Recent financial data for the hospital industry illustrate continuing challenges even as some trends improve.
Fitch Ratings released an analysis in early March that offers scant reason for optimism. Titled “Early NFP hospital medians show expected deterioration; will worsen,” it draws on data from hospitals with earlier 2022 financial year-ends. Those numbers show “materially weaker profitability and liquidity relative to FY21 due to expense increases and investment market losses,” Fitch says.
Looking at the year ahead, Fitch says it “does not expect a rapid financial recovery for most providers, although hospitals under operational pressure will begin to see breakeven results on at least a month-to-month basis at some point in 2023 with revenue growth and expense pressures easing.”
Kaufman Hall’s National Hospital Flash Report, using January data compiled by Syntellis Performance Solutions, shows that hospital financial performance appears to be steadying — but the improvement doesn’t qualify as a recovery from the pandemic-era downturn.
“Hospitals entered 2023 on more stable footing, following the worst financial year since the start of the pandemic,” the report summary states. “However, they still face a range of persistent challenges, including higher labor expenses, lower patient volumes and a fundamental shift in where patients access care services.”
Affordability of healthcare is not enhanced when providers form health systems, study finds
The efficiencies gained when providers operate as a health system do not always translate to care that is more cost-effective, according to a JAMA study published in late January.
“Integrated systems of care have the potential to improve quality and efficiency through care coordination and use of information technology, but also have greater market power to negotiate higher prices,” wrote researchers with Harvard Medical School and the National Bureau of Economic Research.
Paid prices were 31% higher if a hospital was part of a system, the researchers found, while payments to system physicians ranged between 12% and 26% higher. The gap especially was pronounced for smaller practices.
Performance on measures of preventive care, clinical quality and patient experience was “modestly higher” for system-based providers. The differences appear to stem largely from relative deficiencies in clinical performance among smaller independent practices.
“Small quality differentials combined with large price differentials suggests that health systems have not, on average, realized their potential for better care at equal or lower cost,” the researchers wrote.
Proposed rate change for MA plans draws much pushback, some support
CMS’s proposed 2024 rate notice for Medicare Advantage (MA) health plans generated significant criticism during the public comment period.
The average change in revenue for MA plans would be only 1.03% after factoring in reductions through mechanisms such as Star Rating adjustments and risk model revisions, CMS states. The latter adjustment would cut the 2024 rate by 3.12%.
The key part of the proposed risk-model revision is changes to hierarchical condition codes that have been deemed to result in excessive payments to MA plans relative to Medicare fee-for-service.
$11BEstimated savings to the Medicare trust fund from proposed revisions to the risk adjustment model used in calculating MA payments, according to CMS.
MA advocates, including both health plan and physician representatives, say 2024 is too soon to implement the changes because more time is needed to study the impact on beneficiaries and the overall program.
The Better Medicare Alliance released an analysis that concludes the net rate change would be a 2.27% decrease, contrary to CMS’s computations. The analysis, conducted by Avalere, suggests that CMS does not accurately account for a lower effective growth rate for MA county benchmarks, among other issues.
Some stakeholders support the changes. Nineteen leaders from public health and other industry segments submitted a comment letter saying CMS should proceed.
“The continuing excess payment to Medicare Advantage plans through the coding game drains resources from taxpayers, patients and important investments in improving the community conditions that generate health,” Donald Berwick, MD, a former CMS administrator and a signer of the letter, said in a written statement.
Price transparency enforcement soon could become stricter
Although nothing is official, CMS leaders indicate enforcement of hospital price transparency regulations is set to become more stringent.
In a Health Affairs article, the Center for Medicare’s Meena Seshamani, MD, PhD, director, and Douglas Jacobs, MD, chief transformation officer, said at least 30% of hospitals were not fully complying with the regulations in 2022, down from 73% the year before. The second-year tally “represents a marked improvement over the 2021 analysis, but it is not sufficient,” they wrote.
One potential change is an increased emphasis on standardization in hospitals’ posting of price information, the CMS leaders stated.
“The current regulations permit some flexibility related to form and format, so long as the hospital makes public its standard charges in a machine-readable file format and includes certain minimum data elements,” Seshamani and Jacobs wrote.
It seems likely that no significant changes will take place before 2024. The annual proposed rule for hospital outpatient payments, which is scheduled to be published in July 2023, is one vehicle in which changes could be communicated.
DOJ withdraws guidance that bolstered antitrust safe harbors for GPOs and more
Potentially setting up stricter enforcement of antitrust policy in healthcare, the U.S. Department of Justice has withdrawn guidance that essentially promoted certain arrangements in the industry.
The Feb. 3 announcement from DOJ’s Antitrust Division amounts to a cancellation of so-called “safety zones” that were established in three sets of nonbinding guidance issued between 1993 and 2011. Those safe harbors allowed providers to engage in information sharing and group purchasing organizations (GPOs), among other arrangements, while being reasonably assured they would not run afoul of antitrust law.
As explained in 1996 guidance, one safety zone helped GPOs by stating that DOJ typically would not probe such an arrangement for antitrust issues if the GPO’s purchases accounted for less than 35% of any product’s sales in the market and if costs amounted to less than 20% of any participating organization’s revenues.
With the guidance withdrawn, DOJ said it will take a case-by-case enforcement approach. Thus, experts say providers should document material pro-competitive reasons for participating in a GPO, along with antitrust protocols that are in place among individual participants and the GPO vendor.