Hospitals will be seeing a payment bump, but will it be enough to ward off rising inflation and labor costs?
CMS recently released the fiscal year (FY) 2024 Inpatient Prospective Payment System (IPPS) final rule increasing payment rates by a net 3.1% for FY 2024 for hospitals that are meaningful users of electronic health records and submit quality measure data.
This 3.1% payment update reflects a hospital market basket increase of 3.3% as well as a productivity cut of 0.2%. Overall, the agency will increase hospital payments by $2.2 billion compared to FY 2023, which also includes a $957 million decrease in disproportionate share hospital payments and a $364 million decrease in new medical technology payments, according to the IPPS final rule.
While a $2.2 billion increase seems significant, hospitals are facing historic financial challenges. In fact, hospital margins for the year rose in June, but the divide between the haves and have-nots widened as expenses and economic pressures remained high according to a recent Kaufman Hall analysis.
Most hospitals underperformed in June, even as the median year-to-date operating margin index increased to 1.4%, compared to 0.7% in May.
These challenges highlight the fact that leaders need to stop relying on payment rate increases to keep them afloat.
"This 'new normal' is an incredibly challenging environment for hospitals," Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a press release regarding it's market analysis.
"It's time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized," Swanson said.
The AHA doubled down on the “woefully inadequate” payment rate increase for FY 2024.
In a statement shared with the media, Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said, “The AHA is deeply concerned with CMS’ woefully inadequate inpatient and long-term care hospital payment updates. The agency continues to finalize rate increases that are not commensurate with the near decades-high inflation and increased costs for labor, equipment, drugs and supplies that hospitals across the country are experiencing.”
From analyzing marketplace dynamics to remedying ongoing workforce struggles, stakes are high for CFOs in 2023.
CFOs are not seeing any relief in 2023—between declining operating revenue for health systems and a fundamental shift in the workforce—this year continues to be financially complex, to say the least.
This is why CFOs need to get creative when it comes to retaining talent, succession planning, and maintaining the overall financial health of their organizations.
From August 9-11, the members of the HealthLeaders CFO Exchange will be meeting in Napa Valley, California, to talk strategy and find workarounds and solutions to the following four trends in hopes of alleviating the headaches.
Current Financial Stress
Does the age old adage "grow or die" apply to healthcare organizations? Many think so. But then how can CFOs ensure their organizations grow while keeping expenses low? There needs to be the perfect set of processes put in place, but what are they?
When considering investments, it’s critical to have strong discipline and balance appropriate risk-taking, and with a changing market CFOs need to be thinking differently about investment portfolios. How can CFOs utilize industry connections to identify new ideas and opportunities to improve?
Supply chain optimization and shortage considerations aren’t only for the clinicians. CFOs need to create a plan for increasing costs of supplies, services, and technology—costs that likely won’t see any relief.
Workforce
Labor shortages, diminished margins, accelerating expenses, and leadership vacancies: A perfect storm of factors is pressing financial leaders to employ meticulous strategies to rein in costs while creatively thinking about building a sustainable workforce.
Turnover within leadership across the industry has been pervasive, so CFOs are doubling down on succession planning to discourage talented staff from jumping to new opportunities outside the organization. How can CFOs improve physician partnerships, retention, and the encroaching union activity?
On top of this, how are CFOs improving nursing pipelines and filling needs for other key positions across the entire organization—everyone from therapists to tech?
CFO Exchange attendees gather to talk financial and operational strategy during a previous event.
Marketplace Dynamics
When it comes to smart growth strategies, CFOs have some major decisions to make. Is it best for their organization to build, buy, partner, or merge? There are also major disruptors to worry about. How does a CFO decide to compete or partner? Or better yet, how do you go about competing or partnering?
Acquisitions and mergers are still top of mind as well. How should a CFO respond to practice acquisition by investor-owned entities?
Innovation and Technology
CFOs know that a one-star financial experience can negate a five-star clinical experience, so how can CFOs create a better customer experience and think more like a disruptor? Many CFOs know that implementing AI is the key to a streamlined patient experience, but how do you manage it in the right way and at the right pace?
While AI and technology is essential for the patient experience, digital solutions maximize workflow and increase the business footprint, so how do CFOs decided where to start when expanding into hospital at home, RPM, telehealth, and more?
