Tag Archives: Hospital

HRSA rolls out drug pricing site for 340B hospitals

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https://www.fiercehealthcare.com/hospitals-health-systems/hrsa-rolls-out-drug-pricing-site-for-340b-hospitals?mkt_tok=eyJpIjoiWldVeU5HSmtZek5oT1dSaiIsInQiOiJYUXRUNlZ3dGc2aVBWOVdtZ1BGb3Y2bUZNOFowbFwvQ2Y3SzZBcTB6aWswRFJtSEZ5eWFFVStCWmt1TFprZ2V4bDIzS29idkZoZ2dcL1dPbDhQV3NuV0dZXC9cL1M4XC9rc0hKMkNvY3JFa1B6OHlHeWFRZm5YcjdZa1hCdEl0bU9sdkgxIn0%3D&mrkid=959610&utm_medium=nl&utm_source=internal

Drug prices

After multiple delays, the Health Resources & Services Administration (HRSA) has finally launched an online tool that 340B hospitals can use to determine the maximum that pharmaceutical companies can charge for drugs.

HRSA’s new pricing site went live on Monday morning and is one of the elements mandated in the long-delayed final rule for the 340B drug discount program. That rule, which took effect on Jan. 1, also adds monetary penalties for drug companies that overcharge hospitals in the program.

The final rule was first issued in January 2017 and was delayed five times by the Trump administration before going into effect this year. HRSA finally rolled out the rule as it determined the provisions would not interfere with the administration’s broader drug pricing policy. 

Provider groups and 340B advocates cheered the website’s launch. Maureen Testoni, CEO of 340B health, a group that represents more than 1,300 providers participating in the program, said in a statement that the new tool’s release “marks a positive milestone in the history of the 340B program.” 

“Today’s launch of a secure website listing the maximum allowable prices for all 340B covered drugs brings a healthy dose of sunshine into a marketplace that has, for far too long, been a black box,” Testoni said. “Until today, hospitals, clinics and health centers participating in 340B had no way to be sure they were paying the correct amount for the drugs they purchase.” 

340B Health was joined by the American Hospital Association (AHA), America’s Essential Hospitals and the Association of American Medical Colleges on a lawsuit filed in September with the goal of pushing HRSA to implement the rule.

Tom Nickels, executive vice president at AHA, said in a statement that the group was “pleased” that its lawsuit led to the site’s launch.

“As prescription drug prices continue to skyrocket, the 340B program is as crucial as ever in helping hospitals provide access to healthcare services for patients in vulnerable communities,” Nickels said. 

Amid the drug price debate, the 340B program has been under the microscope. The program has enjoyed traditionally bipartisan support, but intense lobbying from the pharmaceutical industry has led to criticism that it has grown too large.

The Centers for Medicare & Medicaid Services also slashed the program’s payment rate in 2017, a shift in a longstanding Medicare policy that culled $1.6 billion in payments from the program. Hospital groups are currently battling the payment changes in court. 

 

 

ELITE HOSPITALS PLUNGE INTO UNPROVEN STEM CELL TREATMENTS

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https://www.healthleadersmedia.com/clinical-care/elite-hospitals-plunge-unproven-stem-cell-treatments?utm_source=silverpop&utm_medium=email&utm_campaign=ENL_190402_LDR_BRIEFING%20(1)&spMailingID=15395736&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1620119090&spReportId=MTYyMDExOTA5MAS2

Hospitals say they’re providing options to patients who have exhausted standard treatments. But critics suggest the hospitals are exploiting desperate patients and profiting from trendy but unproven treatments.

The online video seems to promise everything an arthritis patient could want.

The six-minute segment mimics a morning talk show, using a polished TV host to interview guests around a coffee table. Dr. Adam Pourcho extols the benefits of stem cells and “regenerative medicine” for healing joints without surgery. Pourcho, a sports medicine specialist, says he has used platelet injections to treat his own knee pain, as well as a tendon injury in his elbow. Extending his arm, he says, “It’s completely healed.”

Brendan Hyland, a gym teacher and track coach, describes withstanding intense heel pain for 18 months before seeing Pourcho. Four months after the injections, he says, he was pain-free and has since gone on a 40-mile hike.

“I don’t have any pain that stops me from doing anything I want,” Hyland says.

The video’s cheerleading tone mimics the infomercials used to promote stem cell clinics, several of which have recently gotten into hot water with federal regulators, said Dr. Paul Knoepfler, a professor of cell biology and human anatomy at the University of California-Davis School of Medicine. But the marketing video wasn’t filmed by a little-known operator.

It was sponsored by Swedish Medical Center, the largest nonprofit health provider in the Seattle area.

Swedish is one of a growing number of respected hospitals and health systems — including the Mayo Clinic, the Cleveland Clinicand the University of Miami — that have entered the lucrative business of stem cells and related therapies, including platelet injections. Typical treatments involve injecting patients’ joints with their own fat or bone marrow cells, or with extracts of platelets, the cell fragments known for their role in clotting blood. Many patients seek out regenerative medicine to stave off surgery, even though the evidence supporting these experimental therapies is thin at best, Knoepfler said.

Hospitals say they’re providing options to patients who have exhausted standard treatments. But critics suggest the hospitals are exploiting desperate patients and profiting from trendy but unproven treatments.

