S&P reports that inflation, rising labor and borrowing costs, and sputtering investments are stressing margins.
The first quarter of 2022 proved to be one of the toughest performance quarter on record for the nation's not-for-profit hospitals, according to a midyear analysis by S&P Global Ratings.
The bond rating agency reports that hospitals in early 2022 struggled with inflation and high but possibly plateauing labor costs, while simultaneously confronting rising interest rates and demands on cash flow, and underperforming investments in a weakened market, all of which are likely to hobble operations for the rest of the year, and into 2023.
"Midway through 2022, not-for-profit hospitals and health systems face a difficult operating environment that, while easing from the extreme pressures of late December 2021 and early January and February related to the omicron surge, is still causing operating cash flow compression for many of them across the U.S.," S&P says.
"Although many entities, particularly those with healthy business positions and unrestricted reserves, should be able to handle the stress as they implement near- and medium-term solutions, S&P Global Ratings believes those with weaker financial profiles and business positions or those that have had underlying operational problems in recent years or have less balance sheet cushion, could be at increased risk for a downgrade or negative outlook revision. Much will depend on the extent and duration of the operating pressures as well as the broader macroeconomic conditions," S&P says.
Unless Congress acts, providers will also have to contend with further reductions in federal funding with the re-introduction of sequestration and the anticipated end of the public health emergency later this year.
"That said, for many hospitals and health systems, underlying demand, including pent-up needs for care that was deferred during the omicron surge earlier in the year, remains sound," S&P says. "However, if a structural imbalance of labor supply and demand persists, it could be hard to meet those patient needs, thereby further elevating the human capital social risks that we capture under our environmental, social, and governance (ESG) factors."
"We had noted these operating pressures, but some of them are more pronounced than anticipated, with the financial flexibility provided by unrestricted reserves starting to lessen for certain organizations, as investment markets have been volatile since the beginning of 2022," S&P says.
Inflation and Labor Costs
Earnings were down in the first quarter of 2022 for almost every hospital rated by S&P, primarily because of inflation and rising labor costs.
"The questions are: How much of the heightened expenses are temporary due to the omicron surge at the beginning of the year versus how much is built into base salaries and will be ongoing? And when does the imbalance of labor supply and demand begin to ease?" S&P says.
In the short term, providers have had to spend more to recruit and retain staff as burned-out clinicians either retire or quit. All this is happening, S&P says, amid "significant uncertainty on how long it might take to fill vacancies, reduce agency usage, address staff burnout, and return to a more balanced labor market."
While the reliance on travel nurses and other temporary clinicians has eased somewhat since the height of the pandemic in 2021 and early 2022, S&P projects that labor costs "will likely remain higher for at least the next year and possibly for several years to come as staff shortages could continue and more workers may seek to become travelers than before the pandemic," S&P says.
"Anecdotally, we've observed nurse agency rates of more than $200/hour from providers at the height of the omicron surge; for many, those rates have fallen and still vary widely, but may be closer to $130-$150--and are still higher than agency rates before the pandemic," S&P says.
Pay Raises
Salary and wage hikes, and signing and retention bonuses -- key components of employee retention -- are also much higher rate than previous annual increases of around 3% and often higher than what was budgeted.
"Some hospitals and health systems are making further wage and benefit adjustments midyear to retain and attract staff," S&P says. "All of this is in addition to absorbing the agency and one-time impacts previously mentioned."
M&A Options Limited
Whereas in the past, hospitals facing financial duress often looked to mergers, S&P notes that the regulatory crackdowns on healthcare consolidation may close that outlet.
"Given recent denials by the Federal Trade Commission and other regulatory agencies, this option may be increasingly difficult to deploy," S&P says. "If these denials affect organizations that are already struggling operationally, options could become increasingly limited for certain providers."
Molina has also paid $80 million in disputed and delayed claims to providers, plus $1.8 million in interest.
Molina Healthcare of California has paid a $1 million fine levied by state regulators for failing to timely acknowledge and resolve nearly 30,000 provider disputes between September 2017 and September 2018.
