Category Archives: Hospital Industry

For-profit systems fare better than nonprofits in weathering COVID-19 cash crisis, MedPAC says

Posted on by • Posted in Economic Crisis, Economic Recovery, Economic Stimulus, Elective Procedures, Elective Surgery, For-Profit, Health System, Hospital, Hospital Industry, Medicare Payment Advisory Commission (MedPAC), Net Income, Nonoperating Income, Operating Expenses, Operating Income, Operating Margin, Operating Performance, Operating Revenue, Pandemic, Paycheck Protection Program, Physician Practice Management, The CARES Act • Leave a comment

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For-profit health systems have been better able to weather a financial crisis caused by COVID-19 than their nonprofit counterparts because they could reduce more expenses, a new analysis from the Medicare Payment Advisory Commission finds.

The analysis released Thursday during MedPAC’s monthly meeting comes as providers struggle to recover from low patient volumes stemming from the COVID-19 pandemic. The report also explored how physician offices have fared.

Hospitals faced a massive dip in patient volume in March and April at the onset of the pandemic, which forced facilities to cancel or delay elective procedures. Patient volumes have since recovered to near pre-pandemic levels, MedPAC found.

But the recovery has been mixed depending on the hospital system.

MedPAC looked at earnings for three large nonprofit systems in the U.S. and four large for-profit systems in the second quarter and found a variation in how they handled the decline in revenue.

Aggregate patient revenue for the nonprofit systems declined by $1.5 billion and this led to a $621 million loss for the systems in the second quarter compared to the same period in 2019. Overall the systems had operating profit margins ranging from negative 13% to positive 5%.

The four for-profit systems saw a $3.5 billion decline in patient revenue. However, the systems posted an increase of $634 million in operating income.

This led to a range of operating margin increases of 1 to 14% in the second quarter compared to 2019.

The for-profit systems got more relief funding ($1.9 billion compared with $782 million) from a $175 billion federal provider relief fund created by the CARES Act.

But the biggest difference between for-profit and nonprofit systems was how they handled expenses.

“For-profit systems substantially reduced expenses in the second quarter, in aggregate reduced by $2.3 billion and that made up for lost revenue,” said Jeff Stensland, a MedPAC staff member, during the meeting.

Nonprofit systems only saw a $13 million decline in expenses.

The analysis comes as some larger for-profit systems like HCA Healthcare generate profits in the second quarter, while nonprofit systems such as Providence posted losses.

MedPAC did not name the systems that it analyzed nor did it delve into what expenses were reduced and how.

Some systems have taken to furloughing employees but all systems have faced increased expenses for personal protective equipment and some staff.

The analysis also looked at the financial impact of the pandemic on physician offices. MedPAC found that federal grants, loans and payment increases offset a majority of the revenue lost in March and May due to patient volume declines.

MedPAC estimated physician offices lost between $45 to $55 billion. However, offices got $26 billion in loans from the Paycheck Protection Program, which don’t have to be repaid if the majority of the funds go to payroll.

Physician offices also received $5 billion out of the $175 billion provider relief fund passed as part of the CARES Act.

Physicians also got $1 billion in savings from the temporary suspension of a 2% decline in Medicare payments created under sequestration.

 

 

 

Einstein’s flagship hospital at risk without merger, Jefferson and Einstein say

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FTC says merger of Jefferson and Einstein would raise hospital prices 6.9%

The merger of Einstein Healthcare Network and Jefferson Health is a matter of survival for Einstein’s flagship hospital, the two Philadelphia systems argued in a federal court filing this week, according to The Philadelphia Inquirer.

The health systems are attempting to overcome opposition to their merger from the Pennsylvania attorney general and the Federal Trade Commission.

A Sept. 14 hearing is slated on the FTC’s preliminary injunction request. 

A court filing from the two health systems argued that Einstein, which has only had annual operating profits twice since 2012, is on a path to financial failure and needs $500 million to invest in key capital projects and deferred maintenance.

Without the infusion, Jefferson and Einstein said Einstein will continue to weaken “as it is forced to cut services or close facilities,” the Inquirer reported.

“Einstein was unable to identify any alternative buyer to Jefferson that possessed the financial strength and scale necessary to address Einstein’s financial problems,” the filing read, according to the Inquirer. “No other potential strategic partners were willing and able to commit to keep EMCP [Einstein Medical Center Philadelphia] open with its current set of services.”

The FTC announced in February its intent to sue to block the merger, arguing that combining the two systems would reduce competition in Philadelphia and Montgomery County.