The Food and Drug Administration is attempting to shut down clinics that hawk unapproved stem cell therapies, which have been linked to several cases of blindness and at least 12 serious infections. Although doctors usually need preapproval to treat patients with human cells, the FDA has carved out a handful of exceptions, as long as the cells meet certain criteria, said Barbara Binzak Blumenfeld, an attorney who specializes in food and drug law at Buchanan Ingersoll & Rooney in Washington.

Hospitals like Mayo are careful to follow these criteria, to avoid running afoul of the FDA, said Dr. Shane Shapiro, program director for the Regenerative Medicine Therapeutics Suites at Mayo Clinic’s campus in Florida.

‘EXPENSIVE PLACEBOS’

While hospital-based stem cell treatments may be legal, there’s no strong evidence they work, said Leigh Turner, an associate professor at the University of Minnesota’s Center for Bioethics who has published a series of articles describing the size and dynamics of the stem cell market.

“FDA approval isn’t needed and physicians can claim they aren’t violating federal regulations,” Turner said. “But just because something is legal doesn’t make it ethical.”

For doctors and hospitals, stem cells are easy money, Turner said. Patients typically pay more than $700 a treatment for platelets and up to $5,000 for fat and bone marrow injections. As a bonus, doctors don’t have to wrangle with insurance companies, which view the procedures as experimental and largely don’t cover them.

“It’s an out-of-pocket, cash-on-the-barrel economy,” Turner said. Across the country, “clinicians at elite medical facilities are lining their pockets by providing expensive placebos.”

Some patient advocates worry that hospitals are more interested in capturing a slice of the stem-cell market than in proving their treatments actually work.

“It’s lucrative. It’s easy to do. All these reputable institutions, they don’t want to miss out on the business,” said Dr. James Rickert, president of the Society for Patient Centered Orthopedics, which advocates for high-quality care. “It preys on people’s desperation.”

In a joint statement, Pourcho and Swedish defended the online video.

“The terminology was kept simple and with analogies that the lay person would understand,” according to the statement. “As with any treatment that we provide, we encourage patients to research and consider all potential treatment options before deciding on what is best for them.”

But Knoepfler said the guests on the video make several “unbelievable” claims.

At one point, Dr. Pourcho says that platelets release growth factorsthat tell the brain which types of stem cells to send to the site of an injury. According to Pourcho, these instructions make sure that tissues are repaired with the appropriate type of cell, and “so you don’t get, say, eyeball in your hand.”

Knoepfler, who has studied stem cell biology for two decades, said he has never heard of “any possibility of growing eyeball or other random tissues in your hand.” Knoepfler, who wrote about the video in February on his blog, The Niche, said, “There’s no way that the adult brain could send that kind of stem cells anywhere in the body.”

The marketing video debuted in July on KING-TV, a Seattle station, as part of a local lifestyles show called “New Day Northwest.” Although much of the show is produced by the KING 5 news team, some segments — like Pourcho’s interview — are sponsored by local advertisers, said Jim Rose, president and general manager of KING 5 Media Group.

After being contacted by KHN, Rose asked Swedish to remove the video from YouTube because it wasn’t labeled as sponsored content. Omitting that label could allow the video to be confused with news programming. The video now appears only on the KING-TV website, where Swedish is labeled as the sponsor.

“The goal is to clearly inform viewers of paid content so they can distinguish editorial and news content from paid material,” Rose said. “We value the public’s trust.”

INCREASING SCRUTINY

Federal authorities have recently begun cracking down on doctors who make unproven claims or sell unapproved stem cell products.

In October, the Federal Trade Commission fined stem cell clinics millions of dollars for deceptive advertising, noting that the companies claimed to be able to treat or cure autism, Parkinson’s disease and other serious diseases.

In a recent interview Scott Gottlieb, the FDA commissioner, said the agency will continue to go after what he called “bad actors.”

With more than 700 stem cell clinics in operation, the FDA is first targeting those posing the biggest threat, such as doctors who inject stem cells directly into the eye or brain.

“There are clearly bad actors who are well over the line and who are creating significant risks for patients,” Gottlieb said.

Gottlieb, set to leave office April 5, said he’s also concerned about the financial exploitation of patients in pain.

“There’s economic harm here, where products are being promoted that aren’t providing any proven benefits and where patients are paying out-of-pocket,” Gottlieb said.

Dr. Peter Marks, director of the FDA’s Center for Biologics Evaluation and Research, said there is a broad “spectrum” of stem cell providers, ranging from university scientists leading rigorous clinical trials to doctors who promise stem cells are “for just about anything.” Hospitals operate somewhere in the middle, Marks said.

“The good news is that they’re somewhat closer to the most rigorous academics,” he said.

The Mayo Clinic’s regenerative medicine program, for example, focuses conditions such as arthritis, where injections pose few serious risks, even if that’s not yet the standard of care, Shapiro said.

Rickert said it’s easy to see why hospitals are eager to get in the game.

The market for arthritis treatment is huge and growing. At least 30 million Americans have the most common form of arthritis, with diagnoses expected to soar as the population ages. Platelet injections for arthritis generated more than $93 million in revenue in 2015, according to an article last year in The Journal of Knee Surgery.

“We have patients in our offices demanding these treatments,” Shapiro said. “If they don’t get them from us, they will get them somewhere else.”

Doctors at the Mayo Clinic try to provide stem cell treatments and similar therapies responsibly, Shapiro said. In a paper published this year, Shapiro described the hospital’s consultation service, in which doctors explain patients’ options and clear up misconceptions about what stem cells and other injections can do. Doctors can refer patients to treatment or clinical trials.

