October 2014

By: Ken Gould & Brian Cafarella, Lancaster Pollard Facing increasing financial pressures and a difficult operating environment, more and more rural and community hospitals are seeking to merge or affiliate to gain operating efficiencies. The recent acceleration of consolidations has in part been fueled by the Affordable Care Act (ACA), which has applied downward pressure on reimbursement rates while costs for regulatory compliance and infrastructure continue to increase. A recent report by Kaufman Hall noted that in 2013 there were 98 affiliations/mergers, a 3% increase from 2012 and a 51% increase over 2010. As such, hospital CFOs are keeping very busy evaluating potential merger opportunities. Given the amount of time and due diligence invested in considering potential combinations, one post-merger synergy that must be considered is improving the debt structure of the newly-combined system. Such debt synergies can be defined as cash saving opportunities derived from refinancing, consolidating or restructuring debt post-merger. How to Determine if a Debt Synergy Exists Understanding the financial profile and debt structure of the combined system post-merger should be the first step to determine if debt synergies are available. This is easier said than done. Nonprofit hospitals and health systems have historically been financed with many varieties of debt and structures: fixed or variable interest rates, a range of terms and amortizations, sinking funds or escrows, taxable or tax-exempt structures, derivatives, capital leases and obligated groups among other structures. Since the devil is in the details, a thorough review and understanding of the existing debt…

By Edward J. Niewiadomski, MD and Laureen A. Rimmer, RHIA, CPHQ, CHC, BESLER Consulting Effective October 1, 2013, The Centers for Medicare and Medicaid Services (CMS) implemented a new rule, the “2-Midnight Rule” that is intended to clarify which patients are sick enough to be admitted to a hospital by adding “midnight” as a point in time for determining inpatient length of stay and requiring physicians to certify that they have the expectation of care surpassing two midnights. Medicare would then pay inpatient hospital rates. Prior to this rule, CMS outlined observation care as short term and generally would not exceed 24 hours but could be up to 48 hours in rare and exceptional cases. It is important to note that a New Jersey State regulation stipulates a length of stay criteria of less than 24 hours for observation services. The New Jersey Department of Health and Senior Services, N.J.A.C., Title 8, Chapter 43G-32.21 outlines the state standards for observation services and scope which is more stringent than the CMS guidance on observation services. The key elements of the 2-Midnight rule require documentation in the medical record for medical necessity and a presumption of the length of stay. The focus of the documentation requirements for Medicare inpatient admission is as follows: Inpatient admission order at the time of admission by a physician or qualified practitioner licensed by state to admit inpatients and who has admitting privileges; Physician certification of medical necessity includes (before discharge): Inpatient admission order signed/authenticated by the…