Healthcare Business Trends

Find the latest numbers shaping healthcare finance

February 3, 2020 5:56 pm

Safety-net hospitals receive reprieve from DSH cuts, but only until May

The start of a $4 billion cut to Medicare payments for hospitals serving high numbers of low-income patients was delayed to May 23, 2020, as part of an omnibus federal funding package enacted near the end of 2019.

The $1.4 trillion, two-bill funding package includes a range of healthcare provisions. But the biggest financial impact on hospitals from the healthcare-focused bill may come from the delayed implementation of the $4 billion cut to participants in the Disproportionate Share Hospital (DSH) program, which is a key funding source for safety-net hospitals. However, the reprieve is temporary, with the cuts scheduled to accelerate to a total of $8 billion in FY21, which starts Oct. 1, 2020.

The DSH cuts have been delayed four times but also inflated each time they were delayed. They are scheduled to total $43 billion by 2025.

The DSH cuts were not the only funding source for the Affordable Care Act (ACA) affected by the legislation. The legislation permanently repealed:

  • The medical device excise tax
  • The annual health insurance tax
  • The excise tax on high-cost employer- sponsored healthcare coverage, known as the Cadillac tax 

After ACA court decision, immediate changes are unlikely

Hospitals should see no near-term effects  from the December appeals court decision on the federal healthcare overhaul, industry trackers say.

The Dec. 18 decision by the Fifth Circuit Court of Appeals in Texas vs. Azar, concurring with a lower court that the ACA’s individual mandate is unconstitutional and remanding the case back to that court for further analysis, will have no immediate effect, according to a hospital credit rating agency and a legal scholar.

Regarding the major takeaway from the decision “for people, patients and consumers, it has to be that nothing is changing in the immediate future,” said Katie Keith, JD, an adjunct law professor at Georgetown University Law Center and an ACA advocate.

The wait-and-see attitude was echoed by Moody’s Investors Service. “Yesterday’s ruling that the ACA’s individual mandate is unconstitutional has no immediate credit effect for states or hospitals, but a future ruling that finds the entire law unconstitutional would be credit negative for both,” Dan Steingart, vice president and senior credit officer at Moody’s, said. 

BPCI Advanced participation jumps by 57% — to a total of 2,015 providers — in its 3rd year

Participation in the Bundled Payments for Care Improvement Advanced (BPCI-A) program, Medicare’s leading voluntary bundled payments program, surged to more than 2,000 hospitals and practices for 2020.

With the 57% increase from 2019, the BPCI-A program is seeing its largest enrollment level. After launching in October 2018, the program lost 16% of participants in 2019. Annual participation levels, according to Medicare data, were:

  • 1,547 in 2018
  • 1,280 in 2019
  • 2,015 in 2020

Analyses by Archway Health found other positive 2020 developments for BPCI-A, including an 80% provider retention rate, which was much higher than occurred in the predecessor bundled payment program. Moreover, the number of episodes taken on by each provider, calculated as unique episode and provider combinations, increased by 65% to 12,719.  That showed broad interest in some of the bundle options included in the program, says Keely Macmillan, senior vice president of policy at Archway Health.

Likely reasons why participation jumped, Macmillan says, include:

  • Sufficient time for providers to evaluate the program, in contrast with the previous year’s hurried initial enrollment 
  • Provider interest in participating in three of the new bundle options
  • The perception that this year’s programs may represent a last chance to voluntarily take on risk before CMS mandates it

As part of the five-year payment model, providers face two-sided risk in managing all spending compared with a specified target for episodes of care within any of 35 clinical bundles. Quality measures are factored in as well. 

Provider participation in new bundle options includes:

  • 138 participants in bariatric surgery
  • 125 participants in transcatheter aortic valve replacement
  • 375 participants in a seizures bundle

Number of Medicare ACOs stays flat, but financial risk-taking increases

The total number of Medicare accountable care organizations (ACOs) operating in 2020 changed little from 2019, but significantly more are taking on financial risk.

The Medicare Shared Savings Program (MSSP) — the main Medicare ACO program — has 517 ACOs operating in 2020, which is one fewer than 2019’s total, according to Medicare data. The number also is down from a high of 561 in 2018, before the Trump administration changed the rules to require more financial risk from participants.

Senior Trump administration officials repeatedly said they do not mind if the program shrinks as long as more ACOs move from the risk-free upside-only track into  
risk categories, which officials said are more likely to drive providers to change their approaches to care. 

Subsequently, participation in the no-risk track has trended downward:

  • 91% of all MSSP ACOs in 2017
  • 82% in 2018
  • 26% in 2020 

More physicians shift from MIPS to APMs in Medicare

The number of physicians receiving Medicare payments through risk-based models sharply increased in 2018, while the much larger number for whom payment is based on quality-measure performance started to decline.

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) established criteria for Medicare to pay physicians through either the Merit-based Incentive Payment System (MIPS) or advanced alternative payment models (APMs). MIPS requires annual quality reporting to garner bonuses, avoid cuts or maintain payment levels, while APM participants generally garner 5% annual pay increases.

The simplified APM approach, in which the convening organization can collect and report clinician data on behalf of participating clinicians, appears to be drawing increasing physician interest.

The latest MACRA results showed that:

  • APM participation increased by 84% to more than 183,000.
  • MIPS participation decreased by 5% to nearly 890,000.
  • Of physicians paid through MIPS, 97% received a bonus payment of as much as 1.68%.
  • Of physicians paid through MIPS, 2% were dealt payment cuts of as much as 5%. 

Hospital operating margins decline 21% in 2019, tracking firm finds

Operating margins declined in much of 2019, with small hospitals experiencing the worst performance, according to Kaufman Hall, an industry finance tracking firm. 

Kaufman Hall’s monthly analysis for  about 800 hospitals found a 21.3% decline in  operating margins and a 14.5% decrease in EBITDA operating margins from November 2018 to November 2019.

The firm cited poor patient volumes and revenues and higher-than-expected labor and nonlabor expenses.

Hospital margins varied widely in different parts of the country:

  • A 21.8% decline in operating EBITDA margin in the Great Plains region
  • A 4.8% decline in operating EBITDA margin in the Western region
  • A 12.2% decline in operating EBITDA margin in the Southern region
  • A –10.3% variance to budget for operating EBITDA margins in the Northeast/Mid-Atlantic region
  • A –7.2% variance to budget for operating EBITDA in the Midwestern region
  • A –2.6% variance to budget for operating EBITDA in the Southern region 


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