients leave the hospital in a timely manner with a lower risk of readmission, the case managers of a hospital are the first line of defense in loss prevention. Sadly, their impact is often treated like housework. Nobody notices the overwhelming positive impact of a good case manager until they are gone and the fiscal bleeding begins.

Clinical Documentation Improvement: Determining Maximum Impact

Clinical Documentation Improvement (CDI) continues to play a more and more vital role in hospitals around the country as programs like Value-Based Purchasing strengthen. Many CDI programs were established years ago with the intention of increasing CC/MCC capture rate and ensuring maximum reimbursement specifically on Medicare patients. Since then, some programs have evolved to cover all payers and query for quality in addition to revenue impact.

The most advanced of programs have even incorporated second level review to identify trends, provide service line specific education, monitor the quality of the CDI staff, perform mortality reviews and focus on key Patient Safety Indicators (PSIs). Since CDI is still relatively new to most hospitals, the correct staffing level and CDI process continues to be a moving target, causing hospitals to rely on third party consultants to tell them how they should staff their CDI program.

Perhaps this is where we find the most significant instance where hospitals settle for good when they should strive for great. Based on a recent survey, MedPartners CDI staff nationwide was credited with a bottom line impact of $17,000 per week on average. That impact does not even take into consideration the value of increased clinical quality metrics, physician education that leads to improved documentation without the need for queries, and the RAC losses that will be avoided because proper documentation of medical necessity was captured before discharge.

Even with the available data to show considerable impact, many programs simply staff up to the minimum number of CDI staff they need to cover their Medicare population and stop. Rather than investing some time and money to develop a great CDI program, hospitals settle for adequate and cost themselves millions of dollars in the process.

Coding: The Cost of “Saving” Money

ICD-10 forced a majority of hospitals to seek out additional assistance to maintain their DNFB throughout the transition. Many hospitals sought the aid of enhanced coding software to reduce the loss in coding production expected from their in-house staff. Additionally, some hospitals turned to off-shore coding support as even the largest traditional contract coding companies ran short on resources.

The initial transition to ICD-10 passed with what many would consider a much smaller impact than had been anticipated. Because of this, the need for contract coders and offshore services sharply declined in early 2016. Now that US-based contract coders are once again readily available, offshore companies have returned to their claim that offshore coding is a great way to reduce overall cost and receive the same level of quality.

When value-based purchasing takes a bite out of a hospital’s budget, it could be very enticing to entertain this option. Upon further research, however, the picture becomes far less rosy. Several offshore coding services claim to reduce coding expenses by up to 40% and maintain the same level of quality expected from US-based coders. In fact, if you were to search the internet for information about the quality of offshore coding, nine of the first ten “articles” you will find are actually little more than sales pitches written by vendors who sell offshore coding services.

[DISCLAIMER: Yes, I work for a staffing vendor. No, we do not provide offshore coding. It may seem hypocritical to you as the reader that I discredit articles written by other vendors in my own vendor-written article. To that I would respond with three points. 1) The unnecessary offshoring of US jobs is something that I and many others feel very strongly about, with good reason. 2) A US-based company that is willing to use misleading marketing in an effort to increase revenue by sending US jobs overseas deserves all of the criticism they get. 3) This article contains no trumped-up claims or misleading information in order to drive buying decisions. It was written to open a dialogue about investing in hospital departments that have traditionally been the victims of countless budget cuts.]

The one article not written by an offshore coding vendor had a very different take on offshore coding claiming that the offshore coders produced roughly half of what US-based coders are expected to do and, due to the overworked, pool-based coding that is done overseas, many offshore coders will not be able to capture a complete clinical picture in their coding (Grider, 2015).

Let’s assume that the offshore coder truly is 40% cheaper and, furthermore, let’s assume they actually can produce the same amount of work as a US-based coder. A US-based contract coder would cost roughly $2500-3000 per week. Therefore, at a 40% discount, an offshore coder would cost $1500-1800 per week leaving hospitals with a “savings” of $1000-1200 per week. Now consider how quickly those savings are lost by incorrect coding. If you tie in the loss of productivity, the numbers get even worse. The codes tell the story of the care provided at the hospital. To go with a reduced-rate service for such a vital role in our quality-driven industry seems counter-intuitive.

Putting it All Together

Value-based purchasing is likely here to stay and it will continue to evolve one way or another.  While associations like the AMA and AHA do their best to drive value-based purchasing to a more equitable model, hospitals must find new ways of thinking about how they manage and report the care they are providing. Investing in case management, CDI and coding will pay huge dividends while simultaneously reducing losses. To be clear, investment doesn’t just mean more staff, it means better pay for these vital roles, and more investment in education and technology to make your staff more efficient. These departments combine to tell the story of the patients that walk through every hospital’s doors. Isn’t it worth the investment to get the story right?

Works Cited

Belliveau, J. (2016, September 12). Are Federal Value-Based Care Programs Truly Promoting Value? Retrieved October 11, 2016, from

CMS. (2016, August 15). FY 2017 IPPS Final Rule Homepage. Retrieved October 11, 2016, from

Grider, D. (2015, October 25). Coder Productivity Key as Advent of ICD-10 Unfolds. Retrieved October 12, 2016, from

Martyn, P. (2016, June 28). Healthcare’s Value Based Purchasing – A Data Driven Revolution. Retrieved October 11, 2016, from Forbes:

Stillman, P. L. (2016, October 4). Obamacare’s missing ingredient – value based purchasing. Retrieved October 11, 2016, from Philly Health Cents:—value-based-purchasing.html