“Most of the patients do not get a regenerative [stem cell] procedure,” Shapiro said. “They don’t get it because after we have a frank conversation, they decide, ‘Maybe it’s not for me.'”

LOTS OF HYPE, LITTLE PROOF

Although some hospitals boast of high success rates for their stem cell procedures, published research often paints a different story.

The Mayo Clinic website says that 40 to 70% of patients “find some level of pain relief.” Atlanta-based Emory Healthcare claims that 75 to 80% of patients “have had significant pain relief and improved function.” In the Swedish video, Pourcho claims “we can treat really any tendon or any joint” with PRP.

The strongest evidence for PRP is in pain relief for arthritic knees and tennis elbow, where it appears to be safe and perhaps helpful, said Dr. Nicolas Piuzzi, an orthopedic surgeon at the Cleveland Clinic.

But PRP hasn’t been proven to help every part of the body, he said.

PRP has been linked to serious complications when injected to treat patellar tendinitis, an injury to the tendon connecting the kneecap to the shinbone. In a 2013 paper, researchers described the cases of three patients whose pain got dramatically worse after PRP injections. One patient lost bone and underwent surgery to repair the damage.

“People will say, ‘If you inject PRP, you will return to sports faster,'” said Dr. Freddie Fu, chairman of orthopedic surgery at the University of Pittsburgh Medical Center. “But that hasn’t been proven.”

A 2017 study of PRP found it relieved knee pain slightly better than injections of hyaluronic acid. But that’s nothing to brag about, Rickert said, given that hyaluronic acid therapy doesn’t work, either. While some PRP studies have shown more positive results, Rickert notes that most were so small or poorly designed that their results aren’t reliable.

In its 2013 guidelines for knee arthritis, the American Academy of Orthopaedic Surgeons said it is “unable to recommend for or against” PRP.

“PRP is sort of a ‘buyer beware’ situation,” said Dr. William Li, president and CEO of the Angiogenesis Foundation, whose research focuses on blood vessel formation. “It’s the poor man’s approach to biotechnology.”

Tests of other stem cell injections also have failed to live up to expectations.

Shapiro published a rigorously designed study last year in Cartilage, a medical journal, that found bone marrow injections were no better at relieving knee pain than saltwater injections. Rickert noted that patients who are in pain often get relief from placebos. The more invasive the procedure, the stronger the placebo effect, he said, perhaps because patients become invested in the idea that an intervention will really help. Even saltwater injections help 70% of patients, Fu said.

A 2016 review in the Journal of Bone and Joint Surgery concluded that “the value and effective use of cell therapy in orthopaedics remain unclear.” The following year, a review in the British Journal of Sports Medicine concluded, “We do not recommend stem cell therapy” for knee arthritis.

Shapiro said hospitals and health plans are right to be cautious.

“The insurance companies don’t pay for fat grafting or bone-marrow aspiration, and rightly so,” Shapiro said. “That’s because we don’t have enough evidence.”

Rickert, an orthopedist in Bedford, Ind., said fat, bone marrow and platelet injections should be offered only through clinical trials, which carefully evaluate experimental treatments. Patients shouldn’t be charged for these services until they’ve been tested and shown to work.

Orthopedists — surgeons who specialize in bones and muscles — have a history of performing unproven procedures, including spinal fusion, surgery for rotator cuff disease and arthroscopy for worn-out knees, Turner said. Recently, studies have shown them to be no more effective than placebos.

MISLEADING MARKETING

Some argue that joint injections shouldn’t be marketed as stem cell treatments at all.

Piuzzi said he prefers to call the injections “orthobiologics,”noting that platelets are not even cells, let alone stem cells. The number of stem cells in fat and bone marrow injections is extremely small, he said. In fat tissue, only about 1 in 2,000 cells is a stem cell, according to a March paper in The Bone & Joint Journal. Stem cells are even rarer in bone marrow, where 1 in 10,000 to 20,000 cells is a stem cell.

Patients are attracted to regenerative medicine because they assume it will regrow their lost cartilage, Piuzzi said. There’s no solid evidence that the commercial injections used today spur tissue growth, Piuzzi said. Although doctors hope that platelets will release anti-inflammatory substances, which could theoretically help calm an inflamed joint, they don’t know why some patients who receive platelet injections feel better, but others don’t.

So, it comes as no surprise that many patients have trouble sorting through the hype.

Florida resident Kathy Walsh, 61, said she wasted nearly $10,000 on stem cell and platelet injections at a Miami clinic, hoping to avoid knee replacement surgery.

When Walsh heard about a doctor in Miami claiming to regenerate knee cartilage with stem cells, “it seemed like an answer to a prayer,” said Walsh, of Stuart, Fla. “You’re so much in pain and so frustrated that you cling to every bit of hope you can get, even if it does cost you a lot of money.”

The injections eased her pain for only a few months. Eventually, she had both knees replaced. She has been nearly pain-free ever since. “My only regret,” she said, “is that I wasted so much time and money.”

 

 

 

DOJ supports striking entire ACA: 5 things to know

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https://www.beckershospitalreview.com/legal-regulatory-issues/doj-supports-striking-entire-aca-5-things-to-know.html

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In a March 25 court filing, the Department of Justice said it supports a judge’s ruling that the entire Affordable Care Act should be invalidated, according to CNN.

