CHS in negotiations to extend nearly $2B in debt

https://www.beckershospitalreview.com/finance/chs-in-negotiations-to-extend-nearly-2b-in-debt.html

Image result for ship taking on water

Franklin, Tenn.-based Community Health Systems is in talks with a group of bondholders led by Franklin Resources, an asset management company, to extend approximately $2 billion in bonds due in 2019, people familiar with the matter told the Wall Street Journal.

The company is in talks to swap the 2019 unsecured notes for debt secured by its assets, one person familiar with the matter told WSJ. This type of transaction would be difficult for CHS to complete, as the company can only issue about $1 billion in new secured debt without permission from its lenders to waive a covenant in its revolver loans.

Extending the debt due in 2019 is only a short-term solution because CHS faces billions of dollars in debt maturities from 2020 to 2023, according to the report.

CHS put a financial turnaround plan into place last year, which included selling 30 hospitals to reduce its heavy debt load. The company completed the divestiture plan earlier this month. With the help of proceeds from the hospital sales, CHS brought down its long-term debt load to $13.9 billion in the third quarter of this year, from $14.8 billion in the same period of 2016.

CHS ended the most recent quarter with a net loss of $110 million on revenues of $3.67 billion. That’s compared to the third quarter of 2016, when the company posted a net loss of $79 million on revenues of $4.38 billion.

 

Medicaid Expansion Has Improved the Financial Outlook for Safety-Net Hospitals

http://www.commonwealthfund.org/publications/issue-briefs/2017/nov/financial-impact-state-medicaid-expansion-safety-net-hospitals

Abstract

  • Issue: Safety-net hospitals play a vital role in delivering health care to Medicaid enrollees, the uninsured, and other vulnerable patients. By reducing the number of uninsured Americans, the Affordable Care Act (ACA) was also expected to lower these hospitals’ significant uncompensated care costs and shore up their financial stability.
  • Goal: To examine how the ACA’s Medicaid expansion affected the financial status of safety-net hospitals in states that expanded Medicaid and in states that did not.
  • Methods: Using Medicare hospital cost reports for federal fiscal years 2012 and 2015, the authors compared changes in Medicaid inpatient days as a percentage of total inpatient days, Medicaid revenues as a percentage of total net patient revenues, uncompensated care costs as a percentage of total operating costs, and hospital operating margins.
  • Findings and Conclusions: Medicaid expansion had a significant, favorable financial impact on safety-net hospitals. From 2012 to 2015, safety-net hospitals in expansion states, compared to those in nonexpansion states, experienced larger increases in Medicaid inpatient days and Medicaid revenues as well as reduced uncompensated care costs. These changes improved operating margins for safety-net hospitals in expansion states. Margins for safety-net hospitals in nonexpansion states, meanwhile, declined.

Background

Through their missions or legal mandate, safety-net hospitals provide care to all patients, regardless of their ability to pay.1 They include public hospitals, which are often providers of last resort in their communities; academic medical centers, which combine their teaching function with a mission to serve vulnerable populations; and certain private hospitals.

Safety-net hospitals deliver a significant level of care to low-income patients, including Medicaid enrollees and the uninsured, typically providing services that other hospitals in the community do not offer — trauma, burn care, neonatal intensive care, and inpatient behavioral health, as well as education for future physicians and other health care professionals. They are also an important source of care to uninsured individuals who are ineligible for Medicaid or subsidized marketplace coverage because of their citizenship status.2

Several studies have suggested major reductions in uncompensated care and improved financial status at safety-net institutions in states that expanded Medicaid compared to those in states that did not expand.3,4 However, these results were based on interviews with a limited number of safety-net health system executives and staff. Our analysis expands on this research by examining changes in key financial metrics — that is, uncompensated care, Medicaid costs and revenues, and total hospital margins–across safety-net hospitals nationally using standardized data.

When compared to other short-term acute care hospitals, hospitals that met our safety-net hospital criteria had substantially higher Medicaid revenue and uncompensated care levels than non-safety-net hospitals. Safety-net hospitals, however, had lower operating margins (Exhibit 1).