In addition to corrective actions ordered by the California Department of Managed Health Care, Molina has also paid $80 million in disputed and delayed claims to providers, plus $1.8 million in interest.
"It is important health plans promptly and accurately pay claims to hospitals, doctors and other providers when health care services are provided to enrollees to ensure the financial stability of providers, and the overall stability of the healthcare delivery system," DMHC Director Mary Watanabe said.
"Molina's systemic failures to timely resolve provider disputes caused payment delays, potentially jeopardizing the financial stability of providers. The plan has agreed to take corrective actions including remediating payments to impacted providers plus interest."
Molina did not return email requests for comment from HealthLeaders.
California health plans are required to have a Provider Dispute Resolution program for claims dispute with providers. State law requires plans to identify and acknowledge each provider dispute within two working days of the date of receipt of an electronic provider dispute, with 15 business days to respond.
Plans must also resolve each provider dispute or amended provider dispute and issue a written determination stating the pertinent facts and explaining the reasons for the plan's determination within 45 working days after the date of receipt.
As part of the required corrective actions, and in addition to remediating payments to providers, Molina must demonstrate compliance with acknowledgment and resolution timeliness requirements.
If a provider disputes Molina's PDR process, or the plan takes longer than 45 days to issue a written determination, the provider can contact the DMHC Help Center's Provider Complaint Unit for further assistance.
The Lown Institute Hospitals Index for Social Responsibility, launched in 2020, identifies leading and laggard hospitals nationwide using benchmarks for hospitals to measure how well they serve their patients and communities.
Adventist Health Howard Memorial was named the top hospital among the 66 hospitals nationwide that earned the “most socially responsible” designation by Lown.
In total, Lown ranks 3,606 hospitals—with less than 2% earning top marks across metrics that include racial inclusivity of patients, employee pay equity, and avoidance of unnecessary and potentially harmful procedures.
“Citizens put their lives and billions of tax dollars in the hands of America’s hospitals,” said Vikas Saini, MD, president of the Lown Institute. “We believe communities should have high expectations and the most socially responsible institutions should be lifted up as models for the system.”
Among the 66 most socially responsible hospitals, Lown Institute analysts identified 15 hospitals that had an extraordinary COVID burden—defined as having 26 or more weeks with at least 10% of inpatient beds filled by COVID-19 patients during the first year of the pandemic.
“Achieving the trifecta of great outcomes, value, and equity is hard—especially under the pressures of a global pandemic,” Saini said. “Hospitals that met the unprecedented challenges of COVID while staying committed to their social mission should be very, very proud.”
The Lown Institute Hospitals Index measures social responsibility of more than 3,600 hospitals nationwide, evaluating hospitals on 53 metrics across equity, value, and outcomes. Hospitals with “A” grades on each of the three major categories achieve the title of “most socially responsible.”
The Lown Institute used publicly available data from Medicare claims, CMS hospital cost reports, IRS 990 forms, and other sources. COVID burden for March 2020-2021 is reported for each hospital but does not factor into the hospital social responsibility ranking.
California, Oregon, and Washington form the Multi-State Commitment to Reproductive Freedom.
Minutes after the U.S. Supreme Court's landmark ruling on Friday overturning Roe v. Wade, California Gov. Gavin Newsom joined the governors of Oregon and Washington state with a pledge to make the West Coast a "safe haven" for abortion rights.
“The Supreme Court has made it clear – they want to strip women of their liberty and let Republican states replace it with mandated birth because the right to choose an abortion is not 'deeply rooted in history,'" Newsom said in a media release announcing the creation of the Multi-State Commitment to Reproductive Freedom.
"California has banded together with Oregon and Washington to stand up for women, and to protect access to reproductive healthcare," Newsom said. "We will not sit on the sidelines and allow patients who seek reproductive care in our states or the doctors that provide that care to be intimidated with criminal prosecution. We refuse to go back and we will fight like hell to protect our rights and our values."
