For-profit hospitals will continue to see revenues stressed by soft volumes and pricing pressures over the next 12 to 18 months but profitability should remain healthy thanks to cost containment efforts, Moody's Investor Services said.
The credit outlook for the sector remains stable through mid-2012, but growing uncertainty surrounding pricing and demand prompted a negative bias on the outlook, Moody's said in its report: For Profit Hospitals: Profitability to Remain Healthy Despite Pressures.
"Moody's negative bias on the stable outlook for the for-profit hospital sector stems from our belief that these headwinds and additional investment in growth initiatives may make it difficult for hospitals to maintain their current margins," said Dean Diaz, a Moody's senior credit officer.
The expectation that weak hospital admissions trends will not worsen over the next 18 months provides some stability to for-profit hospitals, Diaz said.
Also tempering Moody's stable sector outlooks is its belief that consumers' overall use of medical services will be lower than otherwise would have been expected due to changes in health benefit plans and greater cost shifting to employees.
Longer term, however, demographics, healthcare reform legislation and the introduction of new technologies will help drive growth in demand for both hospital services and medical devices.
Moody's rated the median profit margin of for-profit hospitals at about 15%.
The report said that:
Investments that hospitals are making to foster future growth could also compress margins in the near term. These include upgrading information technology and aligning with physicians in a bid to boost patient referrals.
Growth in adjusted admissions will likely remain weak as the uninsured or people whose premiums and co-pays have risen continue to defer non-urgent care. Birth rates, and related hospital admissions, have also declined amid high unemployment and economic sluggishness. This trend will likely continue constraining volume growth.
Pressure on pricing should continue as commercial insurers resist payment increases and Medicare reimbursements fall.
Longer-term factors should support demand for hospital services, including the aging baby boomers and consumers' increased access to healthcare through the 2010 industry reform package.
House Democrats want a formal review of Medicare Part D after a federal audit found the program's "sponsors" may have overcharged policyholders by underestimating by billions of dollars the value of drug manufacturers' rebates in nearly 70% of their bids for plan year 2008.
"According to the Inspector General, the private health insurers providing the drug benefit are commonly underreporting drug manufacturer rebates, resulting in billions of dollars of profits at the expense of taxpayers and Medicare beneficiaries," Democrats on the House Energy & Commerce Committee said in a letter to Joseph R. Pitts, R-PA, the chairman of the Subcommittee on Health, and Cliff Stearns, R-FL, the chairman of the Subcommittee on Oversight and Investigations. "The Inspector General's report reveals severe problems with the structure of the Part D program and the behavior of the private insurers that administer the drug benefit. These failures present a severe risk to program integrity, reduce beneficiaries access to important drugs, increase drug costs for seniors, and cause billions of dollars in wasted taxpayer funds," the Democrats said in their letter.
The Office of Inspector General for the Department of Health and Human Services conducted the audit and examined six Medicare Part D sponsors, and found that some "may deliberately underestimate their rebates to increase profits."
In addition, the audit determined that the sponsors had "commonly had complex relationships with their pharmacy benefit managers, and in some cases, these relationships lacked transparency. This lack of transparency raises concerns that sponsors may not always have enough information to oversee the services and information provided by pharmacy benefit managers." The audit found that some sponsors passed the fees that their pharmacy benefit managers received from manufacturers on to the program, while others did not.
OIG did not identify the six sponsors it audited.
The Plan D sponsors reported receiving $6.5 billion in drug manufacturer rebates in 2008, which represents approximately 10% of total gross Part D drug costs. "Rebates can substantially reduce the cost of the Part D program; however, sponsors must accurately report these rebates to the government in order for the government and beneficiaries to receive any cost savings," OIG said.
In a list of recommendations, OIG urged the Centers for Medicare and Medicaid Services to: (1) take steps to ensure that sponsors more accurately include their expected rebates in their bids, (2) require sponsors to use methods CMS deems reasonable to allocate rebates across plans, (3) ensure that sponsors have sufficient audit rights and access to rebate information, and (4) ensure that sponsors appropriately report the fees that pharmacy benefit managers collect from manufacturers.