Five things to know:

1. In December, a federal judge in Texas held that the ACA is unconstitutional. He sided with the Republican-led states that brought the lawsuit, Texas v. United States, calling for the entire ACA to be struck down because Congress eliminated the healthcare law’s individual insurance mandate penalty.

2. The case is now pending in the 5th Circuit Court of Appeals. In a filing with the appellate court on March 25, the Justice Department said it supports the federal judge’s ruling that invalidated the ACA.

3. “The Department of Justice has determined that the district court’s judgment should be affirmed,” lawyers for the Justice Department wrote to the 5th Circuit Court of Appeals, according to Politico. “[T]he United States is not urging that any portion of the district court’s judgment be reversed.”

4. The filing signals a major shift in the Justice Department’s position. When Jeff Sessions was attorney general, the administration argued only certain parts of the ACA, like protections for people with pre-existing conditions, should be struck down, but the rest of the law could stand, according to CNN.

5. A coalition of Democratic-led states is challenging the Texas ruling. Regardless of the outcome, the 5th Circuit’s ruling is likely to be appealed to the Supreme Court, according to Politico.

Access the full CNN article here.

Access the full Politico article here.

 

 

Nicklaus Children’s Hospital to freeze wages, lay off staff

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https://www.beckershospitalreview.com/finance/nicklaus-children-s-hospital-to-freeze-wages-lay-off-staff.html

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Miami-based Nicklaus Children’s Hospital is making cutbacks in response to industry pressures, including dwindling reimbursement, according to the Miami Herald.

Nicklaus Children’s executives outlined the cutbacks in a memo to staff obtained by the Miami Herald. The hospital will eliminate pay raises for all employees this year, limit the number of new hires and reduce pension contributions, according to the report.

These cutbacks could create significant savings for Nicklaus Children’s, which has roughly 3,500 workers. Labor costs make up 57 percent of the hospital’s operating expenses, according to the report.

The letter to staff also said it is necessary for Nicklaus Children’s to reduce the size of its workforce to lower operating expenses.

In a written statement to the Miami Herald, a hospital spokesperson said the cutbacks and layoffs will help preserve the hospital’s financial position in the face of several industrywide challenges, including “reductions in reimbursement … a shift from inpatient services to outpatient care, and financial pressures due to rising costs and increased competition.”

Access the full Miami Herald article here.

 

 

Trump admin now backs elimination of ACA in court

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https://www.healthcaredive.com/news/trump-admin-now-backs-elimination-of-aca-in-court/551319/

UPDATED: AHA blasted the decision, calling it “unprecedented and unsupported” by law or facts and warned it would lead to repeal of Medicaid expansion and gut protections for those with pre-existing conditions.

Dive Brief:

  • The Trump administration has reversed its stance on the Affordable Care Act, arguing in a court filing Monday that the entire law should be eliminated instead of just removing provisions protecting people with preexisting conditions.
  • The move came hours after Democratic attorneys general defending the ACA filed their brief arguing that the landmark law is still constitutional even without an effective individual mandate penalty. Both filings are in the Fifth Circuit following an appeal of a Texas judge’s decision from December declaring the law unconstitutional after Congress set the mandate penalty to zero in tax overhaul legislation. That decision was stayed pending appeal.
  • Industry groups lambasted the administration’s about-face. America’s Health Insurance Plans CEO Matt Eyles said in a statement the decision was, like the Texas ruling, “misguided and wrong.” He added the payer lobby “will continue to engage on this issue as it continues through the appeals process so we can support and strengthen affordable coverage for every American.” Federation of American Hospitals CEO Chip Kahn said in a statement the decision is “unfortunate but not unexpected considering [the administration’s] long-held views on the health law.”

Dive Insight:

Elimination of the ACA would be a particular blow for some payers that have found increasing profitability in the individual market. Centene and Molina have found success with the exchanges and have expanded their footprints.

It would also put major hospital chains in a bad spot. Companies like HCA, Tenet and Community Health Systems have exposure that could subject them to reduced patient volumes and more bad debt, Leerink analyst Ana Gupte said when the Texas ruling first came down.

Public support for the ACA has gradually increased over the years, and the latest polling from the Kaiser Family Foundation shows about 53% of respondents giving a favorable view and 40% unfavorable. Individual components of the law are even more popular.

The ACA, which just days ago marked its ninth anniversary, brought forth massive change in American healthcare. A repeal of the law would do the same, stripping insurance coverage for as many as 17 million people.

The Trump administration’s new stance presents an intensely stark contrast with the growing field of Democratic presidential contenders, who have shifted the healthcare conversation to the left as the 2020 field shapes up. Candidates have proposed various forms of Medicare for all as well as scaled back versions that still greatly expand government coverage.

It moves the DOJ away from even some Republicans. During last year’s midterms a few GOP candidates said they approved of the ACA’s most popular element — protection for people with preexisting conditions (although voting records didn’t necessarily back them up).

Most Democrats in Congress aren’t fully backing any single-payer model at the moment, but their support for the ACA is strong. Democrats in the House of Representatives are expected to announce a legislative package Tuesday that would strengthen the ACA by eliminating short-term health plans that don’t comply with the law and increasing subsidies for exchange plans.

