Outlook is negative for nonprofit hospital sector, Moody’s says

https://www.beckershospitalreview.com/finance/outlook-is-negative-for-nonprofit-hospital-sector-moody-s-says.html

Image result for negative outlook

Moody’s Investors Service has issued a negative outlook on the nonprofit healthcare and hospital sector for 2019. The outlook reflects Moody’s expectation that operating cash flow in the sector will be flat or decline and bad debt will rise next year.

Moody’s said operating cash flow will either remain flat or decline by up to 1 percent in 2019. Performance will largely depend on how well hospitals manage expense growth, according to the credit rating agency.

Moody’s expects cost-cutting measures and lower increases in drug prices to cause expense growth to slow next year. However, the credit rating agency said expenses will still outpace revenues due to several factors, including the ongoing need for temporary nurses and continued recruitment of employed physicians.

Hospital bad debt is expected to grow 8 to 9 percent next year as health plans place greater financial burden on patients. An aging population will increase hospital reliance on Medicare, which will also constrain revenue growth, Moody’s said.

 

Hospital Operating Income Falls for Two-Thirds of Health Systems

https://revcycleintelligence.com/news/hospital-operating-income-falls-for-two-thirds-of-health-systems?eid=CXTEL000000093912&elqCampaignId=7597&elqTrackId=e8b767871da64811acdd5707ff64a771&elq=8c464455b5764b358a94a8541d0fc832&elqaid=8029&elqat=1&elqCampaignId=7597

Hospital operating income and health systems

Hospital expenses are rising faster than revenue growth for health systems, resulting in declining operating income.

Health system operating income is deteriorating as hospital expenses continue to grow, according to a recent Navigant analysis.

In the three-year analysis of the financial disclosures for 104 prominent health systems that operate almost one-half of US hospitals, the healthcare consulting firm found that two-thirds of the organization saw operating income fall from FY 2015 to FY 2017. Twenty-two of these health systems had three-year operating income reductions of over $100 million each.

Furthermore, 27 percent of the health systems analyzes lost revenue on operations in at least one of the three years analyzed and 11 percent reported negative margins all three years.

In total, health systems facing operating earnings reductions lost $6.8 billion during the period, representing a 44 percent reduction.

Rapidly growing hospital expenses as the primary driver of declining operating margins, Navigant reported. Hospital expenses increased three percentage points faster hospital revenue from 2015 to 2017. Top-line operating revenue growth decreased from seven percent in 2015 to 5.5 percent by 2017.

Hospital revenue growth slowed during the period because demand went down for key hospital services, like surgery and inpatient admissions, Navigant explained.

Many of the revenue-generating services hospitals rely on are under the microscope. Policymakers and healthcare leaders are particularly looking to decrease the number of hospital admissions and safely shift inpatient surgeries to less expensive outpatient settings.

In exchange, Medicare and other leading payers are reimbursing hospitals for decreasing admissions or readmissions and their performance on other value-based metrics.

The shift to value-based reimbursement, however, is slow and steady, with just over one-third of healthcare payments currently linked to an alternative payment model. Hospitals and health systems are still learning to navigate the new payment landscape while keeping their revenue growing.

Value-based contracts also failed to deliver sufficient patient volume to counteract the discounts given to payers, Navigant added.

According to the firm, other factors contributing to a slowdown in hospital revenue growth included a decline in collection rates for private accounts and reductions in Medicare reimbursement updates because of the Affordable Care Act and the 2012 federal budget sequester.

“Because of reductions in Medicare updates from ACA and the sequester, hospital losses in treating Medicare patients rose from $20.1 billion in 2010 to $48.8 billion in 2016, according to American Hospital Association analyses,” the report stated. “The sharp $7.2 billion deterioration in Medicare margins that occurred from 2015 to 2016 surely contributed to the reduction in hospital operating margins in the same year of this analysis.”