“Jefferson and Einstein have a history of competing against each other to improve quality and service,” the FTC said in the February announcement. “The proposed merger would eliminate the robust competition between Jefferson and Einstein for inclusion in health insurance companies’ hospital networks to the detriment of patients.”

The FTC said that with a combination, the two parties would own at least 60 percent of the inpatient general acute care service market around Philadelphia and at least 45 percent of that same market in Montgomery County.

 

 

 

Pandemic spurs national union activity among hospital workers

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When COVID-19 cases swelled in New York and other northern states this spring, Erik Andrews, a rapid response nurse at Riverside Community Hospital in southern California, thought his hospital should have enough time to prepare for the worst.

Instead, he said his hospital faced staffing cuts and a lack of adequate personal protective equipment that led around 600 of its nurses to strike for 10 days starting in late June, just before negotiating a new contract with the hospital and its owner, Nashville-based HCA Healthcare.

“To feel like you were just put out there on the front lines with as minimal support necessary was incredibly disheartening,” Andrews said. Two employees at RCH have died from COVID-19, according to SEIU Local 121RN, the union representing them.

A spokesperson for HCA told Healthcare Dive the “strike has very little to do with the best interest of their members and everything to do with contract negotiations.”

Across the country, the pandemic is exacerbating labor tensions with nurses and other healthcare workers, leading to a string of disputes around what health systems are doing to keep front-line staff safe. The workers’ main concerns are adequate staffing and PPE. Ongoing or upcoming contract negotiations could boost their leverage.

But many of the systems that employ these workers are themselves stressed in a number of ways, above all financially, after months of delayed elective procedures and depleted volumes. Many have instituted furloughs and layoffs or other workforce reduction measures.

Striking a balance between doing union action at hospitals and continuing care for patients could be an ongoing challenge, Patricia Campos-Medina, co-director of New York State AFL-CIO/Cornell Union Leadership Institute.

“The nurses association has been very active since the beginning of the crisis, demanding PPE and doing internal activities in their hospitals demanding proper procedures,” Campos-Medina said. “They are front-line workers, so they have to be thoughtful in how they continue to provide care but also protect themselves and their patients.”

At Prime Healthcare’s Encino Hospital Medical Center, just outside Los Angeles, medical staff voted to unionize July 5, a week after the hospital laid off about half of its staff, including its entire clinical lab team, according to SEIU Local 121RN, which now represents those workers.

One of the first things the newly formed union will fight is “the unjust layoffs of their colleagues,” it said in a statement.

A Prime Healthcare spokesperson told Healthcare Dive 25 positions were cut. “These Encino positions were not part of front-line care and involved departments such as HR, food services, and lab services,” the system said.

Hospital service workers elsewhere who already have bargaining rights are also bringing attention to what they deem as staffing and safety issues.

In Chicago, workers at Loretto Hospital voted to authorize a strike Thursday. Those workers include patient care technicians, emergency room technicians, mental health staff and dietary and housekeeping staff, according to SEIU Healthcare Illinois, the union that represents them. They’ve been bargaining with hospital management for a new contract since December and plan to go on strike July 20.

Loretto Hospital is a safety-net facility, catering primarily to “Black and Brown West Side communities plagued with disproportionate numbers of COVID illnesses and deaths in recent months,” the union said.

The “Strike For Black Lives” is in response to “management’s failure to bargain in good faith on critical issues impacting the safety and well-being of both workers and patients — including poverty level wages and short staffing,” according to the union.

A Loretto spokesperson told Healthcare Dive the system is hopeful that continuing negotiations will bring an agreement, though it’s “planning as if a strike is eminent and considering the best options to continue to provide healthcare services to our community.”

Meanwhile in Joliet, Illinois, more than 700 nurses at Amita St. Joseph Medical Center went on strike July 4.

The Illinois Nurses Association which represents Amita nurses, cited ongoing concerns about staff and patient safety during the pandemic, namely adequate PPE, nurse-to-patient ratios and sick pay, they want addressed in the next contract. They are currently bargaining for a new one, and said negotiations stalled. The duration of the strike is still unclear.

However, a hospital spokesperson told Healthcare Dive, “Negotiations have been ongoing with proposals and counter proposals exchanged.”

The hospital’s most recent proposal “was not accepted, but negotiations will continue,” the system said.

INA is also upset with Amita’s recruitment of out-of-state nurses to replace striking ones during the COVID-19 pandemic.

It sent a letter to the Illinois Department of Financial and Professional Regulation, asserting the hospital used “emergency permits that are intended only for responding to the pandemic for purposes of aiding the hospital in a labor dispute.”