Stay tuned for more coverage of these topics once the event is in full swing.
The HealthLeaders Exchange is an executive community for sharing ideas, solutions, and insights. Please join the community at our LinkedIn page.
CEOs have been pushing CFOs to lower labor costs, and it seems to be working for HCA Healthcare.
Coupled with an increase in patient volume, lower labor costs helped HCA Healthcare see higher profits in the second quarter of 2023.
HCA recently reported its second-quarter net income of $1.193 billion, compared to $1.155 billion at this time last year. Results included a $32 million loss due to facility sales and a $78 million charge related to debt retirement, according to its report shared with HealthLeaders.
While the systems' quarterly revenue rose 7% to $15.86 billion, its total expenses climbed 7.6% to $14.05 billion, including a 7.1% jump for salaries and benefits and a 7.7% increase for supplies.
On the positive, same facility admissions increased 2.2% and same facility equivalent admissions increased 3.7% in the second quarter of 2023, compared to the prior year period. Same facility emergency room visits also increased 3.7% in the second quarter of 2023.
On top of its increase in patient volume, HCA reduced its contract labor costs by 20% year over year, bolstering its revenue.
This increase in patient volume comes on the heels of a huge data breach that made vulnerable the personal information of nearly 11 million patients at scores of care venues in 20 states.
In a media release at the time, the Nashville-based for-profit health system said the information was "made available by an unknown and unauthorized party on an online forum." The exposed data included patients’ names addresses, emails, phone numbers, dates of birth, gender, service dates, locations, and appointment dates.
More than half of CFOs say their CEOs are asking them to focus on cost reduction, according to a new report.
A new report from Deloitte says that CEOs are putting the pressure on CFOs to reduce costs, focus on working capital efficiency, and risk management—all seemingly a no brainer for healthcare CFOs.
According to the report, 54% of CFOs indicated that their CEOs are asking them to focus on cost reduction while 40% said their CEOs want them focused on strategy/transformation.
More than one-third of CFOs said their CEOs want them focused on strategy, performance management, revenue growth, investment, and capital/financing, according to the report.
"External challenges like inflation and high interest rates and geopolitical uncertainties seem to be impacting CFOs' assessments of macroeconomic conditions. We saw optimism tick upward last quarter, but presently, CFOs are expressing more caution and have a weaker appetite for taking greater risks.” Steve Gallucci, national managing partner of the U.S. CFO Program at Deloitte said in the report.
While this survey gathers data from across all business sectors, the results align with expectations, and are not at all surprising, for healthcare CFOs.
So how can healthcare CFOs work to meet their CEOs' continued expectations in 2023 and beyond?
Developing strong relationships across the c-suite, management, clinical leadership, and finance teams will ensure CFOs can support operational and clinical priorities, which in turn will support strategic growth priorities.
“It is important to develop a culture in which leaders seek continuous improvement, while also measuring the appropriate risks and benchmarking yourself in key areas against best-in-class organizations,” Jim Molloy, executive vice president, CFO, and treasurer, at Ochsner Health recently told HealthLeaders.
And, while its important to always keep your focus on reducing expenses, the true key to success for any organization is disciplined growth, Molloy said.
When it comes to risk-taking, in healthcare balance is key. The key for a healthcare CFO is strong discipline and appropriate risk-taking, Molloy says. Molloy adds that he utilizes his industry connections to identify new ideas and investment opportunities to ensure financial stability and help meet c-suite expectations.
The Deloitte CFO Signals survey for the second quarter of 2023 was conducted between May 1 and 15, 2023. A total of 122 CFOs participated in this survey and gathered responses from CFOs where the vast majority are from companies with more than $1 billion in annual revenue.
According to the AHA, the report "blatantly misconstrues, ignores, and mischaracterizes hospitals' compliance with federal price transparency regulations."
Of the 2,000 hospitals reviewed in the report, Patient Rights Advocate found that only 36% were complying with the price transparency rule, leaving 64% of hospitals in noncompliance. The report also says that 61.4% of hospitals posted negotiated prices clearly associated with payers and plans, but 41.3% still failed compliance because their pricing data was missing or significantly incomplete.
The Patient Rights Advocate report even called out seven large health systems in the report that it said were completely noncompliant with the law.