Since the GOP’s quite public failure to repeal the law two years ago, efforts to do so through Congress have sputtered to nearly a halt. Instead, the Trump administration started chipping away at the law’s provisions. It cut the open enrollment period for ACA plans, as well as the advertising budget for promoting sign-ups, and stopped cost-sharing reduction payments to insurers.

More recently, HHS has bolstered short-term and association health plans that offer cheap but skimpy coverage not in line with ACA requirements. Analysts fear proliferation of these plans could draw young and healthy people away from the exchanges, jeopardizing the stability of the risk pool.

A Democratic-led House panel launched an investigation into short-term plans and is requesting documents from Anthem and UnitedHealth Group, among other companies.

The legal issue at hand is known as severability — the question of whether a single provision of the law, in this case the individual mandate, becoming unenforceable invalidates the entire statute. The mandate was also the key question in the original U.S. Supreme Court ruling allowing the ACA to move forward.

The high court has since lurched to the right, which is notable if the appeal on the Texas ruling reaches that stage, although that would likely be far down the road.

 

 

 

Hospital cost containment plateaus, Kaufman Hall reports

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https://www.healthcaredive.com/news/hospital-cost-containment-plateaus-kaufman-hall-reports/551173/

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Dive Brief:

  • Hospitals are having a harder time controlling costs through labor and efficiencies and improvement efforts plateaued last year, according to Kaufman Hall’s 2018 National Flash Report. Profitability indicators show that operating margin improved by about 5% compared to 2017.
  • Kaufman Hall, which analyzed more than 600 hospitals, found that volume trends underperformed compared to the previous year. Higher-acuity patients resulted in higher reimbursement per adjusted discharge and adjusted patient day.
  • Drug expenses are one reason for the cost issues. Drug costs increased by about 4% from 2017. Also, bad debt and charity care grew, though at a slower pace at the end of the year. One piece of good news for hospitals is that revenue increased in 2018.

Dive Insight:

Kaufman Hall found that 2018 was generally a year of improvement in regards to profitability. However, volume indicators showed underperformance as discharges continue to drop.

Revenue indicators showed promise, but an ongoing problem is expenses. Hospitals are trying to contain costs by reducing full-time equivalents and bed numbers. However, those savings only go so far and hospitals expect they’ll need to add staff in the coming years. A recent Healthcare Financial Management Association/Navigant survey reported that 78% of hospital CFOs said their organizations’ labor budgets will grow in the coming years, with 18% expecting an increase of more than 5%.

Another factor working against hospitals is drug costs. A recent InCrowd survey found that physicians are pessimistic that those prices will change, with 82% saying it’s unlikely the situation will improve next year.

The Trump administration backs cutting prescription prices as a way to reduce costs. HHS released a proposal in January to end safe harbor protections for drug rebates through pharmacy benefit managers in Medicare Part D and Medicaid managed care plans. Those savings would instead go directly to consumers.

Hospitals have implemented cost-containment strategies, but the report shows there comes a point when hospitals can’t cut anymore. It appears the industry may have reached that point. “Hospitals will need to think more innovatively on how to manage expense,” according to the report.

Kaufman Hall pointed specifically to the West, which experienced “worsening labor efficiency.” Hospitals in this region “need to consider how to employ more advanced approaches to labor management,” the authors wrote.

There are other ways to squeeze dollars out of hospital costs, according to a recent McKinsey & Company report. It estimated that between $1.2 trillion and $2.3 trillion could be saved over the next decade on productivity gains and not expanding the workforce. The report highlighted potential opportunities to improve productivity through efficiency and care coordination.

 

 

New Lease Accounting: Top 10 FAQs Surrounding ASC 842

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https://www.wipfli.com/insights/articles/aa-new-lease-accounting-faqs-surrounding-asc-842?_cldee=aGtvdHVsYUBtc2hvc3Aub3Jn&recipientid=contact-3fde72f1ca28e911a97a000d3a16a9e6-9d947a3bfa4e4003b7370949b112a3ee&utm_source=ClickDimensions&utm_medium=email&utm_campaign=Accounting%20Wire%20newsletter&esid=222a6d3a-f24f-e911-a980-000d3a16acee

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What seemed like a topic that was always in the distant future is now upon us: accounting standards update (ASU) No. 2016-02, Leases(ASC 842). 

Under previous rules, lessees typically accounted for lease transactions as off-balance sheet operating leases or on-balance sheet finance leases. Under the new standard, lessees will have to recognize nearly all leases on the balance sheet. 

ASU 2016-02 comes on the heels of Revenue Recognition (ASC 606) and presents another wide-reaching and major change to the accounting world. Under ASU 2016-02, balance sheets will swell as nearly all leases will now be capitalized. Overall the ASU is very complex; however, below are some frequently asked questions that we are seeing from our clients and the industry. Like most things, the devil is in the details, but the below Q&A can provide high-level answers to these burning questions.

1. When is the standard effective?

ASU 2016-02 is effective for public companies in 2019 and private companies in 2020.

2. What are the changes to how capital leases (now known as “finance leases”) are presented?

The general accounting for finance leases remains largely unchanged compared to the legacy presentation of capital leases.

On the balance sheet, the finance leased asset is typically recorded as part of property, plant and equipment (PP&E), and the lease liability is recorded as funded debt. From a profit and loss perspective, the leased asset is depreciated over the shorter of the term or asset’s useful life, and interest expense is front-loaded as the lease obligation is amortized.