 

 

 

 

Despite turbulence in H1, no avalanche of health systems downgrades

Posted on by • Posted in ACA, Balance Sheet, Cash, Cash Management, Cash Reserves, Chronic Care Management, Chronic Conditions, Chronic Diseases, Coronavirus, Credit Quality, Credit Ratings, Deferred Healthcare, Economic Crisis, Economic Stimulus, Employer-Based Health Insurance, Financially Distressed, Health Insurance Coverage Adequacy, Health System, Hospital, Hospital Industry, Market Outlook, Market Trends, Market Uncertainty, Medicaid, Medicaid Expansion, Out of Pocket Expenses, Pandemic, Payor Mix, Preexisting Conditions, Uncertainty, Underinsured, Unemployment, Unemployment Insurance, Uninsured • Leave a comment

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“It’s new territory, which is why we’re taking that measured approach on rating actions,” Suzie Desai, senior director at S&P, said.

The healthcare sector has been bruised from the novel coronavirus and the effects are likely to linger for years, but the first half of 2020 has not resulted in an avalanche of hospital and health system downgrades.

At the outset of the pandemic, some hospitals warned of dire financial pressures as they burned through cash while revenue plunged. In response, the federal government unleashed $175 billion in bailout funds to help prop up the sector as providers battled the effects of the virus.

Still, across all of public finance — which includes hospitals — the second quarter saw downgrades outpacing upgrades for the first time since the second quarter of 2017.

S&P characterized the second quarter as a “historic low” for upgrades across its entire portfolio of public finance credits.

“While only partially driven by the coronavirus, the second quarter was the first since Q2 2017 with the number of downgrades surpassing upgrades and by the largest margin since Q3 2014,” according to a recent Moody’s Investors Service report.

Through the first six months of this year, Moody’s has recorded 164 downgrades throughout public finance and, more specifically, 27 downgrades among the nonprofit healthcare entities it rates.

By comparison, Fitch Ratings has recorded 14 nonprofit hospital and health system downgrades through July and just two upgrades, both of which occurred before COVID-19 hit.

“Is this a massive amount of rating changes? By no means,” Kevin Holloran, senior director of U.S. Public Finance for Fitch, said of the first half of 2020 for healthcare.

Also through July, S&P Global recorded 22 downgrades among nonprofit acute care hospitals and health systems, significantly outpacing the six healthcare upgrades recorded over the same period.

“It’s new territory, which is why we’re taking that measured approach on rating actions,” Suzie Desai, senior director at S&P, said.

Still, other parts of the economy lead healthcare in terms of downgrades. State and local governments and the housing sector are outpacing the healthcare sector in terms of downgrades, according to S&P.

Virus has not ‘wiped out the healthcare sector’

Earlier this year when the pandemic hit the U.S., some made dire predictions about the novel coronavirus and its potential effect on the healthcare sector.

Reports from the ratings agencies warned of the potential for rising covenant violations and an outlook for the second quarter that would result in the “worst on record,“ one Fitch analyst said during a webinar in May.

That was likely “too broad of a brushstroke,” Holloran said. “It has not come in and wiped out the healthcare sector,” he said. He attributes that in part to the billions in financial aid that the federal government earmarked for providers.

Though, what it has revealed is the gaps between the strongest and weakest systems, and that the disparities are only likely to widen, S&P analysts said during a recent webinar.

The nonprofit hospitals and health systems pegged with a downgrade have tended to be smaller in size in terms of scale, lower-rated already and light on cash, Holloran said.

Still, some of the larger health systems were downgraded in the first half of the year by either one of the three rating agencies, including Sutter Health, Bon Secours Mercy Health, Geisinger, University of Pittsburgh Medical Center and Care New England.

“This is something that individual management of a hospital couldn’t control,” said Rick Gundling, senior vice president of Healthcare Financial Management Association, which has members from small and large organizations. “It wasn’t a bad strategy — that goes into a downgrade. This happened to everybody.”

Deteriorating payer mix

Looking forward, some analysts say they’re more concerned about the long-term effects for hospitals and health systems that were brought on by the downturn in the economy and the virus.

One major concern is the potential shift in payer mix for providers.

As millions of people lose their job they risk losing their employer-sponsored health insurance. They may transition to another private insurer, Medicaid or go uninsured.

For providers, commercial coverage typically reimburses at higher rates than government-sponsored coverage such as Medicare and Medicaid. Treating a greater share of privately insured patients is highly prized.

If providers experience a decline in the share of their privately insured patients and see a growth in patients covered with government-sponsored plans, it’s likely to put a squeeze on margins.

The shift also poses a serious strain for states, and ultimately providers. States are facing a potential influx of Medicaid members at the same time state budgets are under tremendous financial pressure. It raises concerns about whether states will cut rates to their Medicaid programs, which ultimately affects providers.

