Author Archives: henrykotula

Hospitals at a Crossroad: Reactive Navigation or Proactive Orchestration?

Posted on by • Posted in 2024 Election Issues, American Hospital Association (AHA), Bankruptcy, Board, Financial Stewardship, Financial Viability, Financially Distressed, Health System, Healthcare Reform, Hospital, Hospital Industry, Leadership, Leadership Investment, Leadership Problem Solving, Leadership Transformation, Leadership Vision, Medicaid, Medicare, Public Opinion, Public Perception, Utilization Trends • Leave a comment
Hospitals at a Crossroad: Reactive Navigation or Proactive Orchestration?

This is National Hospital week. It comes at a critical time for hospitals:

The U.S. economy is strong but growing numbers in the population face financial insecurity and economic despair. Increased out-of-pocket costs for food, fuel and housing (especially rent) have squeezed household budgets and contributed to increased medical debt—a problem in 41% of U.S. households today. Hospital bills are a factor.

The capital market for hospitals is tightening: interest rates for debt are increasing, private investments in healthcare services have slowed and valuations for key sectors—hospitals, home care, physician practices, et al—have dropped. It’s a buyer’s market for investors who hold record assets under management (AUM) but concerns about the harsh regulatory and competitive environment facing hospitals persist. Betting capital on hospitals is a tough call when other sectors appear less risky.

Utilization levels for hospital services have recovered from pandemic disruption and operating margins are above breakeven for more than half but medical inflation, insurer reimbursement, wage increases and Medicare payment cuts guarantee operating deficits for all. Complicating matters, regulators are keen to limit consolidation and force not-for-profits to justify their tax exemptions. Not a pretty picture.

And, despite all this, the public’s view of hospitals remains positive though tarnished by headlines like these about Steward Health’s bankruptcy filing last Monday:

The public is inclined to hold hospitals in high regard, at least for the time being. When asked how much trust and confidence they have in key institutions to “to develop a plan for the U.S. health system that maximizes what it has done well and corrects its major flaws,” consumers prefer for solutions physicians and hospitals over others but over half still have reservations:

A Great DealSomeNot Much/None
Health Insurers18%43%39%
Hospitals27%52%21%
Physicians32%53%15%
Federal Government14%42%44%
Retail Health Org’s21%51%28%

The American Hospital Association (AHA) is rightfully concerned that hospitals get fair treatment from regulators, adequate reimbursement from Medicare and Medicaid and protection against competitors that cherry-pick profits from the health system.

It can rightfully assert that declining operating margins in hospitals are symptoms of larger problems in the health system: flawed incentives, inadequate funding for preventive and primary care, the growing intensity of chronic diseases, medical inflation for wages, drugs, supplies and technologies, the dominance of ‘Big Insurance’ whose revenues have grown 12.1% annually since the pandemic and more. And it can correctly prove that annual hospital spending has slowed since the pandemic from 6.2% (2019) to 2.2% (2022) in stark contrast to prescription drugs (up from 4% to 8.4% and insurance costs (from -5.4% to +8.5%). Nonetheless, hospital costs, prices and spending are concerns to economists, regulators and elected officials.

National health spending data illustrate the conundrum for hospitals: relative to the overall CPI, healthcare prices and spending—especially outpatient hospital services– are increasing faster than prices and spending in other sectors and it’s getting attention: that’s problematic for hospitals at a time when 5 committees in Congress and 3 Cabinet level departments have their sights set on regulatory changes that are unwelcome to most hospitals.

My take:

The U.S. market for healthcare spending is growing—exceeding 5% per year through the next decade. With annual inflation targeted to 2.0% by the Fed and the GDP expected to grow 3.5-4.0% annually in the same period, something’s gotta’ give. Hospitals represent 30.4% of overall spending today (virtually unchanged for the past 5 years) and above 50% of total spending when their employed physicians and outside activities are included, so it’s obvious they’ll draw attention.