The industry group America’s Health Insurance Plans sees it this way: The Part D program is highly competitive so plans have an incentive to offer the lowest bids and, therefore, the most affordable premiums to attract beneficiaries. As a result, AHIP spokesperson Robert Zirkelbach explains, overall cost of the Part D program is far below original projections – saving money for seniors and taxpayers. According to CMS, the average Part D premium in 2011 is about $30, only a $1 increase from 2010 and well below estimates when the Part D program was enacted.
It is also important to keep in mind, Zirkelbach says, that Part D bids are based on projections of future costs, which are inherently uncertain. As the report notes, he continues, Part D plans reconcile rebates estimated in their bids with the amounts actually collected from pharmaceutical manufacturers to ensure the taxpayer continues to share in any additional savings the plan may be able to generate.
The American Medical Association Monday applauded a federal appeals court's ruling that physicians who bill patients after providing services are not subject to Federal Trade Commission so-called red flag rules that apply to creditors.
AMA President Cecil B. Wilson, MD, said the ruling Friday by the U.S. Court of Appeals in Washington, DC, validates the AMA's long-standing argument with the Federal Trade Commission about the red flag rules' application to physicians.
The appeals court, ruling on a lawsuit filed by the American Bar Association that challenged the application of the red flags rule to attorneys, said the FTC's regulations were made invalid because Congress passed the Red Flag Program Clarification Act of 2010 in December to better define who is considered a creditor under the rule.
"The court's decision reinforces the intent of a new law clarifying the scope of the red flag rule and helps eliminate any further confusion about the rule's application to physicians," Wilson said in a statement. "The AMA will remain vigilant that the FTC respects the meaning and intent of the Clarification Act."
The AMA and other physicians' groups objected to the FTC's requirement for physicians to verify the identity of their patients before agreeing to treat them if the patients are not paying in full at the time of the visit.
The intention of the requirement is to prevent potential cases of identity theft. If a patient says he or she is someone else, the wrong person or entity would be billed for that individual's care. But doctors complained that requiring such proof of identity is time-consuming, awkward, and may delay care if the patient didn't bring proper documents.
On Friday, the three-judge appeals panel wrote that "the Clarification Act makes it plain that the granting of a right to 'purchase property or services and defer payment therefore' is no longer enough to make a person or firm subject to the FTC's red flags rule -- there must now be an explicit advancement of funds. In other words, the FTC's assertion that the term 'creditor,' as used in the red flags rule and the FACT Act, includes 'all entities that regularly permit deferred payments for goods or services,' including professionals 'such as lawyers or health care providers, who bill their clients after services are rendered,'…is no longer viable."
The appeals court ruling may be viewed here. The Red Flag Program Clarification Act of 2010 may be viewed here.
Hospital payroll additions grew by 2,100 jobs in February, a relatively flat rate when compared with historic trends, but a significant increase from the 700 hospital payroll additions reported in January, Bureau of Labor Statistics preliminary data shows.
Overall, the healthcare sector – everything from hospitals to podiatrists' offices to kidney dialysis centers – created 34,300 payroll additions in February, more than double the number of payroll additions reported for the sector in January. Over the last 12 months, healthcare has created 260,000 jobs, an average of more than 22,000 new healthcare jobs each month, BLS data show.
Ambulatory services continued to be the main catalyst for job growth in healthcare, recording 16,900 payroll additions in February. Ambulatory services accounted for 160,200 of the 265,800 payroll additions in the healthcare sector in 2010, while hospitals created 50,100 for the year. Nursing and residential care facilities accounted for another 15,000 new jobs in February, BLS data show.
BLS data from January and February is preliminary and may be considerably revised in the coming months.
Overall, the healthcare sector employed 13.9 million people in February, including 4.7 million jobs at hospitals, 6 million jobs in ambulatory services, and 2.3 million in physicians' offices, BLS preliminary data show.
The larger U.S. economy gained 192,000 jobs in February and the nation's jobless rate fell slightly from 9% to 8.9% for the month as the number of unemployed people decreased by 600,000 to 13.7 million. The number of long-term unemployed -- people jobless for 27 weeks or longer – fell from 6.2 million in January to 6 million in February and accounted for 43.9% of the unemployed, BLS preliminary data shows.
Even with the relatively slower healthcare job growth in February, the sector has been one of the few areas of steady job growth during the recession and slow recovery, creating 828,900 jobs since the recession began in December 2007, BLS data show.