Newsom has proposed a $125 million Reproductive Health Package to expand access for women and help prepare for the influx of women seeking abortions from other states. The California Legislature has introduced a constitutional amendment to enshrine the right to abortion in the state constitution. Newsom recently signed legislation eliminating copays for abortions and has signed into law a legislative package to further strengthen access and protect patients and providers.
Oregon Gov. Kate Brown said "abortion is healthcare, and no matter who you are or where you come from, Oregon doesn't turn away anyone seeking healthcare. Period."
"Let me be clear: You cannot ban abortion, you can only ban safe abortions — and this disgraceful Supreme Court decision will undoubtedly put many people's lives at risk, in addition to stripping away a constitutional right that disproportionately affects women and has been settled law for most of our lifetimes," Brown said. "For all the Americans today feeling scared, angry and disappointed — for everyone who needs an abortion and does not know where they can access safe reproductive healthcare –– please know you are not alone, and the fight is not over."
Washington Gov. Jay Inslee said abortion rights laws in his state "remain unchanged," but he warned that "the threat to patient access and privacy has never been more dangerous."
"Even in Washington state, Republicans have introduced about 40 bills in the past six years to roll back abortion rights and access to reproductive care," Inslee said. "The right of choice should not depend on which party holds the majority, but that's where we find ourselves. More than half the nation's population now lacks safe access to a medical procedure that only a patient and their doctor can and should make for themselves."
"Instead, law enforcement, vigilantes and judicial systems can force patients to bear the burdens of forced pregnancy and birth," Inslee said. "Washington state remains steadfast in our commitment to protecting the ability and right of every patient who comes to our state in need of abortion care, and we will fight like hell to restore that right to patients all across the country."
The Hamburg area of Lexington-Fayette County is a fast-growing area of the Bluegrass region.
UK Healthcare has purchased a 27-acre tract in the Hamburg development just east of Lexington for $20.3 million, with plans to turn the site adjacent to Interstate 75 into the future home of a regional hospital and medical office complex.
Mark F. Newman, UK executive vice president for health affairs, says the project recognizes "the need to make healthcare more geographically accessible for our patients in Lexington as well as across Central and Eastern Kentucky."
"Not only will this location be more convenient for many of our patients, it will support our continued growth in outpatient services and create more capacity for essential clinical programs," he says.
The Hamburg area of Lexington-Fayette County is a fast-growing area of the Bluegrass region. As part of its 2025 strategic plan, UK HealthCare is focused on providing convenient access to healthcare.
The proposed community medical campus will provide acute care to complement UK HealthCare's main medical centers, UK Chandler Hospital and UK Kentucky Clinic.
UK HealthCare now offers outpatient services at several other medical facilities across Lexington, including Kentucky Children’s Hospital's pediatric clinics, the Good Samaritan Professional Arts Center, UK HealthCare-Turfland, the Lexington Surgery Center, Kentucky Clinic South, Polk-Dalton Clinic, the UK HealthCare offices at Fountain Court, and Physical Medicine and Rehabilitation at Cardinal Hill Rehabilitation Hospital.
UK HealthCare in December announced plans for a new cancer center/ambulatory facility across South Limestone from UK Chandler Hospital — the future home for the UK Markey Cancer Center.
The deal must undergo due diligence and will be finalized with the approval from the UK Board of Trustees and Kentucky's Secretary of Finance and Administration.
Newman says UK trustees will get the details for the medical campus when UK HealthCare presents a master facility plan, which will focus on creating new access sites across the Bluegrass and in underserved areas of Fayette County.
"We want to treat patients where they are — as close to home as possible with the best of care as possible," Newman says. "That's the goal of this initiative as well — to create greater access, closer to home, for more people in the area to the best possible primary and specialty care."
Stakeholders want to increase access and support efforts to address social determinants of health.
The Association for Community Affiliated Plans is calling on the federal government to strengthen support for efforts to address social determinants of health for the nation’s poor and underserved.