While hospital revenue growth slowed, hospital expenses sharply rose as healthcare organizations invested in new technologies. Value-based reimbursement, federal requirements, and other components of the Affordable Care Act prompted hospitals to make strategic investments in EHRs, physicians, and population health management, causing expenses to increase, Navigant stated.

Key strategic investments made by hospitals and health systems included:

  • Compliance with the 2009 Health Information Technology for Economic and Clinical Health (HITECH) Act, which requires certified EHR implementation in hospitals and affiliated physician practices
  • Compliance with Medicare payment reform initiatives, such as accountable care organizations (ACOs) or pay-for-performance programs
  • Participation in new value-based contracts with payers
  • Establishment of employed physician groups or clinically integrated networks to develop the capabilities needed for compliance with performance- or value-based initiatives

“In addition to these strategic investments, other factors drove up routine patient care expenses, including a nursing shortage that increased nursing wages and agency expenses; specialty drug costs, particularly for chemotherapeutic agents; and, for some systems, recalibration of retirement fund costs,” the report stated.

The shift to value-based reimbursement and all of its accompanying policies will be the “new normal,” and hospitals should expect the low rate of revenue growth to persist, Navigant stated.

But hospitals and health systems can withstand the economic downturn by achieving strategic discipline and operational excellence, the firm advised.

“Systems must be disciplined to invest their growth capital in areas of actual reachable demand; that is, matched to the growth potential in the specific local markets the system serves,” the report stated. For example, creating a Kaiser-like closed panel capitated health offering in markets where there is no employer or health plan interest in buying such a product is a waste of scarce capital and management bandwidth.”

In line with strategic discipline, organizations will need to “prune” their owned assets portfolio by improving the utilization of their clinical capacity and growing patient throughput. Health systems can achieve this by focusing on scheduling and staffing, ensuring adherence to clinical pathways, streamlining discharges and care transitions, and adjusting physical capacity to actual demand.

The tools used to succeed in value-based contracts should also be applied to Medicare lines of business to reduce Medicare operating losses.

Additionally, vertical alignment will be key to weathering falling operating earnings, Navigant explained.

“Revenue growth is more likely to occur around the edges of the hospital’s core services — inpatient care, surgery, and imaging — rather than from those services themselves,” the report stated. “Creatively repackaging services like care management that is presently imbedded in every aspect of clinical operations, and finding retail demand for services presently bundled as part of the hospital’s traditional service offerings, represent such edge opportunities.”

Reducing patient leakage in multi-specialty groups and systems through improved referral patterns, scheduling, or care coordination will help to grow revenue and keep it within the system.

“To achieve better performance, health system management and boards must take a fresh look at their strategy considering local market realities. They need to look closely at the markets they serve, and size and target their offerings to actual market demand,” the report concluded. “They must re-examine and rationalize their portfolio of assets and demand marked improvements in efficiency and effectiveness, and measurable value creation for those who pay for care, particularly their patients. Since much of this should have been done five years ago, time is of the essence.”

Should Hospitals Limit the Number of Patients Nurses Can Help?

http://www.governing.com/topics/health-human-services/gov-massachusetts-ballot-nurses-patient-ratio-health-care.html

A male nurse with an elderly patient.

 

The medical community is divided over a November ballot measure that would make Massachusetts only the second state with such staffing requirements.

Voters this fall could make Massachusetts only the second state in the country to limit the number of patients that hospital nurses can help at one time.

Question 1 would create legal ratios based on the type of patients that nurses are dealing with. Nurses aiding women during birth and up to two hours after, for instance, would be limited to one patient. If they’re working with children, they could see four patients at once. In the psychiatric ward, nurses could help up to five patients.

While nurses unions and progressive political groups back the ballot measure, most medical groups — including the Massachusetts chapter of the American Nurses Association and the state’s Health and Hospital Association — oppose it.

The ballot measure’s supporters argue that not regulating this negatively impacts patient care and overall health outcomes.