The public fury over the news that Blue Cross Blue Shield of Massachusetts' former CEO received a compensation and severance package last year valued at between $9 million and $11 million is not a human resources debacle.
After all, Cleve Killingsworth didn’t negotiate this ridiculous overcompensation package with the folks at HR. It was voted on by the community leaders who sit on the nonprofit BCBSMA's board – the same people who collect high five-figure salaries for a part-time job and talk about containing healthcare costs – people who really should know better.
And, BCBSMA has pointed out, the package was part of an employment contract negotiated in 2005, long before the recession began.
No. It’s not HR’s fault. However, the front-line employees in HR departments in every business in the Bay State that contracts through BCBSMA will face the disbelief and vexation of their fellow employees. They’ll rightly see this egregious payout as a slap in the face after years of ballooning premiums, co-pays, and deductibles, and tighter benefits. (In the interest of full disclosure, as a policyholder at BCBSMA, I am one of those vexed and disbelieving employees, although I don’t blame our wonderful HR folks.)
What were they thinking when the BCBSMA board approved this package? The Boston Herald notes that several members of the board – including Greater Boston Chamber of Commerce President Paul Guzzi ($84,463), and Robert J. Haynes, president of the Massachusetts AFL-CIO ($72,700) -- “have been public advocates for trimming soaring healthcare costs — even as they sat on a panel that quietly approved the departing chief’s golden parachute.”
“Unions stand ready to be part of the solution to the healthcare cost crisis in which we all find ourselves,” the Herald quoted Haynes as saying in January. “The only way to ensure we are part of the solution is to guarantee that we have a voice and meaningful role in how cost savings are achieved.” Harrumph!
We don’t know whether or not Guzzi, or Haynes, or Bentley University President Gloria Larson ($76,400) or any of the other 18 BCBSMA board members – all of who collect between $56,000-$90,000 a year -- voted for the compensation package, because BCBSMA won’t say, and a spokesperson told the Herald that board members would not comment individually. So much for accountability!
Maybe the health plan will be more forthcoming with Massachusetts Attorney General Martha Coakley, who announced last week that her office will investigate the Killingsworth payout.
As infuriating as the sizeable severance package is, this shouldn’t really surprise anybody. It is part of a continuing and troubling trend in healthcare in which many people of positions of power and influence – regardless of their politics -- collect hefty compensation packages while they preach cost containment for the rest of us. Their relatively high compensation buffers them from the anxieties of tens of millions of Americans in lower tax brackets who find paying for healthcare coverage increasingly more difficult every year.
In all likelihood, most people who sit on insurance company boards, or who are involved in other senior healthcare management and oversight positions probably don’t have to skip a medical screening because of their high deductible, or cut their pills in half to make it to the end of the month. When they talk about being “part of the solution to the healthcare cost crisis” they’re actually talking about passing costs on to the rest of us.
After six weeks of due diligence, Harvard Pilgrim Health Care and Tufts Health Plan jointly announced Friday that they will not merge.
The two nonprofit health plans signed a non-binding memorandum of understanding on Jan. 25 as the first step in a possible merger of the organizations. The MOU authorized a due diligence period for both organizations. During the due diligence period, however, the two plans said it became apparent that the savings and efficiencies they wanted would be more difficult to achieve than initially envisioned and the integration of the two organizations would be more costly and time-consuming than anticipated.
"As a result of this process, we have now determined that we are stronger as individual competitors than one company," said Eric Schultz, president/CEO of Harvard Pilgrim Health Care. "Both organizations will continue their work to keep high quality healthcare accessible and affordable, while at the same time investing in community programs and initiatives."
Harvard Pilgrim Health Care, and Tufts Health Plan are the second- and third-largest health insurers in Massachusetts, respectively, behind Blue Cross Blue Shield of Massachusetts. The combined plan would have had 1.9 million policyholders, with operations in Massachusetts, Maine, New Hampshire, and Rhode Island.
Tufts Health Plan CEO James Roosevelt said the due diligence process gave both plans an opportunity to see if they were compatible. "We made the thoughtful determination that while we are in the same business, our operations are very different and, in many important aspects, not fully compatible without significant changes to existing processes and applications," Roosevelt said.
