Hospital Revenue Unstable Despite Outpatient Volume Growth

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Payer mix shifts, increases in self-pay, and lower Medicaid revenue per case are troubling hospital revenue despite a 2.4 percent boost in outpatient volume.

Hospitals recently saw increases in national inpatient and outpatient volumes. However, net hospital revenue continues to be unstable for non-profit organizations, according to a new analysis from the public accounting, consulting, and technology firm Crowe.

“As many health systems expand their portfolio of services (more outpatient facilities, entrees into insurance products, and other ancillary investments), stability of hospital-based net revenue becomes more important to financial decisions,” the analysis stated. “Unfortunately, instability appears to be the current trend, forcing many CFOs of not-for-profit healthcare systems to study operations and budget them on a monthly or quarterly financial performance basis, in the same manner that their peers in for-profit organizations do.”

The consulting firm analyzed data from its revenue cycle analytics solution for 622 hospitals in Medicaid expansion states and 389 hospitals in non-expansion states. The analysis of data from January through September of 2017 and 2018 revealed some positive results for 2018.

Inpatient volume is up 0.6 percent in 2018, and gross revenue per case also increased 5.3 percent during the period.

At the same time, outpatient volume rose 2.4 percent and gross revenue per case increased 7.1 percent on the outpatient side.

Hospitals may be reaping the benefits of higher volumes. However, net revenue per case demonstrated greater volatility on the inpatient and outpatient sides, the firm pointed out. Net revenue per inpatient case only increased 1.6 percent between 2017 and 2018 and net revenue per outpatient case rose 5.5 percent during the same period.

“It is important to consider that these trends do not hold true across all payers. As a result, some hospitals may be more exposed to diminishing growth in net revenue per case,” the analysis stated. “Although an increase in net revenue appears to be good news for hospitals, the manner in which revenue is increasing follows some troublesome trends.”

The “troublesome trends” identified by Crower researchers included a significant shift in payer mix. Medicare managed care, self-pay, and other payers (i.e., third-party liability and worker’s compensation) increased by 1.6 percent for inpatient and 1.1 percent for outpatient overall, the firm reported.

“In addition to these payer classes having a lower net realization overall, they also challenge finance leadership’s ability to forecast net revenue, as seasonality and patient engagement vary by facility,” the analysis explained.

Increases in self-pay accounts particularly contributed to hospital revenue instability, Crowe added. Self-pay increased 16.1 percent by 2018, representing six percent of the average hospital’s payer mix. Self-pay accounts continue to be the most difficult to collect, suggesting a growing obstacle for hospital revenue.

Medicaid net revenue also fell from 2017 to 2018, the analysis showed. Net revenue per case for both traditional and managed care Medicaid decreased 6.9 percent for inpatient and 1.1 percent for outpatient.

Hospitals that treated a greater number of Medicaid beneficiaries will continue to see their Medicaid revenue drop under new regulatory changes, researchers predicted.

For example, CMS finalized a new policy that will change the methodology for determining Medicaid Disproportionate Share Hospital (DSH) payments. Medicaid offers DSH payments to hospitals that treat a greater proportion of low-income and vulnerable patients and bases the payment amount on the hospital’s uncompensated care costs.

The new policy will clarify that uncompensated care costs include only the costs for Medicaid-eligible patients with payments remaining after accounting for the reimbursement to the hospital by or on behalf of Medicaid-eligible individuals, including Medicare and third-party payments.

A federal judge vacated the new policy’s implementation on a national level in March 2018, arguing that changing the policy exceeded CMS’ authority because the Medicaid Act specifically identifies what constitutes uncompensated care costs. Several states have also challenged the policy in court.

CMS is currently challenging the rulings.

New rules for the 340B Drug Pricing Program could also further decrease Medicaid revenue for hospitals, the analysis stated. CMS recently finalized $1.6 billion in hospital payment reductions for 340B covered drugs.

The American Hospital Association (AHA) and several other groups sued CMS over the payment cuts. But a federal judge ruled that CMS can enforce the billions of dollars in payment reductions.