Today, however, most are consumed by near-term concerns– reimbursement issues with insurers, workforce adequacy and discontent, government mandates– and few have the luxury to look 10-20 years ahead.

I believe hospitals should play a vital role in orchestrating the health system’s future and the role they’ll play in it. Some will be specialty hubs. Some will operate without beds. Some will be regional. Some will close. And all will face increased demands from regulators, community leaders and consumers for affordable, convenient and effective whole-person care.

For most hospitals, a decision to invest and behave as if the future is a repeat of the past is a calculated risk. Others with less stake in community health and wellbeing and greater access to capital will seize this opportunity and, in the process, disable hospitals might play in the process.

Near-term reactive navigation vs. long-term proactive orchestration–that’s the crossroad in front of hospitals today. Hopefully, during National Hospital Week, it will get the attention it needs in every hospital board room and C suite.

PS: Last week, I wrote about the inclination of the 18 million college kids to protest against the healthcare status quo (“Is the Health System the Next Target for Campus Unrest?” The Keckley Report May 6, 2024 www.paulkeckley.com). This new survey caught my attention:

According to the Generation Lab’s survey of 1250 college students released last week, healthcare reform is a concern. When asked to choose 3 “issues most important to you” from its list of 13 issues, healthcare reform topped the list. The top 5:

  1. Health Reform (40%)
  2. Education Funding and access (38%)
  3. Economic fairness and opportunity (37%)
  4. Social justice and civil rights (36%)
  5. Climate change (35%)

If college kids today are tomorrow’s healthcare workforce and influencers to their peers, addressing the future of health system with their input seems shortsighted. Most hospital boards are comprised of older adults—community leaders, physicians, et al.

And most of the mechanisms hospitals use to assess their long-term sustainability is tethered to assumptions about an aging population and Medicare. 

College kids today are sending powerful messages about the society in which they aspire to be a part. They’re tech savvy, independent politically and increasingly spiritual but not religious. And the health system is on their radar.

As Steward Ship Was Sinking, CEO Bought $40M Yacht

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https://www.medpagetoday.com/special-reports/features/110025?xid=nl_mpt_investigative2024-05-08&eun=g885344d0r&utm_source=Sailthru&utm_medium=email&utm_campaign=InvestigativeMD_050824&utm_term=NL_Gen_Int_InvestigateMD_Active

A peculiar private equity deal screwed over an already struggling hospital system while reaping profits for executives, according to the Wall Street Journalopens in a new tab or window.

Back in 2020, Steward Health Care System needed $400 million to dig it “out of a deep financial hole.” Instead of investing in the struggling health system, Steward’s owner, Cerberus Capital Management, reportedly convinced Steward’s landlord, Medical Properties Trust (MPT), to provide the cash infusion.

Cerberus also sold its majority stake in Steward to a group that included the health system’s CEO Ralph de la Torre, MD, WSJ reported.

MPT had to put up millions of dollars for its tenant over a series of financial deals, and recent Congressional inquiries uncovered more details about how that went down. The first part of the cash infusion came in $205 million from MPT to invest in overseas hospitals in a joint venture with Steward. The second half was covered when MPT forgave the mortgage for a Steward hospital and paid $200 million for two Utah hospitals.

In the end, Cerberus ended up with a whopping $800 million in profit while Steward filed for Chapter 11 bankruptcy this week, WSJ reported.

Oh, and de la Torre bought a $40 million yacht with the proceeds of a 2021 payout related to his ownership of Steward.

Hospice remains a blind spot for Medicare Advantage

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https://www.axios.com/2024/05/06/medicare-advantage-hospice-insurance-challenges?utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

As Medicare Advantage grows bigger and bigger, there’s one area the industry and regulators haven’t figured out how to make work yet: hospice.

Why it matters: 

The end-of-life care option is the only Medicare service that can’t be offered in the private-run alternative, which now covers over half of enrollees.

  • Medicare is winding down an experiment — years earlier than expected — that let some Medicare Advantage plans offer a hospice benefit, citing operational challenges and limited interest from insurers and hospices.