3. How will operating leases now “look” on the balance sheet?

Operating leases take on an entirely new look under ASC 842 in that a right-of-use (ROU) asset and liability are recorded by calculating the present value (PV) of the lease payments using the appropriate discount rate.

Balance sheet presentation of a ROU asset is classified as a long-term asset on a separate line item outside of PP&E. Furthermore, the ROU lease obligation will need to be separated into short-term and long-term liabilities that are aside from funded debt. The profit and loss components of a ROU asset and corresponding liability are amortized under the straight-line method and presented together as rent or lease expense.

Under ASC 842, neither amortization of the ROU obligation nor the ROU asset is considered interest expense or depreciation expense, leaving EBITDA unchanged from accounting for operating leases under the prior lease standards. 

4. Does the standard change the way we determine which type of lease we have?

There will continue to be two types of leases: finance (formerly known as capital) and operating. However, both will require recognition of an asset and a liability on the balance sheet. The differentiation between the two types of leases will play a significant role as to balance sheet classification but does not come without significant analysis in determining what type of lease it actually is.

Finance leases will no longer be evaluated using the “bright-line” tests. Rather, they will be evaluated using principles-based criteria, which aim to evaluate the underlying substance of the lease. The principles-based criteria certainly involve a level of subjectivity; however, the finance lease classification applies should any of the following be met:

  • The property transfers to the lessee at the end of the lease.
  • The lessee is reasonably certain to exercise a purchase option.
  • The lease term is for a “major” part of the asset’s economic life.
  • The present value of lease payments equals or exceeds “substantially all” of the fair value of the asset (undoubtedly the most subjective — more on this later).

If the lease does not meet the above criteria, it will be considered an operating lease. 

5. What changes for lessors vs. lessees?

From the lessor’s point of view, not much changes. In contrast, lessees will now be required to capitalize all leases with terms greater than 12 months.

6. Why is the FASB doing this?

Think about this: Prior to this standard, airlines had not been recording their airplanes on their balance sheets! The standard provides better clarity to users of the financial statements via recognition and measurement of a company’s leased assets and associated liabilities that have historically been tucked away in a footnote disclosure.

7. How do I determine the discount rate?

This is where things can get tricky! To determine the PV, lessees should use the implied rate in the lease contract (if known) or the company’s incremental borrowing rate. This rate is based on what rate the company would obtain if financing 100% of the underlying asset using similar terms and pledging the asset as collateral. 

Knowing that this is often difficult to determine, private companies are afforded an election to use the risk-free rate (e.g., Treasury bill). However, this comes with caution as it typically results in a higher PV, leading to a larger corresponding asset and liability to be booked.

8. Are there new disclosures required?

The footnote disclosure under current standards doesn’t afford financial statement users with many details on either type of lease; however, this is changing. Under ASC 842, the disclosure will provide the reader with both quantitative and qualitative information as to how the lease classification was determined. This information will help the reader comprehend significant judgments and assumptions that were used in evaluating leases under the principles-based criteria.

9. How will this impact my loan covenants?

With operating leases now on the balance sheet, various financial metrics, including those commonly used in loan covenants, are sure to change. The measures of working capital, quick ratio, current ratio and any metrics related to debt (i.e., funded debt) will need to be reviewed carefully to understand how newly capitalized leases will influence results.

In calculations involving EBITDA, the change should not impact results as interest and depreciation (associated with finance leases) are added back, and operating leases (presented as rent or lease expense) are commonly excluded from the benchmark.

Needless to say, it will be imperative to be proactive with your banker. Covenants should be analyzed to determine the impact of the new standard. Some lenders are changing agreements to use updated metrics, while some are simply adding wording to the covenant calculation that says, “Under GAAP in place as of the date of this agreement.” That may seem to simplify things; however, it may also require you to keep two sets of books and records, which can get complicated.

10. How do I prepare for these changes?

The first step is to digest the change in standards and the ripple effect that will come from capitalizing substantially all leases. This will involve an evaluation of the appropriateness of systems, procedures and controls necessary to accumulate and track pertinent lease information. Determination will need to be made as to adoption of ASC 842, which is available on a modified retrospective basis or through a cumulative effect adjustment as of the beginning of the year of adjustment.

A proactive approach to the change in lease accounting is certain to help reduce the burden and headaches of another significant change in accounting standards. If you haven’t done so already, you should start your process in a variety of ways, including knowledge transfer sessions, the evaluation of lease contracts and interpreting the impacts on financial statement presentation and disclosures.

 

 

Montefiore Health System CFO Colleen Blye on her daily mantra and facing today’s healthcare challenges

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Colleen Blye serves as executive vice president and CFO of New York City-based Montefiore Health System.

Before joining the system in January 2016, she was executive vice president and CFO of Catholic Health Services of Long Island, an integrated healthcare delivery system based in Rockville Centre, N.Y.

She was also executive vice president for finance and integrated services at Englewood, Colo.-based Catholic Health Initiatives.

Here, Ms. Blye shares her proudest moment as Montefiore’s CFO, discusses her daily mantra and reveals the revenue cycle tools she’s most excited about.

Question: Since joining Montefiore, what has been one of your proudest moments as CFO?

Colleen Blye: When we restructured the balance sheet last year and [pursued] public financing. This was the first time in Montefiore’s history that we went for a public rating. As a result, this refinancing provided much needed liquidity for our system, and it allowed us to level debt service. We now have a solid baseline going forward which offers us access to additional financing, as needed. That was a big deal and positions our organization with a debt structure appropriate for a system of our size and scale.

