Healthcare reform will have a long-term negative credit effect on not-for-profit hospitals, even though it will reduce bad debt expenses and charity care, Moody's Investors Service said in a new report.
"The key longer-term challenge for the not-for-profit hospital sector is the reform's reliance on extracting long-term cost efficiencies from hospitals, probably resulting in diminished hospital revenues," said Moody's Vice President Mark Pascaris, author of the report, Long-term Credit Challenges of Healthcare Reform Outweigh Benefits for Not-for-Profit Hospitals. "The trend will become more pronounced over time as key provisions of the law do not become effective until 2014."
Pascaris said the reform will complicate negotiations for nonprofit hospitals with private health insurers because of the federal government's increased regulatory scrutiny of insurers. Hospitals will also face reimbursement pressures from CMS because the reform squeezes savings out of existing government healthcare programs, under the new Center for Medicare and Medicaid Innovation. The reform additionally creates a Medicare bundled payment pilot program, and other payment models that will mean further cuts to Medicare/Medicaid, Pascaris said.
"Even though many of the most efficiently operated health systems will take advantage of the new opportunities to leverage economies of scale and scope to broaden their market reach and strengthen their position, healthcare reform is a long-term net negative for the not-for-profit hospital sector because it will effectively reduce revenues to hospitals,” said Pascaris.
The reform will encourage even more consolidation of the industry, as bigger health systems leverage economies of scale and have greater access to credit.
"Many not-for-profit hospitals, especially single-site and small hospital systems, may struggle," said Pascaris. "In fairness to the new law, centralization is a market force well under way, but is one that may be exacerbated by healthcare reform."
The cost of hospital services, which grew by 1.1% in March and 8.6% in the last 12 months, almost quadruple the 2.3% increase in the overall Consumer Price Index for the same period, the Bureau of Labor Statistics announced today.
A further breakdown shows that the cost of hospital inpatient services rose 1.6% in March and 9.5% for the past 12 months, while the cost of hospital outpatient services rose 0.6% in March and 7.4% for the past year. Seasonally adjusted CPI data for all urban consumers also show that the overall cost of all medical services grew by 0.3% in March and 3.8% in the last 12 months.
The rising costs of virtually every healthcare-related index have easily outstripped overall CPI for decades. "I'm sure a lot of people have different opinions on why. In my opinion, a lot of it is demand-related," says BLS economist Steve Reed.
"Healthcare has just gotten better over time. There are more drugs that work. There are more treatments that work effectively. Despite our recent economic struggles, we have gotten richer over time," Reed says. "So, if you are becoming wealthier as a society and your healthcare sector is innovating and becoming better, naturally there is more demand for healthcare and that puts upward pressure on healthcare goods."
Adding to that upward pressure, Reed says, is a lack of financial disincentives to reduce consumer demand. "When we buy healthcare, we are not paying the whole cost of what we buy so we don't face the same incentives to limit our healthcare purchases, so that affects demand," he says. "In addition, demand for a lot of healthcare is very inelastic. If you have market power and inelastic demand generally the profit-maximizing price you charge is very high."
The CPI data also show that:
The cost of physician services fell 0.1% in March, but rose 3.2% in the last 12 months.
The cost of prescription drugs rose 0.6% in March, and 4.9% in the last 12 months.
The cost of nursing home and adult day care services rose 0.3% for the month, and 2.8% for the last 12 months.
The CPI is a measure of the average change in the prices of goods and services purchased by households. CPIs are based on prices of food, clothing, shelter, fuels, transportation fares, charges for doctors' and dentists' services, drugs, and other goods and services that people routinely buy.
Prices are collected each month in 87 urban areas across the country from about 4,000 homes and approximately 25,000 retail businesses, hospitals, and other service providers.
USRC, a privately held company based in Plano, TX, will open a tender offer for all outstanding common shares of Linthicum, MD-based DCA for $11.25 per share in cash, followed by a merger to acquire all remaining outstanding DCA shares at the same cash price, which represents a premium of 72% over Tuesday's closing stock price, the two companies said in a joint media release.