Catch up quick: 

Usually, when a Medicare Advantage beneficiary decides to enter hospice after receiving a terminal diagnosis, traditional Medicare pays for this care while they remain enrolled in their private plan.

  • That could make navigating insurance “very, very clunky” for hospice patients, especially when they have health care needs unrelated to their terminal illness, said Lynne Sexten, CEO of Agrace Hospice.
  • And this affects a lot of people. Nearly half of the 1.7 million Medicare Advantage beneficiaries who died in 2022 used hospice services, according to the Medicare Payment Advisory Commission (MedPAC).
  • Experts say the roots of this awkward arrangement likely goes back about 40 years, when private Medicare first became a permanent offering. At the time, traditional Medicare had just started covering hospice, so officials had limited data on how much it cost.

What they did: 

Medicare’s Innovation Center began an experiment in 2021 that allowed Medicare plans to contract directly with hospice providers.

  • It aimed to test whether that could make end-of-life care transitions more seamless for Medicare Advantage patients while reducing costs and improving care quality.
  • Participating health plans also covered palliative care and transitional care, where patients continued curative treatments like dialysis or chemotherapy temporarily during their hospice stay.

The Innovation Center announced abruptly in March that it would end the program in December, a year after officials said it would run through 2030.

  • The news came after two major insurers — UnitedHealth Group and Elevance — pulled out of the model. Only 13 insurers participated this year.
  • Hospices largely cheered the decision. Lower reimbursement rates, delayed payment from insurers and burdensome quality reporting made the experiment difficult for hospices that chose to contract with insurers, an independent evaluation of the program found.
  • The Centers for Medicare and Medicaid Services stressed that its decision to end the experiment doesn’t mean it failed, and the agency in a statement to Axios said it will continue to evaluate results.

Many insurers also faced a learning curve on how to work with hospice for their Medicare enrollees. Hospice is delivered and paid for differently than other Medicare benefits.

  • The experiment tried to do too much too fast, said Kevin Kappel, vice president at SCAN Health Plan, a nonprofit insurer that joined Medicare’s hospice experiment last year.
  • “I think people underestimated how complex it was to do. … We’ve learned a lot,” Kappel said.

Yes, but: 

Hospices and insurers said they still need to figure out how to make care more seamless for Medicare Advantage beneficiaries.

  • “This is by no means the end of the story for end-of-life care providers and MA plans,” said Ethan McChesney, policy director at the National Partnership for Healthcare and Hospice Innovation.
  • It’s been a full decade since MedPAC, the congressional advisory committee, recommended including hospice in Medicare Advantage, warning that excluding it “fragments care accountability and financial responsibility for MA enrollees who elect hospice.”

What we’re watching: 

Industry leaders say hospice doesn’t necessarily have to become part of Medicare Advantage to improve care integration, or at least not right away.

  • Ohio’s Hospice, a nonprofit provider that participated in the Medicare experiment, said it will continue working with Medicare plans to extend palliative care and symptom management to more patients, CEO Kent Anderson said.
  • While Anderson said some peers worry about the growth of Medicare Advantage, “the longer we sit outside the managed care world, the less relevant we’ll become.”

Physician productivity up 4% as revenue, expenses rise

Posted on by • Posted in Key Metrics, Key Performance Indicators, Labor Spend Management, Operating Expenses, Operating Income, Operating Margin, Operating Metrics, Operating Performance, Physician, Physician Productivity, Physician Staffing, Relative Value Units (RVU), Worked Relative Value Units (wRVU) • Leave a comment
https://www.beckershospitalreview.com/finance/physician-productivity-up-4-as-revenue-expenses-rise.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Expenses per provider remained considerably higher than revenue generated in the first quarter of 2024, although there are signs the gap could be closing, according to the Kaufman Hall “Physician Flash Report,” released May 2.

Kaufman Hall based their findings on a monthly report from Syntellis Performance Solutions, part of Strata. The report gathered data from more than 200,000 employed providers, including physicians and advanced practice providers.

