A Small Investment for a Huge Return

I receive a lot of newsletters every morning to help me stay abreast of what is happening in the healthcare industry. A troubling recent trend is the announcement of so many layoffs at a time when there are already shortages of healthcare workers.

These cuts are not primarily due to the growing use of artificial intelligence (AI) in healthcare, outsourcing, or increasing use of offshore vendors, which means this trend could continue into the foreseeable future.

Hospital operating margins have been tight since the COVID public health emergency. Although some hospitals have recovered financially, many more continue to battle difficulties.

Hospitals are facing a perfect storm of increasing operating costs, driven by labor and supplies, with lower revenue, attributable to regulatory changes and payer tactics that include unilateral changes in payment policies (as discussed last week), increased denial rates, and payment delays.

Some layoffs are the result of the decision to eliminate services, while others are associated with an overall reduction in force. Fierce Healthcare reports the following:

• Providence Health announced plans to cut 600 full-time equivalent (FTE) positions in June, and recently announced it will cut an additional 450 FTEs in 2026. These cuts will include 3.8 percent of positions across 100 departments at Providence Swedish.
• Tower Health in Pottstown, Pa., is cutting 3 percent of their total workforce, including both administrative and clinical positions, some of which will result from closing their ICU.
• PeaceHealth is eliminating 2.5 percent of their workforce, which equates to 400 positions across nine hospitals. These cuts will impact mostly non-clinical and administrative shared services roles.
• Memorial Sloan Kettering Cancer Center is eliminating 420 jobs, representing almost 2 percent of their workforce.
• Children’s Hospital Los Angeles is reorganizing and consolidating, allowing them to eliminate 439 positions, totaling 5.8 percent of its workforce. Eliminated positions include management roles, clinical care, support, and administrative services.

Layoffs are expected to continue through 2026 and beyond, as regulatory changes associated with the “One Big Beautiful Bill” are implemented and the fate of healthcare premium subsidies remains uncertain for those who participate in the health insurance exchange as part of the Patient Protection and Affordable Care Act (PPACA). Both factors are likely to increase the volume of uninsured and underinsured patients, further straining hospital resources. Hospitals once relied upon commercial insurance companies to help offset Medicare and Medicaid shortfalls, but high-deductible insurance plans, increasing denial rates, and predatory contracts that favor the insurance companies have all but eliminated that cushion at many facilities.

How does this relate to clinical documentation integrity (CDI) professionals? We are a supplemental business practice. Hospitals choose to employ CDI professionals; we are not a necessary business function, like coding, or required under Medicare regulations, like utilization review and case management.

Many hospital leaders still require their CDI departments to demonstrate a return on investment, which is often measured using case mix index (CMI), a very imprecise measure that is more heavily influenced by utilization review efforts than CDI efforts, especially as most CDI departments have dramatically increased the acuity of their patient population, making it more difficult to offset annual payment adjustments. For example, sepsis and heart failure MS-DRGs are among the most commonly billed within the Medicare population.

The relative weight of the sepsis MS-DRGs has dropped since 2024, but remain higher than they were in 2021. The heart-failure MS-DRGs are much lower than they were in 2024, and mixed compared to 2021. The purpose of this graph is to illustrate that year over year, there will be variances in CMI due to Centers for Medicare & Medicaid Services (CMS) adjustments, irrespective of CDI efforts.

Billing the highest-weighted MS-DRG in both MS-DRG families does not protect the hospital from a lower CMI, when comparing year-over-year relative weights.

A higher inpatient-to-observation ratio usually results in higher overall reimbursement, since inpatient admissions are typically paid at a higher rate. However, the financial impact of inpatient reimbursement, compared to what it would have been if observation was billed, is not reflected within an organization’s CMI.

A higher inpatient ratio often lowers CMI, as more “healthy patients” are admitted, who typically fall into lower-weighted MS-DRGs (without a complication or comorbidity or major complication or comorbidity, CC or MCC).

This is particularly true for Medicare beneficiaries because inpatient medical necessity is based on the Two-Midnight Rule. Patients who receive two or more midnights of hospital services, without extensive delays in care, are generally appropriate for inpatient admission.

The Two-Midnight Rule often results in Medicare patients being “upgraded” from observation to inpatient as it becomes evident they will require at least two midnights of care, even if the admitting provider has yet to diagnose the condition that occasioned the admission. This is a compliant practice that is also a best practice, but can place CDI departments, whose success is measured by CMI, at a disadvantage if hospital leadership does not fully understand the relationship between higher inpatient rates and CMI.

Additionally, most mature CDI departments are being asked to expand their efforts beyond impacting CC and MCC capture rates, which can contribute to a higher CMI. Depending on the organization, CDI staff may work to improve severity of illness (SOI) scores under All Patient Refined (APR) DRGs and performance on quality measures that may include:

• Validating patient populations for quality measures like Patient Safety Indicators (PSIs) and Potentially Preventable Complications (PPCs), where the focus is on identifying exclusions.
• Risk-adjusting the measure population using a variety of methodologies:
  • CMS Hierarchical Condition Categories (CMS-HCCs);
  • Elixhauser Comorbidity Index; and
  • Propriety risk adjustment tools like Vizient.

We also see CDI professionals becoming more involved in appealing payer denials, especially those challenging the clinical validity of diagnoses classified as CCs or MCCs. CDI professionals often have a unique mix of skills that make them the ideal candidate for appealing denials.

A white paper from Experian Health reports that 82 percent of healthcare professionals responsible for financial, billing, or claims management decisions prioritize reducing denials. Although many health systems are turning toward AI solutions, 90 percent of reworked claims require human intervention, even though 43 percent of respondents also report being understaffed.

As the work of CDI expands, CMI becomes a less effective key performance indicator (KPI). As an industry, we need to incorporate more measures that reflect the value of CDI review in promoting revenue integrity, by tracking the relationship between CDI reviews, query accuracy, denial rates, and overturn rates. CDI also contributes to the organization’s reputation and market share through improving performance on publicly reported quality measures.

If you have not already begun to do so, be sure that hospital leadership understands that CDI is an investment in protecting earned revenue, organizational reputation, and market share.