“There is overwhelming evidence when you look at studies and talk to nurses that when there are limits, there are better health outcomes,” says Kate Norton, campaign spokewoman for the Committee to Ensure Safe Patient Care, which is the official campaign for the ballot measure.

2011 study in the journal Health Affairs found that nurse-patient ratios in California resulted in decreased mortality rates after surgery and an additional half-hour of care for patients overall.

Seven states have laws that require hospitals to have committees that address staffing issues, but California is the only state with a cap on the number of patients a nurse can see during one shift. Advocates have struggled to gain support for ratio laws elsewhere, in part because the hospital industry doesn’t believe there’s enough evidence to support them.

California’s regulations were drafted by the state’s department of health and have been in effect since 2004. There was some fear at the time that hospitals would be forced to hire more nurses with less education in order to comply with the ratios. But according to the 2011 study, that didn’t happen.

Opponents of Massachusetts’ measure also worry that it would force hospitals “to make deep cuts to critical programs, such as opioid treatment and mental health services. Many community hospitals will not be able to absorb the added cost and will be forced to close.”

In California’s experience, those fears are likely overblown.

Research by the California Healthcare Foundation in 2009 shows that while “leaders reported difficulties in absorbing the costs of the ratios, and many had to reduce budgets, reduce services or employ other cost-saving measures,” the impact of the ratios was not discernible on hospital finances.

Research further shows that hiring levels only increased slightly after the mandate. But California is expected to have a nursing shortage of more than 44,000 by 2030. It’s not clear how big a role, if any, the staffing ratios play in this shortage.

In Massachusetts, opponents of the measure argue that it would worsen the existing nurse shortage there. Right now the vacancy rate for registered nurses in Massachusetts hospitals is 6.4 percent.

“If it passes, the estimates are that hospitals will have to hire 6,000 more nurses [according to a study led by the opposition camp]. Where will they get them?” says Jake Krilovich, director of policy and public affairs for the Home Care Alliance of Massachusetts, which opposes the measure.

But according to data from the U.S. Department of Health and Human Services, the state is projected to have a surplus of nurses by 2030.

Although well-financed organizations like the Massachusetts Business Roundtable, Massachusetts Health and Hospital Association and 11 local chamber of commerces oppose the measure, the supporting campaign has much more cash on hand: $1 million to just over $11,000 in the opposition camp.

There hasn’t been any formal polling done on the measure.

 

Experienced Bedside Nurses: An Endangered Species?

https://ajnoffthecharts.com/experienced-bedside-nurses-endangered-species/

Image result for Experienced Bedside Nurses: An Endangered Species?

“The trend toward our hospitals being primarily populated with nurses with less than two years’ experience is worrisome.”

At least three colleagues who’ve recently been patients in hospitals or had family members who were have remarked on the youthful nurses they encountered—and on their lack of experience. In two of the conversations, my colleagues cited instances in which this lack of experience was detrimental to care, one of them dangerous. That “sixth sense,” that level of awareness that comes with lived experience and becomes part of expert clinical knowledge, is important for safe, quality patient care.

In the February editorial, I report on the answers I received when I queried our editorial board members about new nurses’ inclination to work in acute care for only two years to gain experience and then leave to pursue NP careers. Many of the board members have seen a similar trend, one reflected by research on nurse retention, some of it published in AJN (most recently, see Christine Kovner’s February 2014 study on the work patterns of newly licensed RNs, free until February 6).

As one board member noted:

“The narrative must be shifted to embrace the full range of roles and contributions of all nurses. Our health care system depends upon a well-trained, experienced workforce. The trend toward our hospitals being primarily populated with nurses with less than two years’ experience is worrisome.”

It’s a complex issue, and no one is faulting new RNs for the career paths they pursue. But as this trend accelerates, what can be done to ensure that there are enough experienced nurses at the bedside to protect patient safety? Let us know your thoughts.