Additionally, the Crowe analysis uncovered a decrease in final denial write-offs, or patient bills that were not paid by payers. Final denial write-offs for outpatient services fell by almost 15 percent from 2017 to 2018, the data showed.

While a drop in final denial write-offs indicates business office improvements, researchers noted that recent changes in managed care contracting may challenge denial rates going forward. Contracts for outpatient diagnostic imaging are likely to see the greatest challenge to denial rates, they reported.

26% of Hospitals Without Effective Revenue Cycle Management System

Healthcare revenue cycle management


Without a workable revenue cycle management system, 82 percent of the hospitals plan to go blind with value-based reimbursement and 85 percent may seek consulting services.

Approximately one-quarter of US hospitals (26 percent) do not have an effective healthcare revenue cycle management solution in place, according to a new Black Book survey.

Black Book surveyed over 4,640 individuals from 522 hospitals and healthcare delivery networks on their use of 165 revenue cycle management technology services and solutions. The survey showed that revenue cycle management improvement is happening, but a significant portion of hospitals still do not have workable solutions.

While 26 percent of hospitals do not have a plan to optimize or replace legacy revenue cycle management systems, the proportion of hospitals without a transition plan is down compared to six years ago. In 2012, 35 percent of all hospitals did not have a revenue cycle management strategy in place to improve or replace their solutions.

The most recent survey results show that about 400 hospitals implemented a viable, effective revenue cycle management optimization or replacement plans over the past six years.

However, the opportunity to improve healthcare revenue cycle management remains. Of the 1,600 hospitals without a revenue cycle management optimization plan, about 82 percent expect to make value-based reimbursement decisions in 2019 without the use of an advanced software or outsourced partner, the survey showed.

Value-based reimbursement is overtaking the traditional fee-for-service system. The proportion of healthcare payments tied to an alternative payment model is rising, reaching 29 percent of healthcare payments by 2016, the Health Care Payment Learning and Action Network (LAN) recently reported.

The number of payments linked to value-based reimbursement is only going to increase as private and public payers implement alternative payment models to lower costs and improve care quality. And hospitals will be expected to take on the clinical and financial risks associated with the models.

Effective revenue cycle management solutions can help hospitals make the transition to value-based reimbursement.

“What providers absolutely must have are really powerful analytics that are able to take clinical and outcomes data, a lot of which resides in clinical systems, and combine it with financial data to accurately measure where we improve quality based on outcomes results,” Deanna Kasim, Research Director of Payer Health IT at IDC Health Insights, told

“There is an absolute need that if this is going to be successful in terms of changing reimbursements and care delivery models, payers need to get providers and the consumers to the table and there has to be the next generation of analytics applications to support these efforts.”

Without a viable, effective revenue cycle management solution, hospitals could lose revenue during the transition to value-based reimbursement.

In light of the challenge, 85 percent of Black Book respondents said they would partner with a revenue cycle management consultant or advisory company for short-term direction.

For the long-term, however, hospitals will need to partner with a third-party vendor to implement an optimized revenue cycle management solution that can deliver value-based reimbursement results.

Black Book explained that hospitals can invest in core, platform, and/or point solutions, which cover enterprise-wide functions. Or hospitals can implement bolt-on solutions that automate specific components of the healthcare revenue cycle.

At this stage in the market, hospitals are currently turning to bolt-on solutions to complement their legacy financial and clinical systems. About 45 percent of large and community hospitals in a recent Black Book survey plan to use multiple bolt-on solutions for revenue cycle management in 2019.

Few hospitals expect to use one core legacy vendor for a software solution. Only 23 percent of small hospital staff, 15 percent of community hospital staff, and 17 percent of large hospital staff stated that relying on a core solution was their organization’s revenue cycle management strategy for 2019.

Hospitals are investing in more bolt-on solutions versus core software because of staffing concerns, Black Book reported in the most recent survey. The five-month polling process revealed that staffing concerns were the top challenge hospitals faced with implementing new revenue cycle management solutions or improving legacy software.