The AHA pushed back on this data by pointing to a recent report by CMS that found that as of 2022, 70% of hospitals had complied with both federal requirements and over 80% had complied with at least one.
Inconsistent data in price transparency reports isn’t new.
In fact, HealthLeaders previously touched base with Chris Severn, CEO of Turquoise Health, to help give context to these studies and why revenue cycle leaders are seeing such varied numbers in price transparency adherence.
HealthLeaders: Price transparency studies are being published left and right, but why are we seeing such large variances in these numbers across the board?
Chris Severn: At a high level, in the CMS mandate, hospitals must follow strict guidelines to be fully compliant. The placement of the patient estimate tool on the hospital’s website, the naming convention of machine-readable files, and the use of plain language (language that patients can easily understand) to describe a healthcare service are all defined and required within the rule.
Because of the vast array of guidelines included in the rule, it’s not uncommon to see findings that are focused on all price transparency requirements. On the other hand, other studies lean more on the contents of the machine-readable files and less or not at all on the patient estimate tool. That variance in the specific areas of focus leads to different estimates of adherence based on differing factors.
From integrating AI to exploring shifts in profit pools and business model adjustments, the health system CFO is working to ensure long-term sustainability.
CFOs will continue to fight against poor operating margins, reduced reimbursement, and inflated expenses well into 2024.
Hospitals and health systems of every type are feeling the financial pressure—even the largest of systems will continue to grapple with existential questions about their strategy and structure moving forward.
As a multi-state health system, Massachusetts-based Covenant Health knows all too well about the incessant financial battles healthcare organizations have been facing for years now.
But Covenant has a plan.
Through integrating AI, exploring shifts in profit pools, prioritizing its employees, and fighting “financial toxicity,” Stephen Forney, SVP and CFO of Covenant Health says it has a path to ensuring financial stability.
HealthLeaders: What are the most significant financial challenges you see impacting hospitals and health systems? Why are these challenges so persistent?
Stephen Forney: The rising cost of healthcare presents a major financial challenge for hospitals and health systems. Patients with serious, long-term, chronic illnesses such as cancer sometimes experience financial toxicity due to the high expenses associated with their treatments. Consequently, patients may experience treatment delays or prematurely discontinue their treatments, potentially compromising their overall outcomes and often driving up costs of care further.
It's in our best interest as healthcare providers to identify ways to proactively head off financial toxicity and ensure that our most vulnerable patients can access and afford the care they need. In light of this, we have seen hospital patient financial assistance programs shift from a ‘nice-to-have’ to a critical asset for both providers and patients looking to stay afloat amid rising patient financial responsibility.
HealthLeaders: What strategies are you using to tackle these challenges?
Forney: To tackle financial challenges in healthcare, hospitals typically look at strategies such as optimizing operational efficiency, implementing new payment models, exploring partnerships, and investing in innovative technology. At Covenant, we've seen how AI can play a crucial role in addressing financial challenges by streamlining workflows and improving revenue cycle management. We leverage an automated philanthropic aid platform, Atlas Health, that helps keep us up to date on the latest aid programs, alerts us when they're open for enrollment, and helps match our patients to the program they're best suited for, streamlining the process significantly for all stakeholders. Integrating AI into our systems promotes efficient resource utilization and better financial outcomes.
HealthLeaders: How is Covenant Health prioritizing its employees? Where is the organization investing funds to ensure employees work to the best of their abilities in a supportive environment?
Forney: Covenant Health places a strong emphasis on supporting the well-being of its employees. We invest in various initiatives to achieve this goal, including employee training and development programs, competitive compensation, and benefits packages, and fostering a positive work culture. Recognizing the link between employee engagement, patient outcomes, and organizational success, we allocate funds to create a supportive environment, invest in adequate staffing levels, and provide resources for professional growth.
HealthLeaders: How is Covenant Health handling dynamic market changes?
Forney: Covenant Health proactively responds to dynamic market changes through vigilant monitoring of industry trends and strategic adaptations. This involves exploring shifts in profit pools and potential adjustments to the business model, ensuring long-term sustainability. We actively seek out new revenue sources by expanding specialized services and forging partnerships with emerging healthcare sectors. We manage inflation and expenses through cost control measures, optimized supply chain practices, and strategic financial planning.
