Healthcare Business Trends

News Briefs: Financial and operational challenges still hamper hospitals 2.5 years into the pandemic

September 29, 2022 12:54 am

The not-for-profit hospital sector’s near-term outlook is “deteriorating,” according to a report released by Fitch Ratings in August.

“Fitch expects that sector conditions will remain challenged for the remainder of 2022, as labor pressures and generationally elevated inflation compress margins for most providers,” the report states. “These macro headwinds were noted heading into 2022 and have been more pronounced than expected (compounded by investment losses driven by asset price corrections).”

Hospital medians are “deceptively strong,” according to Fitch, with cash-to-adjusted-debt increasing from the prior year by 20% for AA-rated hospitals and 8% for BBB-rated hospitals. Because the relevant data are from 2021, however, Fitch said it expects to see hospital medians reverse course by the same time next year.

Operating margins “will continue to reflect ongoing pressures,” per the report. A potential consequence is that “many” hospitals will violate debt service coverage covenants, adding to the likelihood of rating downgrades, Fitch said.

“While Fitch does not expect en masse downgrades across the sector, a period in which downgrades and negative outlooks outpace upgrades and positive outlooks is anticipated,” the report states.

Healthcare executive compensation is on the upswing, new report finds

Healthcare labor trends are boosting compensation for hospital and health system executives, according to a new report (available via purchase).

Produced by SullivanCotter, the report finds that median base salaries for executives have risen by 4.5% this year, while incentive payouts reflect a measure of recovery from the worst of the COVID-19 pandemic.

Salary increases for 2022 rebounded “due to successful business recovery efforts and high demand for talent that is outpacing supply due to burnout, retirements accelerated by the pandemic and the need for highly qualified leaders to lead organizations through increasingly complex times,” according to the report, which drew its findings from a survey of more than 3,000 organizations.

The report notes that the percentage increase for executives is less than that seen for many clinical roles, including registered nurses, for whom the median salary increased by more than 8% this year.

“This reflects organizations’ strategy to reward staff for the day-to-day work that has put extra demand and stress on teams, as well as supporting recruitment and retention efforts,” the report states.

Meanwhile, incentive payouts based on 2021 performance “returned to levels consistent with historical practices,” with median total cash compensation for executives increasing by 9.7%.

Study shows time-based billing would bring in more revenue for longer visits

Physicians working in clinics that tend to have longer patient visits can increase evaluation and management (E/M) revenue if they incorporate time-based billing, according to a study.

As published in JAMA Network Open, researchers with the University of Chicago and Oregon Health & Science University sought to quantify whether time-based billing can generate more revenue compared with billing that’s based on medical decision-making as reflected in CPT codes.

The researchers used 2019 (i.e., pre-pandemic) billing data for outpatient E/M codes and 2021 reimbursement rates from CMS. Modeling was based on a single full-time physician working in a primary care clinic with fee-for-service billing.

When billing was based on medical decision-making, the physician in the model earned significantly more E/M revenue from shorter visits (30 minutes for new patients, 15 minutes for returning patients) compared with longer visits (40 and 20, respectively). When extrapolated over a year, revenue was $564,188 for shorter visits and $423,137 for longer visits.

Under time-based billing, in contrast, annual E/M revenue increased from $400,432 for the shorter visits to $458,718 for the longer visits.

Texas-based study raises questions about impact of using additional criteria in No Surprises Act IDR cases

A study of independent dispute resolution (IDR) outcomes in Texas, which in 2020 implemented a law prohibiting surprise billing, suggests “arbiters may anchor to a median in-network price benchmark,” researchers reported in JAMA.

Under the No Surprises Act, the U.S. Department of Health and Human Services initially issued regulations requiring arbitrators to primarily consider the median in-network payment amount for a given service in a given market when settling disputes between providers and health plans over out-of-network payments.

Provider representatives have filed at least six different lawsuits challenging those regulations, saying Congress intended for arbitrators to consider additional criteria. In the first case to be decided, a federal judge said the regulations deviated from legislative intent and IDR arbitrators should assess certain other criteria as well.

But in Texas’s IDR process, which allows for various criteria to be evaluated, final allowed amounts closely tracked the median in-network benchmark, with a median ratio of 1.06 between the two metrics.

By comparison, the ratio of final allowed amounts to the 80th-percentile-of-charges benchmark, which also can factor into Texas cases, was 0.37.

Landmark law to curb Medicare drug prices will start to make an impact in three years

High-profile legislation that was passed by Democrats in Congress and signed in August by President Joe Biden could have a significant impact on Medicare drug spending.

Known as the Inflation Reduction Act, the legislation addresses various sectors of the economy and includes a three-year continuation of expanded subsidies for buying insurance in the Affordable Care Act marketplaces. For healthcare, the headlining provision is a requirement that Medicare negotiate the prices of some drugs with the goal of reducing both out-of-pocket costs for beneficiaries and federal healthcare spending.

Negotiated prices will not kick in until 2026, although by Sept. 1, 2023, the U.S. Department of Health and Human Services (HHS) must publicize the drugs selected for the initial round of negotiations. In July, the Congressional Budget Office estimated that authorizing Medicare to negotiate drug prices would save the program nearly $99 billion through 2031.

In 2026, negotiated prices will apply to 10 Medicare Part D drugs as selected by HHS. More drugs will be added in subsequent years, with Part B drug prices becoming eligible for negotiation in 2028.


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