Finding skilled revenue cycle management human resources for new solutions was a major obstacle to optimizing or replacing legacy systems. Therefore, outsourcing core functions or implementing bolt-on services was a short-term alternative, hospitals leaders said.

“If hospitals are to maximize revenue and reduce claims take-backs, it is imperative that those still behind the curve find a way to dedicate appropriate resources toward implementing an effective RCM system,” the market research firm concluded.


12 health systems with strong finances

Here are 12 health systems with strong operational metrics and solid financial positions, according to recent reports from Moody’s Investors Service, Fitch Ratings and S&P Global Ratings.

Note: This is not an exhaustive list. Health system names were compiled from recent credit rating reports and are listed in alphabetical order.

1. St. Louis-based Ascension has an “Aa2” senior debt rating and stable outlook with Moody’s. The health system has a large diversified portfolio of sizable hospitals and strong liquidity. Moody’s expects Ascension’s margins to improve in fiscal year 2019.

2. Wausau, Wis.-based Aspirus has an “AA-” rating and stable outlook with S&P. The health system has solid debt and liquidity metrics, according to S&P.

3. Morristown, N.J.-based Atlantic Health System has an “Aa3” rating and stable outlook with Moody’s. The system has a strong market position, favorable balance sheet ratios and strong operating performance, according to Moody’s.

4. Charlotte, N.C.-based Atrium Health has an “AA-” rating and stable outlook with S&P. The health system has a strong operating profile, favorable payer mix, healthy financial performance and sustained volume growth, according to S&P.

5. Durham, N.C.-based Duke University Health System has an “Aa2” rating and stable outlook with Moody’s. The health system is a leading provider of tertiary and quaternary services and has solid margins and cash levels, according to Moody’s.

6. Inova Health System has an “Aa2” rating and stable outlook with Moody’s. The Falls Church, Va.-based health system has consistently strong cash-flow margins, a leading market position and a good investment position, according to Moody’s.

7. Baltimore-based Johns Hopkins Health System has an “Aa2” rating and stable outlook with Moody’s. The health system has favorable liquidity metrics, strong fundraising capabilities, a healthy market position and regional brand recognition, according to Moody’s.

8. St. Louis-based Mercy Health has an “Aa3” rating and stable outlook with Moody’s. The health system has favorable cash-flow metrics, a solid strategic growth plan, a broad service area and improving operating margins, according to Moody’s.

9. Traverse City, Mich.-based Munson Healthcare has an “AA-” rating and positive outlook with Fitch. The health system has a leading market share in a favorable demographic area and a healthy net leverage position, according to Fitch.

10. Vancouver, Wash.-based PeaceHealth has an “AA-” rating and stable outlook with Fitch. The health system has a leading market position, robust reserves and strong cash flow, according to Fitch.

11. St. Louis-based SSM Health Care has an “AA-” rating and stable outlook with Fitch. SSM has a strong financial profile, and Fitch expects the system to continue growing unrestricted liquidity and to maintain improved operational performance.

12. Appleton, Wis.-based ThedaCare has an “AA-” rating and stable outlook with Fitch. The health system has a leading market share in a stable service area and strong operating performance, according to Fitch.



Glassdoor: 9 best hospitals to work for in 2019

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Nine hospitals and health systems made Glassdoor’s annual Best Places to Work list in 2019.

Glassdoor compiled the list based on feedback from employees who chose to anonymously submit a company review to Glassdoor between Oct. 23, 2017, and Oct. 21, 2018.

Here are the nine hospitals and health systems that made the list:

1. St. Jude Children’s Research Hospital (Memphis, Tenn.) — No. 13

2. Northside Hospital (Atlanta) — No. 52

3. NewYork-Presbyterian Hospital (New York City) — No. 64

4. Memorial Sloan Kettering Cancer Center (New York City) — No. 66

5. MD Anderson Cancer Center (Houston) — No. 68

6. Phoenix Children’s Hospital — No. 83

7. Massachusetts General Hospital (Boston) — No. 84

8. Texas Health Resources (Arlington) — No. 89

9. Kaiser Permanente (Oakland, Calif.) — No. 98

Access the full list here. Access additional information on the methodology used for the list here.