Q: What is the greatest challenge you faced as CFO in 2018? Do you expect this to be your biggest challenge in 2019 as well?

CB: One [challenge] is shifting the finance culture overall from one of financial reporting to one of analytics, and being a business partner. In today’s healthcare world, I think this is imperative, and Montefiore has embraced this culture. I think businesses separate from the healthcare environment operate this way, and we need to be responding and shifting so that finance is a true business partner throughout the organization.

The other aspect that I think is increasingly challenging for all of us in financial healthcare is trying to understand how to diversify our shrinking revenue base. There’s been a lot of revenue compression by governmental payers and the market in general. Therefore, it is imperative that we continually think about how we’re going to diversify that revenue base and bring in new revenue streams to facilitate growth.

Q: What is a daily mantra that informs your leadership decisions?

CB: I always use the concept, “Leave an organization better than you received it.” That doesn’t always mean having absolute analytics or support. Seasoned CFOs understand [that] you must use your experience and other intellect, in addition to data and supporting analysis, to determine whether the risk of any given business decision is worthwhile going forward.

Q: Montefiore Health System has 11 hospitals and serves 3 million people in communities across the Bronx, Westchester and the Hudson Valley. How does the system’s financial strategy differ by location?  

CB: At the highest level, we are one system. However, every market has different opportunities, and it’s imperative that we find those opportunities and capitalize on them to benefit the patients, providers, communities, and therefore, the system overall.

Q: The system is bringing specialty care expertise in areas including cancer, advanced imaging, neuroscience, transplantation, musculoskeletal and heart and vascular care to new markets in its service region of four counties. How does this play a role in the system’s financial improvement plans?

CB: It’s certainly a big part. This goes back to diversifying the revenue stream and understanding where those opportunities are. Specialty care is a critical element of the future of healthcare. We’ve seen a significant shift from inpatient to outpatient care for the less complex services. But,it’s equally important to understand the more complex care as well, capturing that environment so we can take care of the whole person. From an economic point of view, it typically is that more complex care that produces some of the greater margins for our organization.

Q: What are your top cost containment strategies?

CB: We’re focused on all opportunities. One challenge many organizations have is to maintain a cost-focused culture while you’re trying to support growth to sustain the business. But we look at all aspects — how do we maintain our quality care yet utilize our size and scale to get efficiency? We’re constantly looking at that as it relates to our procurement strategy. We’re constantly looking at our employee and benefit cost structure. We [must] continually look at that resource consumption and make sure we’re spending wisely. As a system, our goal is to make sure that quality care is at the center of what we’re focused on but that we utilize who we are — scale and size — to maximize opportunities.

It’s [also] not just the cost side of the equation that we look at. To grow and sustain, we also have to grow our business. We have to be equally focused on where those growth opportunities lie for us as an organization, maintaining equal focused on our revenue efficiency to make certain we’re collecting every dollar we’re entitled to for the services we deliver.

Q: What new revenue cycle tool are you most excited about? 

CB: The tools we’re most excited about are those that are patient-focused. Consumers, particularly millennials, expect and look for that convenience. We are working with vendors that transition a complex billing and information cycle.  This enables us to communicate with our patients in a far more user-friendly way, We’re excited about these opportunities which are focused on patient-centered communications, allowing us to connect directly with patients, informing them at the earliest point about what their financial responsibilities are, how to interpret that information, and how to make payments on those responsibilities.

Q: If you could pass along one nugget of advice to another hospital CFO, what would it be?

CB: Always keep your eyes and ears open for opportunities and always think about how you can grow and expand your thinking and the perspective you bring to the work that you do.

I would also encourage thinking about how to become partners in the healthcare business. I think we have a calling now as CFOs to be far more involved in operations, rather than just financial reporting, providing data, trends and insight to our internal colleagues. I would really suggest moving from the traditional finance acumen to use those skills and techniques to be a strategic-thinking and better business partner.

 

Health Care Valuations: The New, the Old and the Ugly

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The shift in health care from volume-based, fee-for-service to value-based reimbursement (VBR) continues to push forward. In its wake, unintended consequences and new challenges have emerged — not only in aspects of delivery but also when determining fair market value (FMV) and remaining compliant with the federal Anti-Kickback Statute and the Stark Law. Below we touch on those consequences and how they’ve emerged from both new and old regulations.

The New: MACRA

Now in play, the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) promises to fundamentally change the way the country evaluates and pays for health care. Its new payment schedules, however, have created ramifications that not only tangle the hospital-physician relationship but also create implications for VBR transactions and valuations.

As part of the transition to value-based medicine, four new MACRA elements in particular represent significant changes:

1. Pay for Performance (P4P) Arrangements: The remuneration system makes part of payment dependent on performance, measured against a defined set of criteria, and creates measurements and performance standards for establishing target criteria.

2. Shared Savings Arrangements: The new approach incentivizes providers to reduce health care spending for a defined patient population by offering a percentage of net savings realized as a result of their efforts.

3. Episodic Payments: An episode payment system offers a single price for all the services needed by a patient for an entire episode of care; for example, all the inpatient and outpatient care needed following a heart attack. The intent is to reduce the incentive to overuse unnecessary services within the episode. It also gives health care providers the flexibility to decide what services should be delivered rather than constraining them by fee codes and amounts.