Net patient revenue per provider full-time equivalent was $383,881 for the first quarter, up 4% from the same period last year. Total direct expenses per provider FTE hit $620,729 for the quarter. Expense growth has slowed over the last three years, with a 5% growth from 2022 to 2023 and just 3% growth from 2023 to 2024.

“Labor expenses are a growing proportion of total expenses, a trend that is unlikely to change significantly. Organizations should shift from optimizing downstream revenue to optimizing downstream margins,” the report authors advised, noting hospitals and physician organizations can evaluate provider specialties by outcomes or other metrics when they aren’t big revenue drivers.

Provider productivity was up 4% as measured by work relative value units. Physician wRVU per FTE was 5,979 for the first quarter, up 6% year over year. Physician compensation jumped 3% to $364,319, down from 6% growth between 2022 to 2023.

Labor expenses continue to rise while support staff decline across specialties. Labor was 84% of total expenses in the first quarter, and support staff per 10k provider wRVUs dropped 6% year over year to 3.14, even after an 8% drop from 2022 to 2023. Report authors recommended organizations find better ways to use APPs for higher physician productivity.

Here are specific data points from the first quarter report.

Median net patient revenue per provider FTE by specialty cohort were:

1. Primary care: $471,000
2. Medical specialty: $377,000
3. Surgical specialty: $393,000
4. Hospital-based specialty: $250,000

Median physician wRVU per physician FTE by specialty cohort was:

5. Primary care: 5,560
6. Medical specialty: 6,742
7. Surgical specialty: 6,626
8. Hospital-based specialty: 5,239

Median physician paid compensation per physician FTE by specialty cohort:

9. Primary care: $297,000
10. Medical specialty: $412,000
11. Surgical specialty: $480.000
12. Hospital-based specialty: $360,000

Median support staff FTEs per 10,000 wRFUs by specialty cohort:

13. Primary care: 4.48
14. Medical specialty: 2.47
15. Surgical specialty: 2.87

Medicare Advantage extras on the chopping block in 2025

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https://www.beckerspayer.com/payer/medicare-advantage-extras-on-the-chopping-block-in-2025.html?origin=BHRE&utm_source=BHRE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Medicare Advantage insurers are planning to pare down their plan offerings in 2025. 

Facing lower reimbursement rates from CMS and higher medical costs, many plan executives said they will prioritize margins over growing their membership numbers. 

Brian Kane, CEO of Aetna, told investors May 1 that the company will prioritize “margins over membership” in 2025. The company will exit counties where it believes it can’t be profitable, Mr. Kane said.  

“It’s hard to say right now that we won’t have a meaningful decrease in membership,” Mr. Kane said. “It’s certainly possible.” 

Aetna’s competitors will be faced with the same choices, Mr. Kane said. 

Humana executives also said the company is eyeing market exits in 2025. Susan Diamond, Humana’s CFO, said the company is expecting a net decline in its MA membership next year. 

“Whether that is incrementally larger or smaller based on the other plans will be very dependent on what we see across the competitive landscape,” Ms. Diamond said April 24. 

On first-quarter earnings calls, payer executives told investors they are disappointed in CMS’ 2025 rate notice. The notice will decrease benchmark payments, which insurers say amounts to a cut in funding for the program. 

Medical costs are also on the rise in Medicare Advantage. CVS Health told its investors that Medicare Advantage costs keep climbing, partly driven by seasonal inpatient admissions. Outpatient services, including mental health and pharmacy, and dental spending also increased costs, CVS said. 

In its final rate notice published April 1, CMS said it was aware Medicare Advantage organizations were reporting rising costs but was “not aware of all of the specific drivers accounting for the experience of these MA organizations. We have reviewed incomplete fourth quarter 2023 Medicare FFS incurred experience and it is consistent with our projections.” 

Payers have also said they will cut back on supplemental benefits to account for lower rates. 