The push is part of a new initiative by ACAP and its 74 member nonprofit plans across the nation that provides a framework for stakeholders and policymakers to reduce health disparities and improve health outcomes.
Pathway to Improve Health Equity uses a three-pronged approach to increase equity among plan beneficiaries, who have low incomes, are disproportionately from communities of color, and may live with disabilities.
ACAP CEO Margaret A. Murray says the initiative will rely on robust data collection to support improvement on equity measures, pursuing public policies that improve equity, and listening and learning from the experiences of other plans.
"Increasing health equity requires a shared commitment from policymakers and health plans," Murray says in a media release.
"With an intentional focus on measuring and reporting data, and more support for policies that improve health care coverage, Safety Net Health Plans will continue to lead the way in meaningful, innovative progress on health equity," she says. "Policymakers can support these important efforts by backing policies that allow plans to address social determinants of health as an essential element of healthcare."
ACAP wants federal policymakers to fund more benefits that address SDOH, including food, transportation, and housing programs, and to promote healthcare access by establishing continuous eligibility for people covered by Medicaid and the Children’s Health Insurance Program and extending postpartum Medicaid coverage to 12 months.
ACAP is also pushing a learning collaborative to help Safety Net Health Plans advance equity across their members. The two-year program partners with the Center for Health Care Strategies to address health disparities and help nonprofit health plans develop and vet health equity strategic plans.
"There are no silver bullets to solve the widespread, systemic disparities that plague America's health care system, but there are concrete actions that can move the needle," says Christopher D. Palmieri, president and CEO of Massachusetts-based Commonwealth Care Alliance and chair of ACAP’s board of directors. "Health equity can progress from an aspiration to a reality, but it requires policymakers to work with health plans and others in new and deliberate ways. The Pathway fuels that process."
The mega-health system cites its 'unique position' to address the epidemic of gun violence.
Kaiser Permanente wants to "amplify" the opening of its Center for Gun Violence Research and Education by doling out $1.3 million to nonprofits with a shared interest in gun violence prevention.
"It is increasingly and distressingly clear that gun violence is a public health crisis in the U.S., claiming lives and creating trauma with untold, long-lasting consequences for countless people," said Bechara Choucair, MD, chief health officer and senior vice president for Community Health at Kaiser Permanente.
"As a major health care organization caring for 12.6 million people, we are in a unique position to expand, amplify, and implement promising work underway by healthcare and public health leaders to prevent future gun-related injuries and deaths, starting with a series of grants to organizations focused on addressing gun violence," Choucair said.
Grant partners include:
UC Davis — To provide core support for the Violence Prevention Research Program;
The Ad Council — To scale the End Family Fire campaign, which promotes safe gun storage in order to prevent shootings involving unsecured or misused firearms;
Association of State and Territorial Health Officials — To develop materials on evidence-based public health approaches to gun violence and suicide prevention, as well as to plan a national summit and develop collateral materials for broad use;
Big Cities Health Coalition — For public education on public health approaches to gun violence prevention:
Health Alliance for Violence Intervention — To convene researchers and experts to study the effectiveness of hospital violence intervention programs and their ability to break and prevent the cyclical nature of gun violence;
Johns Hopkins Bloomberg School of Public Health - To support the Johns Hopkins Center for Gun Violence Solutions, including efforts to study the implementation of extreme risk protective orders and the role clinicians can play in raising awareness of these measures:
National Institute for Criminal Justice Reform (NICJR) — To provide core support for NICJR violence reduction initiatives in states impacted by increased rates of gun violence;
California hospitals were reminded that they must provide written notice to patients – in their native language – of the availability of "charity care" and how to apply.
California Attorney General Rob Bonta has issued a consumer alert after receiving reports that the state's hospitals are ignoring the state’s charity care law obligation to tell patients about free and cheaper care options.
Bonta also sent letters to California hospitals warning them that they must provide written notice to patients – in their native language – of the availability of "charity care" and how to apply.