"For shareholders, the transaction provides a compelling opportunity to realize the value DCA has created," said Thomas K. Langbein, chairman of the board at DCA, which unanimously approved the deal.
Directors and executives at DCA hold approximately 23% of DCA's common stock and will tender their shares into the tender offer. USRC expects the transaction to close in May.
"USRC and DCA each have built strong regional operations and this transaction permits us to build a more efficient and stronger national operation," said Chris Brengard, chairman/CEO of USRC. "DCA, like USRC, has a commitment to building joint ventures with nephrologists."
When the deal is finalized, USRC will provide dialysis services to approximately 5,500 patients through 84 outpatient dialysis facilities in nine states, more than 12 home dialysis programs, and 24 dialysis programs within acute and specialty hospital facilities. USRC now operates 47 dialysis clinics in Texas and Arkansas.
A leading primary care physicians association is warning its members that Congress, bogged down by partisan squabbling, may not be able to delay the 21.2% cuts to Medicare reimbursements that go into effect Thursday.
"The physician payment extension has been caught up in much larger issues of unemployment insurance and the federal deficit," Kevin Burke, lead lobbyist for the American Academy of Family Physicians, said in a media release. "But while Congress is mired in its partisan battles, family physicians are faced with drastically reduced payments now and administrative nightmares in the near future."
The Senate today passed a procedural hurdle on a bill that would provide a Medicare payment extension through April 30, reversing the 21.2% reduction that took effect on April 1 under the sustainable growth rate formula.
Now, Senators will begin consideration of the bill reversing the payment reduction. If Senators don't agree to shorten the allocated debate time, however, they may not vote on final passage of the bill until after Thursday's deadline, Burke said.
The physician pay cut has been an ongoing drama on Capitol Hill. The House passed the Medicare extension bill on March 17. However, the Senate failed to act on it before a two-week spring break recess on March 26. The reimbursement cut went into effect on April 1, but CMS ordered contractors to hold payments delivered after April 1 for 10 business days, or April 14, anticipating that Congress would act on the cuts before they took effect.
Burke says the bill providing the payment patch through April 30 is expected to pass, perhaps by Friday, after which Congress will debate a bill to extend the current payment rate until Oct. 1. Both the House and the Senate have passed separate extension bills, but are negotiating how to pay for it.
If Congress doesn't approve the Medicare patch until after the April 15 deadline, physicians would see one or two days of claims processed at the reduced rate. AAFP has asked CMS if it will pay the difference between the reduced claims rate and the restored rate automatically or if physicians will have to resubmit their claims. AAFP also asked for guidance on how physicians should handle copayments they may have collected since April 1.
AAFP has additionally asked CMS if the deadline for physician nonparticipation in Medicare for 2010 has passed, AAFP said.
Whistleblower lawsuits and multimillion dollar Medicare fraud settlements involving otherwise reputable hospitals and health systems are becoming standard media fodder on the Department of Justice Web site.
As is almost always the case, the accused providers that are often paying millions of dollars to the federal government to settle whistleblower suits for self-referrals, or inflated outlier charges, or whatever the gist of the suit may be, are also claiming that the settlement is not an admission of guilt.
Most claim they are paying the fines to avoid costly and interminable litigation. "The lesson to be learned really in all of these similar cases is that the government is looking for fraud and will go after providers if they think there is a problem," says Anna Grizzle, an attorney with Nashville-based Bass, Berry & Sims, PLC.
She says there will be even more enforcement actions against healthcare providers in the coming months and years because the federal government believes it can pay for some of the health reform by cracking down on fraud.
"With the expansion of the False Claims Act and the enhanced penalties under the new health reform laws, the government has demonstrated that it is serious about tracking down healthcare fraud, and with increased funding under the health reform legislation will have the money to be able to do it," Grizzle says.
Health reform requires healthcare organizations to have compliance programs. Grizzle says these programs must proactively find problems before the government or contract auditors.
"It's much better for the organization to find it, fix it, and repay any money it shouldn't have received, rather than have the government find it. And in today's era of heightened scrutiny, healthcare organizations should assume that if there is a problem the government will find it," Grizzle says.