Partners HealthCare’s annual operating income soars 489%

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Boston-based Partners HealthCare saw its operating income rise in fiscal year 2018 despite a decline in revenues, according to financial documents released Dec. 7.

Partners saw operating revenues dip 0.5 percent year over year to $13.31 billion in fiscal year 2018, which ended Sept. 30. The health system’s significant growth in provider revenues was partially offset by a decline in insurance revenue. Partners said the decrease in insurance revenue was attributable to the transition of members from Medicaid managed care programs into the new MassHealth ACO program in March.

After accounting for a 2.4 percent decrease in expenses, Partners ended fiscal 2018 with operating income of $309.9 million. That’s up 489 percent from a year earlier, when the health system posted operating income of $52.57 million.

Partners reported a 2.3 percent operating margin for fiscal 2018, up from a 0.4 percent operating margin in the year prior.

“While a 2-3 percent margin is slim compared to our peers across the nation, it enables us to reinvest in patient care and provide for the future capital needs of our hospitals and facilities,” said Peter K. Markell, treasurer and CFO of Partners.

After factoring in nonoperating income, Partners ended fiscal 2018 with net income of $826.6 million, up from $659.1 million in fiscal 2017.



4,000 Kaiser mental health clinic workers launch 5-day strike in California

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Four thousand California mental health clinicians began a five-day strike Dec. 10 to protest what they call understaffing issues that lead to long wait times for therapy appointments.

The strike affects more than 100 Kaiser Permanente clinics and medical facilities, according to the National Union of Healthcare Workers, which represents psychologists, therapists, social workers, addiction medicine specialists and other mental health clinicians.

Workers are striking at Los Angeles Medical Center, Anaheim Medical Center, Fontana Medical Center, San Diego Medical Center, Fresno Medical Center, Sacramento Medical Center, San Francisco Medical Center and San Jose Medical Center.

“The situation inside Kaiser clinics has become untenable,” said Kenneth Rogers, a psychologist for Oakland, Calif.-based Kaiser. “We don’t have enough hours in the day to see patients and do all the preparation and follow-up work that goes into every appointment. Patients are suffering and unable to access clinically appropriate care.”

Union president Sal Rosselli told The Mercury News mental health workers also seek benefits and pensions that are equal to what about 100,000 other Kaiser employees receive.

John Nelson, vice president of communications at Kaiser Permanente, expressed disappointment about the strike.

“We are disappointed the leadership of the National Union of Healthcare Workers would ask our highly valued mental health staff to go out on strike, when we’ve been in active negotiations since the summer, having met in 16 bargaining sessions over five months, and with two more bargaining sessions scheduled for next week,” he told Becker’s last month.

“There are no takeaways in our contract proposal,” Mr. Nelson said. “We are offering guaranteed wage increases which would keep our expert therapists among the best compensated in their profession and continue to ensure that we attract and retain the most highly skilled professionals.”  

Kaiser told The Mercury News its medical centers and medical offices are scheduled to remain open during the walkout, although “some nonurgent mental health and other appointments may need to be rescheduled.”




Hospital mergers and acquisitions: They keep happening but let’s face it, the big ones rarely work


The first installment of our two-part series looks at many of the things that can, and commonly do, go wrong.

Mergers and acquisitions have been a common occurrence in healthcare for years now, and of late, mega-mergers have become the norm — giant organizations that join forces, often in an attempt to leverage their newfound scale and keep dollars flowing in.

The problem is that these mega-mergers often don’t deliver on their promises. Organizations want more negotiating power when hashing out contracts with insurance companies, and they rarely get it. Credit ratings are being downgraded. Costs often rise, quality deteriorates, and some companies want out of these deals altogether six or seven years down the road.

Others work out just fine, of course, but for every healthcare entity that sees success in these deals, there’s another which just bet the farm and lost it.

The mission then becomes: How to avoid that fate?