"When hospitals fail to inform patients of the availability of free or reduced-cost medical care, they force patients and their families to make impossible choices and confront financial hardship," Bonta said. "No family should ever have to think twice about getting their loved one's necessary medical care because they're afraid of high medical costs. Hospitals have a responsibility to inform Californians about their charity care options."
Bonta said the California Department of Justice has received complaints, particularly from rural and farm-working communities across the state, that hospitals are not providing charity care policy notices in a language that patients understand as required by state law.
A media release by CDOJ points to a 2021 survey from Gallup and West Health, showing that one-third of Americans have skipped medical treatment because of the high cost of care.
"As patients continue to face high out-of-pocket costs, they have the right to know that charity care programs exist to help families avoid financial catastrophe," Bonta said.
Those eligible for charity or reduced cost care include:
Uninsured patients: California law requires hospitals to provide free or discounted care to uninsured patients who earn up to 400% of the federal poverty level.
Insured patients: Californians with health insurance may qualify for discounts if they: (1) earn up to 400% of the federal poverty level, and (2) have faced out-of-pocket medical expenses in the preceding 12 months that exceed 10% of their income.
Immigrants: Californians’ immigration status does not affect eligibility for charity care. Hospitals may request proof of their financial situation — such as pay stubs or documentation from a local social services agency — but only to assess financial eligibility.
Bonta said Californians have the right to: request payment assistance even if they have health insurance or are undocumented; receive information about charity care and an application for charity care in their native language; receive a written estimate of the out-of-pocket cost they will be expected to pay if they are uninsured; negotiate an extended payment plan to pay for their treatment if they qualify for charity care.
Patients who believe a hospital is violating the law can file a complaint with the California Department of Public Health here.
The unanimous ruling in American Hospital Association v. Becerra sets up the potential for hospitals to collect billions of dollars in 340B back payments.
Hospital stakeholders offered a collective booyah on Wednesday after learning that the U.S. Supreme Court struck down the federal government's 28.5% cuts to drug reimbursements under the 340B program.
The unanimous ruling in American Hospital Association v. Becerra – written by Justice Brett Kavanaugh -- sets up the potential for hospitals to claw back some of the $3.2 billion in 340B payments owed to them in 2018 and 2019.
The high court said that the cuts, which took effect during the Trump administration, were illegal because the U.S. Department of Health and Human Services did not first survey the hospitals' drug acquisition costs before making the cuts, which the justices said violates protections against varying payment rates for some hospitals.
Wednesday's ruling overturns a federal appeals court ruling in favor of HHS and sends the case back to the lower court for further review. However, SCOTUS offered no potential remedies for the dispute.
The American Hospital Association, America's Essential Hospitals, and the Association of American Medical Colleges issued a joint statement shortly after Wednesday's ruling praising the decision and saying they were "looking forward to working with the Administration and the courts to develop a plan to reimburse 340B hospitals affected by these unlawful cuts while ensuring the remainder of the hospital field is not disadvantaged as they also continue to serve their communities."
Legal Scholars React
Stephanie Kennan, a senior member of the Federal Public Affairs group at McGuireWoods Consulting, said the ruling could greatly affect hospital reimbursements, with SCOTUS pushing HHS to compile the correct data to determine a reasonable reimbursement rate.
"This opinion calls out HHS for not surveying hospital acquisition costs before making decisions about 340B reimbursement rates," Kennan said. "It is important that the program be available for those who need it -- but it is as important to get the data correct to determine reasonable reimbursement and achieve the goals of the program."
Allison Hoffman, a professor at the University of Pennsylvania Carey Law School, called the ruling "a straightforward reading of the statute."
"The implication of this decision is that HHS will have to repay the 340B hospitals the difference between their lower rate and a higher rate paid other hospital for the two years at issue (2018 and 2019)," Hoffman said. "After that point, HHS collected survey data that will justify lower rates consistent with the Medicare statute."
"The larger policy issue, which this case leaves unresolved, is how to tailor federal support for hospitals that disproportionally care for underserved populations," she said.