Strong compliance programs should include robust internal and external audits, with healthcare organizations conducting their own data mining to identify systemic problems that they can correct internally.
"A good compliance program should have a strong internal audit function, where you are looking over your own claims. It also should consider periodic external audits as well on risk areas," Grizzle says.
There are several sources for finding risk areas. HHS' Office of Inspector General issues fraud alerts about potential risk areas, and other sources include RAC audits, and detailed readings of whistleblower settlements.
A good compliance program starts with strong policies and procedures and a well-trained staff that understands appropriate billing and compliance with state and federal regulations.
"As you do your own internal audits, are you seeing a pattern of mistakes being made to indicate there is vulnerability in your systems? Through your employee hotline or other complaint reporting mechanisms, are you seeing the same complaints being made?" Grizzle says. "That could be a red flag for a potential issue you might want to explore to determine if any corrective action is necessary."
Even if a hospital is guilty of an honest mistake, Grizzle says they still have to be ready to defend against allegations that the mistake is potential healthcare fraud, and defending is expensive.
"With some of the proactive data mining and analysis, the government contractors are identifying outliers in a particular geographic area," she says. "Sometimes, there are good reasons why someone is an outlier. You can defend it. But if you are identified as a target because you seem to have a high utilization rate for a particular situation, then you have to be prepared to defend why you are an outlier."
Bell, an internist, and most recently the senior vice president of HIT Services at Masspro, replaces retiring chair Mark Leavitt, MD, who led CCHIT since its inception in 2004.
"The commission has a trusted name and processes and is already well respected for its nimbleness, creativity, transparency, and inclusiveness," Bell said in a media release. "I look forward to working with the commission's staff and volunteers to build on that foundation to meet the needs of healthcare providers and consumers in this rapidly evolving health IT environment."
Before leading Masspro, the federally-contracted quality improvement organization in Massachusetts, Bell was director of the Office of HIT Adoption and acting deputy in the Office of the National Coordinator at HHS. She was ONC's representative on CCHIT's board of commissioners from 2006 to 2008. She has also served as division director for the quality improvement group, office of standards and quality at CMS, and was medical director of Blue Cross Blue Shield of Rhode Island.
"[Dr. Bell's] background as a practicing physician, as an expert in health information technology, and in quality assurance efforts in both the public and private sectors makes her uniquely qualified to head the Certification Commission," said Frank Trembulak, COO of Geisinger Health System, and chair of the CCHIT board of trustees.
For decades, not-for-profit hospitals and health systems have used defined benefits pension plans as a recruiting tool to attract quality staff, and as a means of fulfilling their stewardship role with their employees and the communities where they live.
A new report from Standard & Poor's Rating Services, Pension Funding Woes Escalate for U.S. Not-for-Profit Hospitals and Health Systems, shows that those defined-benefits plans may come under increased financial pressure in the coming years, as hospitals adjust to softer patient volumes and lower cash reserves.
"A lot of hospitals are very concerned about it because they are starting to see the volatility that you can experience with a defined benefit plan, compared with a defined contribution plan," says S&P analyst Liz Sweeney. "They are seeing that more clearly now because of what happened in the investment markets in the last 18 months."
Unlike most other sector of the economy, Sweeney says nearly all of the 615 not-for-profit hospitals and health systems that S&P speaks with offer their employees defined benefits plans. "We only identified 40 that have defined contribution only, so the vast majority are doing defined benefit plans still," she says. "Some of those plans were frozen years ago and are essentially in run off now. But they are still out there. I've been surprised through all this recessionary pressure and what happened in the investment market that more hospitals haven't abandoned their defined benefits pensions, but most of them are sticking with it."
Nevertheless, Sweeney says many hospitals also are reassessing pension plan designs and figuring out if they should make changes. "Whether that is a one-year freeze in benefit accruals or a total freeze, or do they stop allowing new employees in the defined benefits plans?" Sweeney says. "Most of them have stuck with their plans but they are all examining it and making their individual decisions."
