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July 25—The decline in inpatient use rates and inpatient revenues is one of the biggest contributors to the negative credit outlook for the not-for-profit healthcare sector, such that “Right now, it feels like this is the straw that’s breaking the camel’s back,” according to Martin Arrick, managing director for Standard & Poor’s.
A number of organizations are reporting 10 to 12 percent declines in inpatient use rates, Arrick said at ANI: The 2014 HFMA National Institute this past June. “Obviously, that’s a major hit to your financial numbers,” Arrick told an audience of primarily healthcare finance professionals, and that is hurting not only hospitals' bottom lines, but also their access to capital.
The past three or four years, hospitals have “really done an excellent job keeping up with the pressure on revenues,” Arrick said. But the decline in inpatient utilization and revenue—prompted largely by an increase in high-deductible insurance plans, the move toward value-based payment models, improved quality of care, and increased emphasis on redirecting care to lower-cost settings—“has really been so difficult for so many folks.” Meanwhile, insurance companies are benefitting from the trend.
In response, “The leading organizations across the country are really moving to an increase in percentage of at-risk [contracts with insurers and other purchasers] because they feel that they’re doing the hard work to lower utilization, and they want to share in the benefits, and they don’t want to shoot themselves in the foot because they’re doing a better job,” Arrick said.
However, for most hospitals and health systems, the move toward at-risk contracts has been slow. Arrick estimated that for two-thirds of the healthcare organizations Standard & Poor’s talks with, “The percentage of money that’s at risk is probably less than 5 percent. It’s barely a blip on the radar screen.”
For years, hospital and health system CFOs “have been on a journey to cut costs, lower capital spending, and they’ve been able to meet the challenges of a much tighter revenue environment,” Arrick said. “But we noticed last year, all of a sudden, a lot of organizations were really beginning to lose the battle a little bit.”
Hospitals’ ability to continue to cut costs has been eclipsed by the pressures of a tighter revenue environment resulting not only from declines in inpatient utilization, but also reductions in elective surgeries, sequestration, and an increase in observation stays.
Credit analysts also are seeing “much more competition for patients,” Arrick said. “We’re seeing larger systems reach further and further away from their home base to try to bring in more patients.” And as hospitals and health systems amp up efforts draw patients to their facilities, “Obviously, everybody can’t win in that game.”
In this environment, many community hospitals are trying to compete on price: “They’re trying to enhance price consciousness, because that’s where they think they can win.”
But at a time when credit downgrades are beginning to exceed upgrades, there are bright spots for the healthcare sector.
The implementation of new healthcare business models, consolidation that results in reduced costs and improved value, and more are positive signs for the healthcare credit market, Arrick said. ““A lot of folks do have relatively good balance sheets, and that’s a source of strength for the sector, he said, adding, “It’s still a relatively stable sector.”
Additionally, investments in IT, while expensive, will benefit organizations over time, he said, as will the move toward new business models for care delivery.
Ultimately, hospitals and health systems that are able to hold their existing margins in today's healthcare environment will be better-positioned to manage the challenges of reform, Arrick said.
Publication Date: Friday, July 25, 2014
Tom Myers, chief strategy officer, The SSI Group, discusses the shifting payment environment and how it affects providers' patient access and claims management processes.
Jeff Chester, senior vice president and chief revenue officer at Availity, shares his thoughts on "Revenue Cycle 2.0" and how to best meet its challenges.
Mitch Morris, vice chair and global leader, healthcare, Deloitte, and Michael O'Rourke, senior vice president and chief information officer, Catholic Health Initiatives (CHI), share perspectives on the need for transformational IT in health care today.
Brian Kueppers, founder and CEO, Apex, discusses the importance of a robust patient payment strategy in boosting organization revenue and enhancing patient satisfaction.
Brian Grazzini, CFO, HealthPort, describes the importance of efficient and compliant information exchange and audit management in helping HIM staff spend less time on paperwork and more on mission-critical projects.
Cindy Matthews, executive vice president, Community Hospital Corporation, discusses how rural and community hospitals can use collaborative partnering to position for success through tough market conditions.
Rick Heise, senior vice president, revenue cycle, at Cerner Corporation, discusses the importance of integrating clinical and financial data to excel in health care’s changing payment environment.
Russ Graney, founder and CEO for Aidin, and John Laursen, head of business development for Aidin, share insights on how to improve care transitions between acute and post-acute care settings and incentivize high-quality patient outcomes.
Scott Elston, strategic accounts manager, GE Healthcare Services, describes how substantial cost reduction in health care requires rethinking business strategy and asset use.
Robert Williams, MD, director, Deloitte Consulting LLP, and Arielle Freiberger, product strategist, ConvergeHEALTH by Deloitte, explain how sophisticated retrospective, real-time, and predictive data analytics can inform decision making to reduce costs and improve care.
Stuart Hanson, director of business development (healthcare solutions) at Citi Retail Services, discusses how improving the payment experience can benefit consumers and healthcare providers.
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