Cary Coglianese, director of the Penn Program on Regulation at Carey Law School, said the high court "dodged entirely the question of the status of its longstanding precedent in Chevron v. NRDC."
"The question was teed up by the litigants and received sustained consideration by the justices during oral argument. In fact, the very first question following the petitioner's opening statement—asked by the otherwise long-quiet Justice Thomas— directly raised the issue of whether the Court should overturn Chevron," Coglianese said. "But in the end, the court did not even cite to Chevron in its unanimous decision today in;Becerra, let alone give any discussion to it."
"But perhaps the mere fact that the court says simply that it 'does not agree' with HHS means that Chevron is actually dead," Coglianese said. "Perhaps in the future judges are supposed to conduct their own interpretation of statutes without ever any regard or deference given to the agency's role under a statute authorizing it to implement its terms."
"We simply do not know. It is conceivable still that the court will provide further clarity about Chevron’s status in another case remaining to be decided this term, such as Becerra v. Empire Health or West Virginia v. EPA. Both these other cases involve disputes involving agencies' interpretations of statutes."
"Of course, it is also possible that the court will in these cases again simply give Chevron the silent treatment. If so, the silence we saw in today's decision may be part of a deliberate strategy of allowing Chevron to wither on the jurisprudential vine and ultimately die from desuetude. We will have to wait and see."
UC San Diego Health borrows strategies from the restaurant and airline industries and text messages patients when their providers are available.
Staring at a blank computer screen while awaiting a telehealth consultation is not the best way to endear patients to virtual care.
With that in mind, providers at UC San Diego Health borrowed strategies used by the restaurant and airline industries and launched a 10-week pilot project that text messaged patients when their provider were available. The "telemedicine untethered" program proved so successful that the health system is expanding the option into various high-volume primary and surgical care clinics this summer.
Brett C. Meyer, MD, a neurologist and clinical director of telehealth at UC San Diego Health, led the pilot and said "the goal of the feasibility study was to determine if this flexibility lead to improved perception of waiting time and an enhanced experience, while assessing for time saving for both patients and providers."
Nearly two dozen patients from a stroke clinic participated in the study and were given the option of either getting a text with a visit link when their provider was ready or logging in at a scheduled time and waiting in front of a camera in a virtual waiting room.
After the 10-week pilot, the researchers found that no patients were seen late, while 55% were seen early, with an average 55-minute time savings in clinic operations due to patients being seen early. Study metrics also included demographics, visit rates, and satisfaction surveys. The results were published in Quality Management in Health Care.
"Providers are extremely interested in making clinic visits better and easier for our patients — especially in the event we are running late," Meyer said. “Our old patient-communication strategy was complicated by the fact that the device that we would call to inform of a delay was often the same device they were actively using for their video visit."
UC San Diego Health saw a 1000-fold increase in the rate of telemedicine visits during the pandemic, and telehealth volumes remain high, with more than 550,000 ambulatory telehealth visits seen at the health system since the start of the pandemic for all types of medical and surgical care needs.
Emily S. Perrinez, RN, MSN, MPH, study co-author and director of telehealth operations at UC San Diego Health, said the rise in the use of telehealth is prompting a re-evaluation of standard operating procedure.
"We stepped back and asked, 'Do we need a virtual waiting room at all? Can we let patients know when their provider is available instead of making them wait online?'" she said. "The reality is that wait times and lack of timely communication both correlate with patient experience. Real-time text notification that the provider is ready improved patient satisfaction, and this experience is the kind of feedback we love to see."
The bottom line for Meyer is about making life easier for patients and providers.
"As long as a patient has a smartphone handy, they can go about their day rather than waiting for the provider to join the video visit," he said. "For the provider, it definitely increases flexibility and may even increase throughput. Additionally, texting decreases the anxiety of a provider who may be running late. Knowing that we are not keeping a patient waiting is, in my mind, the most important thing. We respect that patients have obligations and their time is precious as well, and we don’t want to keep them waiting."