The recession has hammered pension funds. Funding status for defined benefits plans of not-for-profit hospitals and health systems in S&P's sample fell to a median 68.6% in fiscal 2009, from 82.9% in fiscal 2008 and 90.4% in fiscal 2007. (To find that median, S&P divides the market value of a health system's assets by the projected benefit obligation, which includes actuarial calculations about length of employee service, salaries, raises, turnover, age at retirement, etc. S&P then calculates the plan sponsor's discount rate for the liability back to the present.)
Sweeney says those valuations--based on audited financial statements from June 2009–will likely improve with the economy. "The majority of the December year-ends have not completed their audits. So we expect to see a rebound as we start to see those late 2009 audits and the fiscal 2010 audits," she says. "We do think the valuations have already rebounded. You won't see them in our numbers yet, but we think they already have to some extent. We clearly aren't back to peak level, and everybody understands that."
S&P doesn't believe fluctuations in the value of pension plans significantly impact credit ratings. "It's a long-term obligation so in a lot of cases it's a drop in the bucket," Sweeney says. "The net periodic benefit cost for these plans, our median showed, was 1.1% of total expenses for a sample of 250 hospitals."
Using that 1.1% median, if a hospital's pension costs went up 20%, that would still represent only 1.3% of total expenses, Sweeney says. That's not a big number, and it probably explains why not-for-profit hospitals and health systems are sticking with defined benefits pensions.
But, it is one more cost to worry about, and Sweeney predicts a gradual move away from defined benefits. "You will see more freezes where hospitals will say: ‘No new entrants to the plan. Anyone hired after today goes into a defined contribution plan,'" she says. "We will see hospitals looking more at their asset allocations for the plans, trying to reduce volatility."
Readers, I've got a few questions for you. What adjustments, if any, have you made to your defined benefits plans to account for the recession? How important is the defined benefits plan for recruiting and retaining quality staff? Will your hospital move away from defined benefits plans and into defined contribution plans? Why are defined benefits plans so deeply entrenched with not-for-profit hospitals when they've been phased out in most other sectors of the economy?
Note: You can sign up to receive HealthLeaders Media HR, a free weekly e-newsletter that provides up-to-date information on effective HR strategies, recruitment and compensation, physician staffing, and ongoing organizational development.
The theft of 57 hard drives from a BlueCross BlueShield of Tennessee training facility last fall has put at risk the private information of nearly one million customers in least 32 states, the insurer said this week in an investigative update.
So far, there has been no documented identity theft or credit fraud affecting BlueCross members as a result of this incident, BCBS of Tennessee said in a media release.
"As of April 2, 2010, a total of 998,422 current and former members have been identified at being at risk," said BCBS of Tennessee spokeswoman Mary Thompson, adding that the total figure includes 447,549 current and former members identified in the lowest-risk Tier 1 category.
"These newly-identified members in Tier 1 began receiving their notification letters the week of April 5. To date, a total of 550,873 notifications have been sent to members indicating that their personal information was included on the stolen hard drives," Thompson said.
The hard drives containing 1.3 million audio files and 300,000 video files related to coordination of care and eligibility telephone calls from providers and members were reportedly stolen from a leased office in a Chattanooga strip mall that once housed a BCBS of TN call center. The video files were images from computer screens of customer service representatives and the audio files were recorded phone conversations from Jan. 1, 2007 to Oct. 2, 2009. The files contained customers' personal data and protected health information that was encoded but not encrypted.
So far, notices have been sent to all 238,589 members in the Tier 3 category, who had their name, address, BlueCross member ID number, diagnosis, Social Security number, and/or date of birth included in the stolen hard drives.
Additionally, 312,284 current and former members have been identified in the Tier 2 category, which includes name, address, BlueCross member ID number, date of birth, and/or diagnosis. So far, 146,612 Tier 2 members have received notifications.
The number of members reported in the Tier 2 category is larger because of BlueCross' decision to offer remediation services to all family members associated with the specific subscriber ID number identified during the data audit process. This decision was made to ensure all potentially at-risk members are protected.