CVS Health CEO Karen Lynch said it wil adjust plan-level benefits in 2025. The company led the industry in growth in 2024 but was a “notable outlier” compared to its peers in adding on supplemental benefits to entice members, The Wall Street Journal reported May 1.

Some Aetna plans offer a fitness reimbursement, according to The Wall Street Journal. Members could cash in the benefit for pickleball paddles, golf clubs and other sports equipment — but these extras could be a thing of the past in a tougher rate environment. 

While every payer criticized CMS’s proposed rates, some executives said they would hold off on discussing their specific strategy until final bids are due. Insurers must send their MA plan proposals for 2025 to CMS by early June. 

“It’s too early to provide specifics for the 2025 bid at this stage,” Elevance Health CEO Gail Boudreaux told investors. “I’m going to repeat, we’re looking to really balance growth and margins.” 

30 health systems with strong finances

Posted on by • Posted in Credit Quality, Credit Ratings, Financial Performance, Financial Ratios, Financial Reporting, Financial Reserves, Financial Stewardship, Financial Strength, Financial Viability, Health System, Liquidity, Operating Expenses, Operating Income, Operating Margin, Operating Margin Drivers, Operating Metrics, Operating Performance, Operating Revenue • Leave a comment
https://www.beckershospitalreview.com/finance/20-health-systems-with-strong-finances.html?origin=CEOE&utm_source=CEOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Here are 30 health systems with strong operational metrics and solid financial positions, according to reports from credit rating agencies Fitch Ratings and Moody’s Investors Service released in 2024.

Avera Health has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Sioux Falls, S.D.-based system’s strong operating risk and financial profile assessments, and significant size and scale, Fitch said.  

Cedars-Sinai Health System has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Los Angeles-based system’s consistent historical profitability and its strong liquidity metrics, historically supported by significant philanthropy, Fitch said. 

Children’s Health has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Dallas-based system’s continued strong performance from a focus on high margin and tertiary services, as well as a distinctly leading market share, Moody’s said.    

Children’s Hospital Medical Center of Akron (Ohio) has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the system’s large primary care physician network, long-term collaborations with regional hospitals and leading market position as its market’s only dedicated pediatric provider, Moody’s said. 

Children’s Hospital of Orange County has an “AA-” rating and a stable outlook with Fitch. The rating reflects the Orange, Calif.-based system’s position as the leading provider for pediatric acute care services in Orange County, a position solidified through its adult hospital and regional partnerships, ambulatory presence and pediatric trauma status, Fitch said. 

Children’s Minnesota has an “AA” rating and stable outlook with Fitch. The rating reflects the Minneapolis-based system’s strong balance sheet, robust liquidity position and dominant pediatric market position, Fitch said. 

Cincinnati Children’s Hospital Medical Center has an “Aa2” rating and stable outlook with Moody’s. The rating is supported by its national and international reputation in clinical services and research, Moody’s said. 

Cook Children’s Medical Center has an “Aa2” rating and stable outlook with Moody’s. The ratings agency said the Fort Worth Texas-based system will benefit from revenue diversification through its sizable health plan, large physician group, and an expanding North Texas footprint.   

El Camino Health has an “AA” rating and a stable outlook with Fitch. The rating reflects the Mountain View, Calif.-based system’s strong operating profile assessment with a history of generating double-digit operating EBITDA margins anchored by a service area that features strong demographics as well as a healthy payer mix, Fitch said. 

Hoag Memorial Hospital Presbyterian has an “AA” rating and stable outlook with Fitch. The Newport Beach, Calif.-based system’s rating is supported by its strong operating risk assessment, leading market position in its immediate service area and strong financial profile,” Fitch said. 

Inspira Health has an “AA-” rating and stable outlook with Fitch. The rating reflects Fitch’s expectation that the Mullica Hill, N.J.-based system will return to strong operating cash flows following the operating challenges of 2022 and 2023, as well as the successful integration of Inspira Medical Center of Mannington (formerly Salem Medical Center). 

