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Policy & Regulation News

Will managing risk consume too many healthcare resources?

By Kyle Murphy, PhD

Executive leadership at healthcare organizations view regulatory changes and increased regulatory scrutiny as a major strategic risk and one that is going to impact spending across the organization, according to a survey conducted by North Carolina State University’s ERM Initiative & Protiviti.

Of all the leaders in various industries (from financial to industrial), healthcare board members and executives reported an abnormally high level of concern for risks associated with regulatory changes. According to the report, the average risk scores “rarely” exceed 7.0 on a 10-point scale, yet leadership from the healthcare industry registered a score of 8.0 in this area. This was followed by another higher-than-average score of more than 7.0 for uncertainty surrounding costs of complying with healthcare reform, considered a significant macroeconomic risk for the industry and expected to affect its opportunities for growth over the next year.

“Given the focus on healthcare in light of the Affordable Care Act in the United States, as well as economic, political and other uncertainties,” the authors of the report explain, “it is not surprising that respondents from the Healthcare and Life Sciences industry group indicated they are facing the greatest amount of risk relative to all other industries in 2012.”

What’s more, the healthcare industry faces the challenge of balancing decreasing revenue and increasing expenses:

As indicated in our survey results, one key challenge is technological convergence and securing protected health information. For example, HITECH stimulus funds in the United States and incentive programs encourage rapid implementation of new applications and technology (e.g., electronic health records, health information exchanges), and the convergence of medical and information technology poses significant challenges. Focus will continue to shift to connectivity and integration, and both consumers and legislation will demand more privacy and security. In addition, in the United States, HIPAA Security scrutiny has become more complex with recent Office for Civil Rights (OCR) audit and monitoring initiatives.

The Affordable Care Act should also prove problematic for healthcare leaders who must contend with the removal of more than $500 billion from Medicare and Medicaid during the next decade by imposing penalties for non-compliance and performing rigorous audits to reduce fraud, waste, and abuse. Two example cited by the report deal with Two-Midnight Rule established by the Centers for Medicare & Medicaid Services (CMS) and the transition to ICD-10 on Oct. 1, 2014.


Protiviti & North Carolina’s State University’s ERM


Another pressing concern for the healthcare industry is the shift in reimbursement, from pay for service to pay for performance:

Ensuring payment accuracy and charge completeness continues to be challenging, but is critical. There is lower government-program reimbursement and plans for moving to a value-based purchasing model are in high gear. Hospitals will be rewarded or penalized based on patient outcomes, and some will begin building centralized or shared services functions to improve the efficiency of spending. Providers must find ways to cut costs via better management of labor, supply and pharmaceutical spend.

What this means to healthcare leaders is allocating more resources to manage these risks over the next year, a likelihood greater than any other industry.

Read the full report here.





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