Some states have already started to re-examine and slash rates, including Ohio.

 

 

 

 

Employers face liability under payroll tax deferral guidance

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The onus to collect and pay back deferred payroll taxes, under guidance the IRS has released on President Trump’s executive order, falls on employers.

Trump signed the order last month after Congress failed to agree on extending COVD-19-related stimulus benefits. It directs participating employers not to withhold the 6.2% payroll tax that employees owe each pay period to cover their portion of Social Security taxes.

The absence of withholding gives employees a bigger paycheck, although they still must repay the deferred withholdings next year, unless Congress waives the liability. 

The benefit applies to employees earning less than $4,000 every two weeks, or about $104,000 a year. It’s in effect for paychecks issued between September 1 and the end of the year.

Effectiveness in doubt

Under the IRS guidance, liability for paying back the uncollected taxes could ultimately fall on employers; there’s no language explaining how deferred taxes will be returned to the Treasury if an employee quits between now and the end of the year or otherwise can’t pay the deferred taxes.

“You could give [the tax deferral] to the employee, but then a year from now you might be on the hook for the money,” University of Chicago law professor Daniel Hemel told CNBC.

“Liability is going to stick to the employer like flies to flypaper,” Marianna Dyson, a lawyer at Washington firm Covington & Burling, told The Wall Street Journal.

Low participation

Many employers may choose not to participate, which would dampen the stimulus impact.

“Many [employers could] decline putting the extra money in workers’ paychecks — blunting any potential economic or political boost Trump had hoped to reap,” an Accounting Today/Bloomberg News analysis said.

The last-minute revamping of systems to administer the change could also deter participation.

“The programming changes are substantial in scope,” the National Payroll Reporting Consortium said in an August 20 statement. 

The deferral is also not a clear win for employees, who could face double withholdings when taxes must be repaid early next year.

“It’s not clear employees will want to take it, even if they qualify.” Pete Isberg, vice president of payroll processing company ADP, told the Washington Post.

 

 

 

 

Hospital revenue at risk in CMS’ proposal to move joint replacement to outpatient care

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Hospital revenue at risk in CMS' proposal to move joint replacement to outpatient care | Healthcare Finance News

The Centers for Medicare and Medicaid Services’ push to move procedures from inpatient to less expensive outpatient care continues, with revenue at risk for lucrative joint replacement starting in 2021.

CMS’s continued push to the outpatient setting has been going on for some time, but the agency has found its sea legs in the recent hospital outpatient prospective payment system proposed rule, according to Stuart Clark, a managing director for The Advisory Board Company, in an August 27 presentation on payment updates.

CMS is slowly phasing out the inpatient only list over the next three years and is adding more services to the ambulatory surgical center list. There’s around 1,400 total codes on the list right now which are expected to be phased out by 2024.

AUG 29MORE ON REIMBURSEMENT

Hospital revenue at risk in CMS’ proposal to move joint replacement to outpatient care

At stake is $3.2 billion in revenue for a one-day length of stay as 80% of revenue for all services is in joint replacement.

Susan Morse, Managing Editor

 

The Centers for Medicare and Medicaid Services’ push to move procedures from inpatient to less expensive outpatient care continues, with revenue at risk for lucrative joint replacement starting in 2021.

CMS’s continued push to the outpatient setting has been going on for some time, but the agency has found its sea legs in the recent hospital outpatient prospective payment system proposed rule, according to Stuart Clark, a managing director for The Advisory Board Company, in an August 27 presentation on payment updates.

CMS is slowly phasing out the inpatient only list over the next three years and is adding more services to the ambulatory surgical center list.

There’s around 1,400 total codes on the list right now which are expected to be phased out by 2024.

For 2021, CMS has added 11 new procedures to the ASC list, including musculoskeletal services and total hip replacement.

WHY THIS MATTERS 

Eighty percent of hospital revenue for all services is in joint replacement. At stake is $3.2 billion in revenue for a one-day length of stay.

Per hospital, 12-15 procedures may shift from a one-day stay to outpatient, according to Clark and Shay Pratt, vice president of Strategy and Service Line Research for the Advisory Board.

Hospitals may not see a huge amount of revenue at risk if they can continue to keep the services in-house, but in an outpatient setting.

However, there is less revenue to be made from the move to a lower cost care setting. And an estimated 83% of ambulatory surgical centers are physician-owned.

There is still debate on the efficacy of total hip replacement done as an outpatient service. Commercial payers say ASCs can provide total hip replacement, while opponents say they are not equipped for the service, according to the Advisory Board.