HealthLeaders: Talk to me about supply chain optimization and shortage considerations—how are you meeting increasing costs with supplies, services, and technology investments?
Forney: Covenant Health prioritizes supply chain optimization to address increasing costs and mitigate shortages. We closely collaborate with vendors and suppliers to ensure the availability of essential supplies and services while negotiating favorable pricing agreements. Strategic partnerships with suppliers and proactive inventory management help streamline operations and reduce expenses. Furthermore, we make technology investments to enhance supply chain efficiency, implementing inventory tracking systems and adopting automation to streamline procurement processes.
Only 36% of hospitals are fully complying with the rule, while forty hospitals exhibited backsliding on compliance, a new report says.
A new review of price transparency adherence was released by Patient Rights Advocate, and it calls out major players who it says are noncompliant with the law.
Conducted two and a half years after the hospital price transparency rule took effect, the report analyzed the websites of 2,000 U.S. hospitals and found only 36% of them to be fully compliant with all requirements.
Although the majority of hospitals have posted files, the widescale noncompliance of 64% of hospitals is due to most hospitals’ files being incomplete or not having prices clearly associated with both payer and plan, the report says.
Of the 2,000 hospitals reviewed in the report, Patient Rights Advocate found the following:
36% were complying with the rule, leaving 64% of hospitals in noncompliance
3.5% did not post a usable standard charges file
61.4% of hospitals posted negotiated prices clearly associated with payers and plans, but 41.3% still failed compliance because their pricing data was missing or significantly incomplete
The report says that compliance varied widely among the largest hospital systems it reviewed.
When it comes to noncompliance, there were seven large health systems reviewed in the report that were listed as completely noncompliant with the law:
Avera Health
Baylor Scott & White Health
HCA Healthcare
Mercy
Providence
Tenet Healthcare
UPMC
Consistent with its prior reports, none of the hospitals owned by HCA Healthcare were found to be in full compliance, with a significant amount of its hospitals posting illegible, nonconforming files, according to the report.
On the other hand, the report details substantial improvements since its last report including that 88% of hospitals owned by CommonSpirit Health, 97% of hospitals owned by Community Health Systems, and 98% of hospitals owned by Kaiser Permanente were found to be in full compliance.
The report also says that forty hospitals exhibited “backsliding,” with an assessment of “noncompliant” in the current report after having been assessed as “compliant” in prior reports.
Bankruptcy filings in the first six months of 2023 are trending substantially higher than historical filings, a new report finds.
According to a new report released by Gibbins Advisors, healthcare bankruptcy filings in the first six months of 2023 are trending materially higher than historical filings, with 40 bankruptcies filed through June 2023 compared to 46 filings in the full year of 2022.
If trends continue at this annualized rate, the healthcare restructuring advisory firm says the market could see 80 healthcare bankruptcy filings in 2023, eclipsing the last two years combined. That would be a 74% increase from 2022 and three times the level seen in 2021, the report says.
The acceleration in bankruptcy filings throughout 2022, especially the uptick seen in the fourth quarter of 2022, has continued into 2023 with an average of 20 cases filed in each of the last three quarters through June 2023, the report shows.
Large healthcare bankruptcy filings with more than $100 million in liabilities sharply increased in the first half of 2023. According to the report, in just six months, 13 cases were filed, nearly matching the 15 total cases from 2022 and 2021 combined. Five of those 13 bankruptcies were cases each with more than $500 million in liabilities.
So should major healthcare orginizations be worried? Not so fast.
According to the report senior care and pharma are leading the majority of the bankruptcies in healthcare. Hospital cases are trending up though, with six hospital filings the last 12 months compared to five in the previous 24-month period.
For those hospitals that are in trouble, there are six key drivers contributing to financial distress, the study says:
Capital market constraints
Interest rates are at their highest levels in 15 years, which is impacting borrower cash flow, refinancing ability, asset valuation, and transactions the report said.
Labor and supply cost pressures
Increases in pay and benefits to attract and retain clinical staff and reduce contract labor have set a new, higher baseline for expenses. At the same time, the report notes that inflation on non-labor costs has often exceeded expectations, putting pressure on hospital budgets.
