Recently I authored an article about how elimination of the Medicare Inpatient-Only List will lead to a reduction in surgical volumes that could negatively impact case mix index (CMI). This week, I want to continue exploring this topic by discussing how the inpatient population is changing, and why these shifts may limit the traditional ability of clinical documentation integrity (CDI) programs to influence CMI and revenue integrity.
Hospitals across the country are experiencing changes in payer mix, patient demographic shifts, and the continued migration to outpatient hospital services. As discussed in my June 2 article, most low-risk elective surgeries are likely to migrate to the outpatient setting as the Medicare Inpatient-Only List is eliminated, meaning the inpatient setting is likely to be reserved for complex, high-acuity patients. From 2019 to 2024, a total of 19 percent of hospital expenses were attributable to “treating sicker, more complex patients requiring increased staff time, monitoring and specialized care.”
Historically, hospitals were able to offset lower federal payments from Medicare and Medicaid with a robust payer mix, wherein the majority of patients had commercial insurance. As the general population ages, more Americans become eligible for Medicare. Within the Medicare population, a majority are choosing to enroll in Medicare Advantage (MA). Although MA beneficiaries are entitled to the same coverage as traditional Medicare beneficiaries, the Centers for Medicare & Medicaid Services (CMS) has limited regulatory oversight of MA plan contracting terms and payment rates for network providers. MA plans can set their own rates for services within the framework of the Medicare statue. Consequently, MA organizations are introducing friction into the revenue system through a variety of policies and practices.
Couple these MA plan challenges with new Medicaid requirements and the end of subsidies for marketplace insurance under the Patient Protection and Affordable Care Act (PPACA), and together these regulatory changes are expected to increase the volume of uninsured and underinsured patients, further eroding the possibility of positive margins for many hospitals and reducing the financial offset that historically supported inpatient operations.
Not only are patient demographics changing, but so is the cost of delivering healthcare. The American Hospital Association (AHA) and other sources have noted the price increases for labor, supplies, and drugs that have persisted well beyond the COVID pandemic. Add to this growing administrative costs associated with hospital billing as denial rates climb.
The AHA addresses some of these concerns within their Making Health Care More Affordable: A Blueprint to Lower Costs, Improve Access and Enhance Quality publication. Within this publication, they estimate “administrative staff and technology” accounts for “25%-35% of all health care spending.” These expenses are likely to grow as numerous industry articles cite implementing artificial intelligence (AI) revenue cycle tools as a priority for most hospitals. When costs outpace reimbursement, operating margins shrink, limiting the ability to absorb variability in inpatient reimbursement. Even with a positive outlook, operating margins “are at historically low levels, often hovering around 1%,” according to one recent article. Hospitals traditionally turned to CDI and coding to help offset these financial losses through better documentation and more accurate coding, but these efforts may not be as successful in today’s healthcare environment.
Regarding regulatory changes, CMS has announced that MA beneficiaries will become integrated into some quality measure population, such as the Hospital Readmission Reduction Program (HRRP), beginning in 2027. The Proposed Inpatient Prospective Payment System (IPPS) for the 2027 fiscal year (FY) includes modifying mortality measures within the Inpatient Hospital Quality Reporting Program beginning in FY 2028 and including MA beneficiaries in Hospital Value-Based Purchasing with the FY 2032 payment period. Depending on the proportion of MA patients within a hospital’s population, these changes may significantly alter performance on quality measures. Lastly, CMS will incorporate negotiated MA plan MS-DRG rates into annual MS-DRG adjustments beginning in 2029, which have been noted to be lower than traditional Medicare rates for some MS-DRGs. In the coming years, CDI efforts will be challenged by structural forces outside of their control, including a shrinking elective inpatient population, a growing reliance on MA, and shifting CMS quality measurement frameworks. While accurate documentation and coding will remain essential, they may no longer be sufficient to offset declining margins or stabilize CMI in the same way they have been historically. Hospitals must begin to recalibrate expectations for CDI departments and expand their focus beyond traditional metrics, incorporating quality performance, payer strategy, denial management, and population health management into a broader approach to revenue integrity. Without this shift, CDI departments risk being measured against benchmarks that no longer reflect the realities of modern inpatient care. Those that recognize these changes early will be better positioned to adapt as inpatient care continues to evolve.