The comment period for the proposed rule is set to close on October 5.

Next year, CMS is expected to add cardiovascular services to the outpatient list, but the volume and revenue is not on as large a scale as joint replacement.

THE LARGER TREND IN TELEHEALTH

In telehealth, CMS is implementing incremental change as its use has increased dramatically during the coronavirus pandemic.

For Medicare reimbursement, 22 services have been added to the telehealth list. Of these, nine codes have been added permanently and 13 are approved through the end of the year in which the public health emergency ends.

Audio-only services are eligible under the public health emergency, but CMS is inviting input on how long they should remain eligible. The agency has said it’s uncertain about the value of an audio-only visit.

 

 

 

 

Massachusetts health system lays off 118 furloughed workers, extends exec pay cuts

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Cape Cod Hospital - Office of Student Affairs at UMass Medical School

Citing financial hardships due to the COVID-19 pandemic, Barnstable, Mass.-based Cape Cod Healthcare will lay off 118 employees and extend salary reductions for executives, according to The Cape Cod Times.

In May, Cape Cod Healthcare furloughed 595 employees due to low patient volume and revenue declines amid the pandemic. Of the workers furloughed, 477 have returned to work, and 118 will be laid off. 

Employees affected by the layoffs include eight vice presidents, a nurse, lab workers, environmental service workers and dietary employees.

In addition to the personnel reduction, Cape Cod Healthcare is extending a 10 percent salary cut for its senior executives, according to the report. 

Cape Cod Healthcare CEO Michael Lauf told the Times that the layoffs were “an extremely difficult decision to make, as Cape Cod Healthcare values each and every one of our employees.”

Read the full report here. 

 

 

Northwell records $329M loss in first half of 2020

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Northwell Health pairs with Israel Innovation Authority to develop new medical innovations | MobiHealthNews

Northwell Health, a 19-hospital system based in New Hyde Park, N.Y., ended the first half of 2020 with an operating loss despite a revenue increase year-over-year, according to recently released financial documents. 

In the six months ended June 30, the health system recorded revenue of $6.3 billion, up from $6.1 billion reported in the same period in 2019.

The health system saw its patient revenue drop 9.7 percent in the first half of the year to $5.1 billion, compared to the same period in 2019. The patient revenue drop was attributed to the COVID-19 pandemic.

Northwell’s expenses climbed in the first six months of this year to $6.6 billion, an increase of about 9.5 percent from the same period in 2019.

The health system recorded an operating loss of $249.6 million.

After accounting for nonoperating gains and losses, the system ended the first half of 2020 with a $329 million net loss. This compares to a net income of $393 million in the first half of 2019.

Northwell Health estimated that the negative financial hit from the COVID-19 pandemic in the six months ended June 30 was about $1.2 billion and attributed most of the financial impact to lower patient volume.

Through Aug. 28, Northwell has received $1.2 billion in grants from the Coronavirus Aid Relief and Economic Security Act. In the six months ended June 30, the health system recorded $754 million of this relief aid as “other operating revenue.”

“While the financial impact estimates noted above have been made using the best available information at the time, the ultimate net impact of the pandemic to Northwell and its financial condition is uncertain,” Northwell Health stated.

 

 

 

 

Cleveland Clinic posts $201.8M operating loss in Q2

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Find a Doctor | Cleveland Clinic

Cleveland Clinic ended the second quarter of this year with an operating loss, which the system attributed to financial damage tied to the COVID-19 pandemic. 

The 18-hospital system’s revenue declined to $2.3 billion in the second quarter of this year, down from $2.7 billion in the same period a year earlier, according to unaudited financial documents. In the first six months of this year, the health system experienced net patient service revenue shortfalls of more than $830 million, compared to plan, and incurred more than $165 million in COVID-19 preparedness costs. 

Cleveland Clinic reported operating expenses of $2.36 billion in the second quarter of this year, up from $2.34 billion in the same period last year.

The hospital system ended the most recent quarter with an operating loss of $201.8 million, compared to operating income of $116.2 million in the second quarter of 2019. Looking at the first six months of this year, Cleveland Clinic reported an operating loss of $241.7 million, compared to operating income of $152.4 million a year earlier. 

To help offset financial damage tied to the pandemic in the first six months of this year, Cleveland Clinic recognized $324 million in federal grants made available under the Coronavirus Aid, Relief and Economic Security Act. The health system also applied for and received $849 million in Medicare advance payments, which must be repaid. 

After factoring in investment gains of $477.5 million and other nonoperating items, Cleveland Clinic closed out the second quarter of this year with net income of $276.1 million. In the same period a year earlier, the health system posted net income of $256.4 million.