"Based on the information we have received in the due diligence process, we now believe this decision is in the best interest of those we serve: our members and customers. We walk away from these discussions with great respect for the leadership at Harvard Pilgrim Health Care and remain respectful competitors in the Massachusetts market," he said.
Confusion over vendor qualifications and federal guidelines slowed somewhat the projected growth rate of electronic medical records systems to 13.6% in 2010, a value of $15.7 billion, according to a study by the healthcare market research firm Kalorama Information.
But despite the slower pace, considerable growth did occur in 2010. Kalorama Information publisher Bruce Carlson said more growth is expected in 2011 and beyond.
"We think that while progress was made in physician adoption and in vendor sales, there is still a lot more potential," he said. "There are still a considerable number of physicians who need to be fully functional and hospitals that have to improve their stage ranking."
Indeed, three quarters of healthcare executives surveyed for the HealthLeaders Media Industry Survey 2011 said they are looking at timely compliance with meaningful use.
Kalorama survey results show physician usage of EMR near 50%; reimbursement checks have been issued. As new systems are sold, companies will still earn revenues from existing clients in servicing and consulting, and Kalorama expects between 18%-20% market growth for the next two years.
Kalorama's report -- EMR 2011: The Market for Electronic Medical Record Systems – showed EMR growth rates of 10% in 2009 and 13.6% in 2010, lower than the 15% growth that Kalorama had predicted for each years. The research firm attributed the slower growth rate to hesitation by physicians confused about meaningful use guidelines.
Kalorama's forecast for 2011 assumes that EMR usage will continue to increase, as hospital EMR adoption will encourage physician adoption, current EMR Stage 3 hospitals will purchase more advanced systems, and current EMR owners will upgrade.
Carlson said the threat of penalties in 2015 in the form of reduced CMS payments for those that do not engage in meaningful use of electronic records will force doctors and hospitals to make upgrade decisions. "The stick is stronger than the carrot when it comes to the (American Recovery and Reinvestment Act) incentive-penalty equation," he said. "We continue to believe that and we think it's the industry's consensus as well. While the policy already picked up those oriented towards technology, the penalties will force conversion and upgrading in the future. And those decisions will happen in the next two years, before the penalties kick in."
St. Joseph’s Community Health Services in Hillsboro has joined Gundersen Lutheran Heath Services with the formal affiliation expected to be finalized this month, the two WI healthcare providers have announced.
The combined system – to be known as St. Joseph’s Health Services – Gundersen Lutheran – will serve Hillsboro, Wonewoc, Elroy, and surrounding communities in the Hill Country area of west central Wisconsin. In November 2010, St. Joseph’s signed a management agreement with La Crosse, WI-based Gundersen Lutheran.
“We are pleased to be able to take our relationship with Gundersen Lutheran to the next level,” said Deb Smith, CEO of St. Joseph’s Health Services, in a media release announcing the affiliation. “As St. Joseph’s sought a partner to help create a more efficient healthcare delivery system for our patients, one of the first that came to mind is Gundersen Lutheran.”
In the coming months, the Gundersen Lutheran – Hillsboro Clinic and St. Joseph’s Hillsboro Clinic will consolidate at St. Joseph’s Hospital. Plans are underway to merge Gundersen Lutheran and St. Joseph’s in Wonewoc.
Sigurd B. Gundersen III, MD, medical vice president, Gundersen Lutheran Health System, said the affiliation will allow Hill Country residents to continue to receive quality care close to home. “In fact, enhancing the care in all of the communities we serve and creating a more efficient delivery system are part of our mission and our ongoing plans for the future,” Gundersen said in a media release.
During and after the transition, St. Joseph’s will accept insurances they now accept. After the transition, all patients’ billing statements will come from the consolidated clinic operation, St. Joseph’s Health Services -- Gundersen Lutheran.
There are no plans to cut overall employment with the affiliation. Staff and facility transitions will occur over the coming months, the health systems said.
Four members of the St. Joseph’s Community Board will serve on the board of St. Joseph’s Health Services – Gundersen Lutheran Board, along with five representatives from Gundersen Lutheran.
St. Joseph’s is the third regional hospital that is affiliated with Gundersen Lutheran. The others are Tri-County Memorial in Whitehall, WI, and Palmer Lutheran in West Union, IA.
Online job ads for healthcare practitioners, technical workers, and support staff tapered in February, undercutting some of the surging job demand gains for the healthcare sector in January, according to the new The Conference Board Help Wanted Onlinereport.