 

Moody’s: Nursing shortage will pressure hospital margins for years

https://www.beckershospitalreview.com/finance/moody-s-nursing-shortage-will-pressure-hospital-margins-for-years.html

Image result for nursing shortage

 

U.S. nonprofit hospital margins will be negatively affected by an extreme nursing shortage for at least the next three to four years, according to a new report from Moody’s Investors Service.

To attract and retain nursing talent, many hospitals are increasing compensation and offering sign-on bonuses and attractive fringe benefits. However, these incentives are putting expense pressure on hospitals.

“Labor is the largest hospital expense and is increasing faster than total expense growth while outpacing revenue growth,” Safat Hannan, a Moody’s analyst, said. “The lack of qualified nurses will compound these expense pressures and negatively affect hospital margins.”

The nursing shortage is most prevalent in Florida, Georgia, Texas, California, Louisiana, Mississippi, Alabama and West Virginia, according to the report.

Nurses to the Rescue!

http://freakonomics.com/podcast/nurses-to-the-rescue/

A nurse checks a child's ear.

Our latest Freakonomics Radio episode is called “Nurses to the Rescue!” (You can subscribe to the podcast at Apple Podcasts or elsewhere, get the RSS feed, or listen via the media player above.)

They are the most-trusted profession in America (and with good reason). They are critical to patient outcomes (especially in primary care). Could the growing army of nurse practitioners be an answer to the doctor shortage? The data say yes but — big surprise — doctors’ associations say no.

Outlook Darkens for Not-for-Profit Hospitals

http://www.healthleadersmedia.com/finance/outlook-darkens-not-profit-hospitals?spMailingID=12500545&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1300449776&spReportId=MTMwMDQ0OTc3NgS2

Image result for bulls and bears

 

The revised outlook from Moody’s comes amid a larger-than-expected drop in cash flow this year and the ongoing uncertainty regarding federal healthcare policy for public and not-for-profit hospitals.

Moody’s Investors Service has downgraded from stable to negative its 2018 outlook for the not-for-profit hospital sector based on an expected drop in operating cash flow.

“Operating cash flow declined at a more rapid pace than expected in 2017, and we expect continued contraction of 2%-4% through 2018,” said Eva Bogaty, a Moody’s vice president.

“The cash flow spike from insurance expansion under the Affordable Care Act in 2014 and 2015 has largely worn off, but cash flow has not stabilized as expected because of a low revenue and high expense growth environment,” Bogaty said.

In a briefing released Monday, Moody’s said hospital revenue growth is slowing and is expected to remain slightly above medical inflation, which declined to a low of 1.6% in September. Hospitals can’t translate volume growth into stronger revenue growth because of the lower reimbursement rate increases across all insurance providers and higher expense growth.

In addition, rising exposure to governmental payers will dampen revenue growth for the foreseeable future due to a rapidly aging population and low reimbursement rates. Medicare and Medicaid, represent 60% of gross patient revenue in 2017, Moody’s said.

Key drivers of expense growth include rising labor costs, driven by an acute nursing shortage and ongoing physician and medical specialist hiring. Technology costs are also rising as systems are upgraded and IT staff is needed for training and maintenance. While the ACA’s arrival heralded a drop in bad debt from 2014-16, bad debt rebounded in 2017 and will continue to grow at a rate of 6%-7% in 2018, Bogaty said.

“Rising copays and use of high deductible plans will increase bad debt for both expansion and non-expansion states,” she said.

In the near-term, uncertainty regarding federal healthcare policy will have a marginal fiscal impact on NFP hospitals. Bogaty said ambiguity surrounding the ACA does affect the planning and modelling of long-term strategies, while recent federal tax proposals will add to rising costs for hospitals.

The outlook could be revised to stable if operating cash flow resumes growth of 0%-4%. A change to positive could result from expectations of accelerated operating cash flow growth of more than 4% after inflation, Moody’s said.