JPS Health Network has an “AA” rating and stable outlook with Fitch. The rating reflects the Fort Worth, Texas-based system’s sound historical and forecast operating margins, the ratings agency said. 

Mass General Brigham has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Somerville, Mass.-based system’s strong reputation for clinical services and research at its namesake academic medical center flagships that drive excellent patient demand and help it maintain a strong market position, Moody’s said. 

McLaren Health Care has an “AA-” rating and stable outlook with Fitch. The rating reflects the Grand Blanc, Mich.-based system’s leading market position over a broad service area covering much of Michigan, the ratings agency said. 

Med Center Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Bowling Green, Ky.-based system’s strong operating risk assessment and leading market position in a primary service area with favorable population growth, Fitch said.  

Nicklaus Children’s Hospital has an “AA-” rating and stable outlook with Fitch. The rating is supported by the Miami-based system’s position as the “premier pediatric hospital in South Florida with a leading and growing market share,” Fitch said. 

Novant Health has an “AA-” rating and stable outlook with Fitch. The ratings agency said the Winston-Salem, N.C.-based system’s recent acquisition of three South Carolina hospitals from Dallas-based Tenet Healthcare will be accretive to its operating performance as the hospitals are highly profited and located in areas with growing populations and good income levels. 

Oregon Health & Science University has an “Aa3” rating and stable outlook with Moody’s. The rating reflects the Portland-based system’s top-class academic, research and clinical capabilities, Moody’s said.  

Orlando (Fla.) Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the health system’s strong and consistent operating performance and a growing presence in a demographically favorable market, Fitch said.  

Presbyterian Healthcare Services has an “AA” rating and stable outlook with Fitch. The Albuquerque, N.M.-based system’s rating is driven by a strong financial profile combined with a leading market position with broad coverage in both acute care services and health plan operations, Fitch said. 

Rush University System for Health has an “AA-” rating and stable outlook with Fitch. The rating reflects the Chicago-based system’s strong financial profile and an expectation that operating margins will rebound despite ongoing macro labor pressures, the rating agency said. 

Saint Francis Healthcare System has an “AA” rating and stable outlook with Fitch. The rating reflects the Cape Girardeau, Mo.-based system’s strong financial profile, characterized by robust liquidity metrics, Fitch said. 

Saint Luke’s Health System has an “Aa2” rating and stable outlook with Moody’s. The Kansas City, Mo.-based system’s rating was upgraded from “A1” after its merger with St. Louis-based BJC HealthCare was completed in January. 

Salem (Ore.) Health has an”AA-” rating and stable outlook with Fitch. The rating reflects the system’s dominant marketing positive in a stable service area with good population growth and demand for acute care services, Fitch said. 

Seattle Children’s Hospital has an “AA” rating and a stable outlook with Fitch. The rating reflects the system’s strong market position as the only children’s hospital in Seattle and provider of pediatric care to an area that covers four states, Fitch said.  

SSM Health has an “AA-” rating and stable outlook with Fitch. The St. Louis-based system’s rating is supported by a strong financial profile, multistate presence and scale with good revenue diversity, Fitch said. 

St. Elizabeth Medical Center has an “AA” rating and stable outlook with Fitch. The rating reflects the Edgewood, Ky.-based system’s strong liquidity, leading market position and strong financial management, Fitch said. 

Stanford Health Care has an “Aa3” rating and positive outlook with Moody’s. The rating reflects the Palo Alto, Calif.-based system’s clinical prominence, patient demand and its location in an affluent and well insured market, Moody’s said.     

University of Colorado Health has an “AA” rating and stable outlook with Fitch. The Aurora-based system’s rating reflects a strong financial profile benefiting from a track record of robust operating margins and the system’s growing share of a growth market anchored by its position as the only academic medical center in the state, Fitch said. 

Willis-Knighton Medical Center has an “AA-” rating and positive outlook with Fitch. The outlook reflects the Shreveport, La.-based system’s improving operating performance relative to the past two fiscal years combined with Fitch’s expectation for continued improvement in 2024 and beyond.