So far, 24,780 members have contacted Equifax to begin a free credit monitoring service offered to members in Tier 3. Another 2,512 members have started LifeLock services for minors in Tier 3. All 998,422 members and former members have been enrolled in the Kroll ID Theft Smart program.
The American College of Radiology announced it will launch a Breast Magnetic Resonance Imaging Accreditation Program on May 10.
The program was developed by the ACR Committee on Breast MRI Accreditation. It will provide peer-review assessment of facilities' breast MRI services equipment, processes, and the quality of their images. For facilities that offer only breast imaging services, the accreditation program fulfills accreditation requirements under the Medicare Improvements for Patients and Providers Act of 2008.
"This program will help patients and their providers identify practices that provide high-quality breast MRI," said Constance Lehman, MD, chair of the ACR Committee on Breast MRI Accreditation, in a news release. "This accreditation program sets quality standards for breast MRI providers and helps them continuously improve patient care by evaluating the qualifications of personnel, equipment performance, effectiveness of quality control measures, and image quality,"
Facilities must submit clinical images and data for each magnet performing breast MRI examination at their site. Facilities performing breast MRI must be able to perform mammographic correlation, directed breast ultrasound, and MRI-guided intervention, or create a referral arrangement with a cooperating facility that could provide these services.
The cooperating facility must be accredited by the ACR in breast MRI, or, until May 10, 2011, has had an application for breast MRI accreditation accepted by the ACR.
ACR CEO Harvey L. Neiman said more than 200 facilities have already shown an interest in participating in the ACR Breast MRI Accreditation Program, and will receive instructions on how to get started after May 10.
Atlanta-based Saint Joseph's Health System and Piedmont Healthcare have signed a letter of intent to create a joint operating company (JOC) serving northern Georgia, the two health systems announced.
The JOC would be co-sponsored by the two nonprofit systems, which are expected to complete negotiations within a 90-day due diligence period, and have the JOC in place by the end of the year. The JOC would have separate management and a board comprised of trustees from SJHS and Piedmont, and would operate under the Ethical and Religious Directives of the Catholic Church.
Both system CEOs said the changing healthcare sector calls for creating a collaborative business model.
"In a constantly changing and complex healthcare environment, a joint operating company with Piedmont Healthcare is a smart, efficient and cost-effective way to provide the best quality of care possible for Georgians," said Kirk G. Wilson, president/CEO of Saint Joseph's, in a media release. "The JOC is a wonderful opportunity to create one of the finest healthcare delivery systems in the country, and we are very excited with the prospect of partnering with Piedmont Healthcare in this effort."
"A joint operating company between Piedmont Healthcare and Saint Joseph's would be a unique partnership between two of the most respected and longest-serving healthcare providers in Georgia," said R. Timothy Stack, president/CEO of Piedmont Healthcare.
If a JOC agreement is reached, Saint Joseph's and Piedmont must get final approval from their respective boards, and the Sisters of Mercy and Catholic Health East, the Archbishop of Atlanta, the Federal Trade Commission, and the Georgia Attorney General.
Founded by the Sisters of Mercy in 1880, Saint Joseph's Hospital of Atlanta is now a 410-bed, acute-care hospital, with a medical staff of more than 750 physicians.
Hospitals in the Piedmont Healthcare system include: Piedmont Hospital, a 481-bed acute tertiary care hospital in the north Atlanta community of Buckhead; Piedmont Fayette Hospital, a 143-bed, acute-care community hospital in Fayetteville; Piedmont Mountainside Hospital, a 42-bed community hospital in Jasper; and Piedmont Newnan Hospital, a 143-bed, acute-care community hospital in Newnan.
Piedmont Healthcare is the parent company of the Piedmont Heart Institute, which has more than 85 cardiovascular specialists at Piedmont Heart Institute Physicians, with more than 30 locations in north Georgia and North Carolina; the Piedmont Physicians Group, with more than 100 primary care physicians in more than 30 offices throughout metro Atlanta; the Piedmont Clinic, a 600-member physician network; and Piedmont Philanthropy, the philanthropic entity for private fundraising initiatives.