4. Global Budget: With a fixed prepayment made to a group of providers or to a health care system (as opposed to a health care plan), this arrangement covers most or all of a patient’s care during a specified time period.

Clearly the value equation is shifting. Value is defined no longer solely by how much revenue a physician generates but rather by solving problems for patients and patient experience. Value can also be derived not by revenue per patient, but by how many patient lives a physician directs, and with that comes control over how some payments are allocated for patient related services.

As the value dynamics change, hospitals have sought to establish closer relationships with physicians. Acquisitions of physician practices by hospitals have continued at dramatic rates alongside the move toward direct physician employment and provider service agreements. New players in the market and marketplace forces have also emerged as competition to hospitals. Private equity groups and insurance companies are pursuing the acquisition of physicians and clinics for control of patient lives, and therefore revenue.

While the trend toward hospital-physician alignment is intended to improve health care delivery, it has come under scrutiny for potential fraud and abuse violations due in part to established laws that now appear at odds with the new VBR movement.

The Old: Anti-Kickback Statute and Stark Law

Health care organizations, providers and their counsels are well aware of the laws in place they must abide by, namely the Anti-Kickback Statute (AKS) and the Stark Law, which have been in force for more than three decades.

Such regulatory considerations related to fraud and abuse have long had significant impact on the value attributable to each property interest and on the valuation process itself. There are in fact several distinct meanings of fraud within the context of the health care regulatory framework, and they affect a property’s profitability and sustainability, creating significant risk and uncertainty for business entities.

What constitutes fraud, however, is now under the microscope and creating potential liability under the False Claims Act. The new direction of collaborative relationships on behalf of the patient and patient outcomes can make some arrangements suspect. How do physicians refer patients in the new MACRA environment without it being considered a conflict of interest or fraudulent? How will payments made to physicians not exceed the range of FMV and be deemed commercially reasonable? How can alignment strategies be constructed to provide a full continuum of care under VBR reforms?

While there have been no changes to the longstanding regulations, discord between the old laws and the new VBR direction is necessitating a different approach to compliance. The American Hospital, in a letter to the U.S. Senate Finance Committee in a hearing on the Stark law, said, “As interpreted today, the two ‘hallmarks’ of acceptability under the Stark law — fair market value and commercial reasonableness — are not suited to the collaborative models that reward value and outcomes.”

The Ugly: The Push and Pull of the New and the Old

The friction between the enforcement of fraud and abuse laws by the Department of Justice and the Office of the Inspector General, and the VBR models being implemented by Health and Human Services is warranting a review of MACRA and the threshold and definition of commercial reasonableness. With no one clear definition of commercial reasonableness, its analysis is ripe for distortion.

Many regulators’ arguments are centered around Practice Loss Postulate (PLP) — that the acquisition of a physician practice that then operates at a “book financial loss” is dispositive evidence of the hospital’s payment of consideration based on the volume and/or value of referrals.

The problem? In maintaining the economic delineation between physicians and hospitals, the PLP focuses exclusively on immediate and direct financial (cash) returns on, and returns of, investments by health care organizations related to vertical integration transactions. The PLP ignores other economic benefits associated with vertical integration, such as social benefits, qualitative gains, efficiency gains and avoiding costs.

As a consequence, such a vertical integration move could be viewed by regulators as evidence of legally impermissible referrals under the Stark law. However, it would prevent vertically integrated health systems from withstanding fraud and abuse scrutiny. And it would create barriers to satisfying the threshold of commercial reasonableness.

More “New” Is in the Future Forecast

Active industry input and congressional committee discussion is underway in hopes of generating workable strategies to reduce the law’s burden. And although the actual outcomes are uncertain, changes are clearly ahead.

Trump’s all-or-nothing gamble

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The Trump administration’s new legal argument against the Affordable Care Act is a political risk. It may also be a liability in court.

How it works: The legal issue here is “severability” — if the ACA’s individual mandate is unconstitutional, can it be struck down in isolation? Or is it too intertwined with other parts of the law?

Flashback: We’ve seen this movie before — in 2012, at the Supreme Court.

  • According to behind-the-scenes reporting from the 2012 ACA case, four conservative justices wanted to strike down the entire law. Chief Justice John Roberts reportedly wanted to strike down the mandate and protections for pre-existing conditions while leaving the rest intact.
  • But the other conservatives wouldn’t budge, and faced with a choice between upholding or striking down the whole thing, Roberts chose the former.

The Justice Department has now forced that same all-or-nothing decision into the case now pending before the 5th Circuit Court of Appeals.

“There’s no way they were getting Roberts’ vote anyway … but this won’t help,” said Jonathan Adler, a law professor at Case Western Reserve University who helped spearhead a different challenge to the ACA.

  • “It’s contrary to everything he’s ever said and done on severability,” Adler argues.

It may not get that far. “I think the states ultimately lose,” Adler said. “I think the most likely outcome is they lose in the 5th Circuit. If they don’t lose at the 5th Circuit, they will lose at the Supreme Court.”

If that’s what happens, adopting this riskier legal strategy may ultimately be the only thing that saves Republicans from the political nightmare of wiping out 20 million people’s health care coverage with no strategy on how to replace it.

  • I’ll spare you a long list of quotes from President Trump’s trip to Capitol Hill yesterday. Suffice it to say that no, Republicans still do not have a plan for what happens next if they finally succeed in killing the ACA. Some things never change.