Labor demand for healthcare practitioners and technicaloccupations dropped 4,300 in February to 600,100 owing largely to decreases in advertised vacancies for registered nurses and occupational and physical therapists. Healthcare support positions posted a similar decrease of 4,200 to 139,000 in February, The Conference Board reports.
The board's Help Wanted Online Data Series tracks more than 1,000 online job boards across the United States.
In January, The Conference Board reported 78,500 new listings for practitioners and technicians, and 16,600 new ads for healthcare support jobs also grew by 16,600 listings, as healthcare jobs led a strong first month of 2011.
Even with February’s slight drop, there were still more than three job listings for every healthcare technician and practitioner job seeker, with the average salary of $33.51 an hour. There were two healthcare support workers for every online job listing, with pay averaging $12.84 an hour, The Conference Board reports.
Hospitals created 50,100 jobs in 2010, nearly double the rate of job creation from 2009, and the entire healthcare sector - everything from allergists to X-ray technicians -- created 265,800 jobs for the year, Bureau of Labor Statistics preliminary data shows.
Overall, the healthcare sector employed 13.9 million people at the end of 2010, including 4.7 million jobs at hospitals, 6 million jobs in outpatient ambulatory services, and 2.3 million jobs in physicians' offices, BLS data show.
The tapering off of February on-line job listings in healthcare mirrored a slight drop in job listings in the overall economy, which saw online advertised vacancies dipped by 27,400 in February to 4,245,600, The Conference Board reports.
“Total labor demand (new ads and ads that are reposted from the previous month) paused in February, but the number of new, first-time advertised vacancies continued to rise and is an indication that employers are continuing to look for workers,” said June Shelp, vice president at The Conference Board. “Nationally, new ads were up 86,100 in February, and that is a positive sign in contrast to the last few years when advertised vacancies either dropped or remained unchanged from January to February.”
Nationally, there were 9.6 million more unemployed workers than advertised vacancies in January -- the latest month for which unemployment data are available.
Labor demand in the overall economy has added 1.41 million online postings since the series’ low point in April, 2009. This increase offsets approximately 80% of the 1.76 million drop in ad volume during the two-year downturn period from April 2007 through April 2009.
The nation's largest hospital associations have banded together to ask the Obama administration to resist efforts by governors to reduce maintenance-of-effort funding for Medicaid in their cash-strapped states.
"We want to reiterate our strong support for the Medicaid MOE requirement that was part of the Affordable Care Act, and urge you to continue to resist efforts to erode the important coverage protections that this provision is intended to ensure," the associations said in a joint letter Tuesday to Health and Human Services Secretary Kathleen Sebelius. "The nation's hospitals and health systems recognize the significant fiscal pressures facing many states and stand ready to work with them, as you do, to find effective solutions without compromising coverage."
The letter was sent as Republican governors urged the Obama Administration to change Medicaid from its reliance on state and federal matching funds, and into a block grant program. The GOP governors said block grants would provide them with the flexibility to manage the budget-busting program and cover gaping state revenue shortfalls. Several media outlets reported Tuesday that the Obama administration has rejected the idea.
Medicaid covers more than 50 million people, and the rolls have increased in recent years owing to the recession and sputtering recover. The hospital associations in the letter to Sebelius acknowledged the pressure that Medicaid is putting on state budgets, but they urged the federal government to resist any requests for MOE waivers, which are otherwise prohibited before Jan. 14, 2014, when the ACA's coverage expansion goes into effect.
"A relaxation of the MOE provisions will push many low-income Americans off Medicaid rolls, thereby increasing the number of uninsured – moving us backwards rather than forward towards the ACA's goal of expanded health coverage," the associations said. "Removing people from Medicaid does not keep them from getting sick and will deter them from seeking the care that they need. Further, it shifts the burden of their care from states and the federal government largely onto the nation's hospitals. Hospitals currently provide some $40 billion in uncompensated care and the loss of the Medicaid MOE will only increase this burden on providers."
The letter was signed by representatives from the American Hospital Association, Catholic Health Association of the United States, Federation of American Hospitals, National Association of Children's Hospitals, National Association of Public Hospitals and Health Systems, the Association of American Medical Colleges, and VHA Inc.