Distressed hospitals in California operate on small or non-existent profit margins. For many of these hospitals, Medicare and Medicaid (Medi-Cal in California) are the largest payors. The Patient Protection and Affordable Care Act of 2010 (the “Affordable Care Act”) was designed in part to increase the number of insured nation-wide, the result of which logically should have been positive for California hospitals. Any cause for celebration, however, must first prevail over the cost containment provisions firmly entrenched in the Affordable Care Act, as these regulations created new concerns for California’s financially distressed hospitals. Included among the multitude of threatening provisions in the Affordable Care Act are:
- A complete recalibration of Medicare disproportionate share payments (“DSH”) to hospitals;
- A reduction in Medicare revenue up to 1.5% during Fiscal Year 2015 (and 2.0% by Fiscal Year 2017) for hospitals which perform poorly under the Hospital Value Based Purchasing (“VBP”) Program; and
- A penalty of as much as 3.0% for the hospitals which fail to meet the standards set forth in the Hospital Readmission Reduction Program (“RRP”).
In addition to a penalty up to 2% for lapses in inpatient quality reporting and similar penalty relating to outpatient quality reporting,  a 2% cut in Medicare due to sequestration as well as a penalty for those hospitals which fail to attest for “Meaningful Use”, collectively the potential for any hospital to lose more than 10% of its Medicare revenue creates daunting challenges, especially with those institutions in California already struggling financially not to mention lacking the resources to establish the necessary infrastructure to compete in this era of change. … Read more →