RIta Numerof, PhD, president of healthcare consulting firm Numerof and Associates, expects a rocky road going forward. Mergers are difficult to do well under normal circumstances, but a mega-merger is rarely a normal circumstance — it’s more complex, and more challenging to do well given that the healthcare industry is going through a fairly big transition.

In most of these scenarios, said Numerof, the intent was honorable. They wanted to lower costs and improve quality and do better by the consumers who depend on them. That’s the message that’s expressed publicly, anyway, and the Federal Trade Commission and the Department of Justice have generally been willing to accept these sentiments.

Numerof said regulators should be taking a closer look at whether these deals are sound from a financial perspective, and in fact will deliver on that promise.

“I am very skeptical of this,” she said. “The reality is that around 40 percent of M&A in general, across industries, fail to deliver on the financial performance that the parents coming together in the first place wanted to achieve. The fact that there is so much evidence against the likelihood of success should be a data point the Department of Justice takes into account.”

A lot of the healthcare mergers that have taken place over the past five to eight years have been a response to the Affordable Care Act, said Numerof, and were intended as a bulwark against negotiations with insurance companies, essentially giving the buyers more negotiating clout when coming to the table as contract rates are being revisited.

It has also, she said, become a mechanism for these delivery systems to put more pressure on independent physicians, something of a dying breed in the industry.

The issue for these merging organizations is that, while they feel there’s safety in numbers, the deals add another layer of complexity into their business models.


Even under the best circumstances, M&A often fails to live up to the promise that was established.

“It’s because merger and acquisition integration, which would allow these mergers to realize the potential behind them, requires an enormous amount of work, and most organizations don’t take into account the time that’s required, the focus that’s required, and some of the cultural dynamics that are going to be at play,” said Numerof. “And many don’t take these considerations into account when they evaluate potential partners.”

When these deals are completed, there’s often a “glow” that follows, with a general sentiment that the decision will be good for business. Then reality sets in.

As an example, there’s one very successful pharmaceutical company that has a set of products centered around a speciality disease. The company was acquired for a significant chunk of change by one of the major pharma companies, which promised the smaller company that, due to its success, it would be allowed to operate as independently as possible.

Less than a year later, the company is being broken apart, and the components are being integrated into the infrastructure of the larger company. That has led to some bureaucratic overlay, and defections from people who don’t want to work for a larger company.

In some cases, mergers occur and then the participating parties want to jump ship.

“You have companies coming together, healthcare systems that came together with a lot of fanfare, and after about five to seven years they all agree this was not a good situation, and the company divests all of the assets and individual units,” said Numerof. “So this is very expensive, and not necessarily very good for the community.”

Size is almost never protective, she said. Bond ratings are going down. Some deals, like CVS-Aetna, which was recently approved by the DOJ, will have to do things very different than they have historically in order to be successful — and that will be a struggle in a challenging market environment.


In order to avoid risk, there are certain elements companies should consider.

“One of the first tenets is you’ve got to be very clear when defining the joined vision of the company, and articulate how the separate histories of these companies is going to come together to create a different whole,” said Numerof.

“One of the key points here is the strength of each of the companies. When two companies are weak, it’s like entering into a marriage. With two weak people, it doesn’t work. If you have strong companies coming together strategically because they both see opportunities for growth, where they can leverage each others’ trends, that puts them in a much better position.”

There are always opportunities for cost reduction, but they’ve got to have a new business model. That model has to take into account a new go-to-market strategy, and take into account what’s going to happen in terms of the portfolio — how customers are going to be taken care of, are what the infrastructure requirements are going to be.

An important consideration is redefining core roles and competencies, and sorting out which core values will endure in the combined entity. That will essentially be the glue that holds the enterprise together, and it will require communication; management structure will be crucially important in making the endeavor work long-term.

They’re all factors to consider, especially given that Numerof expects more mega-mergers in the future.

“I think we’re going to see more mega-mergers until the DOJ says,’This is not in the best interest of consumers, the economy, and the ability to compete,'” she said.