Market returns
While the stock market rebounding in 2023 has helped providers that rely on investment returns, the report says they may still need to sell such assets or dip into cash reserves to provide necessary cash flow.
Medicaid Enrollment
Pandemic-related protections on continuous Medicaid enrollment expired this year, with estimates that between 8 million and 24 million people will lose coverage, though many will re-qualify the report says.
Payer rate increases
The margin squeeze on healthcare providers is expected to continue, particularly for providers reliant on government payers like CMS. In fact, hospitals may be seeing a 2.8% payment increase for outpatient services for calendar year 2024, according to CMS’ 2024 OPPS proposed rule, but hospital groups say it is still not enough.
The report also called out the No Surprises act has having a large impact on providers’ costs.
Shifts in care from institutional settings
According to the report, COVID-19 accelerated the long-term trend of care shifting from inpatient to outpatient and community-based settings, creating both opportunities and headwinds.
Moody's latest report details how some of the largest healthcare systems are faring in 2023.
Moody's Healthcare Quarterly: July 2023 report shows a mixed bag of financial performance for some of the largest for-profit health systems in the country.
Coming up short is Community Health Systems, the U.S.’ third-largest for-profit system. The system saw its EBITDA fall by 18.1 percent to $335 million in the first quarter as salaries and benefits as a share of revenue increased by 1.3 percentage points, the report said.
For the first quarter of 2023, the system’s net operating revenues totaled $3.108 billion, beating analysts’ estimates by just 1.3%. The net loss attributable to Community Health Systems stockholders was $(51) million, or $(0.40) per diluted share—missing expectations by 145%.
"Our first quarter results include solid growth metrics and other promising indicators that demonstrate core demand for healthcare services is returning and that we are making progress with our initiatives and investments to capture volume," Community Health Systems CEO Tim Hingtgen said at the time.
"Some other more challenging dynamics such as payer mix changes and increased medical specialist fees affected our earnings in the quarter despite our ability to favorably manage other controllable expenses," Hingtgen said.
According to the July 2023 Moody’s report, a significant portion of the systems’ business is in rural areas, potentially driving up costs to recruit and retain staff. An unfavorable payer mix in these areas may also be a contributing factor, as it’s CEO noted.
The other two largest for-profit systems are faring better this year, according to the Moody’s report.
Both HCA Healthcare and Tenet Healthcare saw improved EBITDA in the first quarter of 2023 as salary and benefit obligations were alleviated, the report said.
In contrast to Community Health, the report says HCA and Tenet hospitals provide care in predominantly urban areas and the payer mix is more favorable.
Price transparency adherence may become more complex in 2024.
CMS recently released the 2024 OPPS proposed rule, and among the yearly payment rate changes, CMS proposed changes to its price transparency regulations.
In the proposed rule, CMS is requesting that hospitals be required to submit a certificate verifying the accuracy and completeness of data and acknowledge any warning notices it may receive. CMS says it may also decide to post its assessment of hospital compliance and any compliance action taken against a hospital on its website, including notifications sent to hospital leadership, if the proposed rule is finalized.
Currently, hospitals are required to make some of the 300 standard charges shoppable services by placing them in a consumer-friendly format or offering a price estimator tool patients can use to estimate out-of-pocket costs, but in the proposed rule, CMS wants to require hospitals to display standard charges data within a specific template.
CMS also proposed hospitals encode all standard charge information, including but not limited to information such as each standard charge type and expected charges in dollar amounts for items or services currently denoted as a percentage or algorithm for payer negotiated prices.
This proposed rule comes on the heels of a separate crack down that CMS announced earlier this year.
In April, the agency announced it would require corrective action plan (CAP) completion deadlines, impose civil monetary penalties earlier and automatically, and streamline the compliance process of price transparency requirements.
CMS says it conducts over 200 comprehensive reviews of hospital price transparency compliance per month, and as of April 2023, CMS has issued more than 730 warning notices and 269 CAP requests. It has also imposed civil monetary penalties on four hospitals for noncompliance.
Although CMS maintained its requirement that noncompliant hospitals submit a CAP within 45 days from the CAP request, it will now require these hospitals to be in full compliance with price transparency guidelines within 90 days from when it issued the request.
CFO Exchange attendees gather to talk financial and operational strategy during a previous event.