Below we discuss findings on the impact of the Affordable Care Act’s (ACA) Medicaid expansion on safety-net hospitals’ financial status. The ACA allowed states to expand Medicaid eligibility to nonelderly adults with incomes up to 138 percent of the federal poverty level. The reduction in the number of uninsured under the ACA coverage expansions was expected to reduce the uncompensated care that hospitals provide, thus improving their financial status. As of 2015, 31 states and the District of Columbia had expanded Medicaid, while 19 states had not.5

We measure changes in the financial status of safety-net hospitals in states that expanded Medicaid prior to 2015 (326 hospitals) versus safety-net hospitals in states that did not expand or expanded in 2015 or after (268 hospitals). (See “How We Conducted This Study” for complete methods.)

Key Findings

Our analysis of Medicare cost report data for federal fiscal years 2012 and 2015 shows a sizable contrast in financial performance between safety-net hospitals in states that expanded Medicaid under the ACA and those in states that did not. Performance metrics included the following:

    • Hospital operating margins.6 Operating margins improved for safety-net hospitals located in Medicaid expansion states compared with declines for those in states that did not expand. From 2012 to 2015, operating margins for safety-net hospitals in Medicaid expansion states increased from –3.2 percent to –2.1 percent in 2015 (Exhibit 2, Appendix A). In contrast during the same period, operating margins for safety-net hospitals in nonexpansion states declined from 2.3 percent to 2.0 percent. Largely accounting for this difference were increased Medicaid revenues and reduced uncompensated care costs. Even after expansion, safety-net hospitals’ operating margins in Medicaid expansion states were lower than those in nonexpansion states.
    • Medicaid inpatient days. From 2012 to 2015, safety-net hospitals in Medicaid expansion states experienced larger growth in Medicaid utilization than those in nonexpansion states (Exhibit 3). During the study period, Medicaid inpatient days in expansion states rose 13.5 percent. In comparison, Medicaid inpatient days in nonexpansion states fell slightly, by 0.9 percent.
    • Medicaid revenues and costs.7 The rise in use of safety-net hospitals in Medicaid expansion states resulted in these hospitals’ increased Medicaid revenue and costs compared to a slight decline in nonexpansion states (Exhibit 4). From 2012 to 2015, safety-net hospitals’ Medicaid revenues as a share of net patient revenues rose 12.7 percent in Medicaid expansion states. In contrast, during the same period, safety-net hospitals’ Medicaid revenues as a share of net patient revenues declined 1.8 percent in nonexpansion states. However, safety-net hospitals’ profit margins on Medicaid patients fell from 6.8 percent to 0.7 percent in expansion states, suggesting that the revenues received for newly eligible patients did not keep pace with the higher cost of treating these patients.
    • Uncompensated care costs.8 In 2012, safety-net hospitals’ uncompensated care costs as a percent of total hospital operating costs equaled 6.7 percent in expansion states compared to 5.7 percent in nonexpansion states (Exhibit 5). By 2015, however, the safety-net hospitals’ share of uncompensated care declined to 3.5 percent in expansion states, or a reduction of 47.4 percent. By comparison, in nonexpansion states that year, uncompensated care costs as a share of total hospital operating costs fell to 5.3 percent, a 7.8 percent reduction.

Discussion

These data suggest that the Medicaid expansion created by the ACA had a significant positive financial impact on safety-net hospitals in states that expanded Medicaid eligibility relative to those in states that did not expand. Safety-net hospitals in expansion states saw larger increases in Medicaid patient volume and revenue, reduced uncompensated care, and improved financial margins compared to safety-net hospitals in nonexpansion states. Although our study’s results are specific to safety-net hospitals, other studies have found similar trends across all hospitals in expansion and nonexpansion states.9

The improved financial stability of safety-net hospitals could allow these hospitals to continue expanding outpatient capacity, invest in strategies to improve care coordination, hire new staff, and develop better infrastructure to monitor costs.10 Such investments can also help prepare hospitals for new payment arrangements that may require them to assume more financial risk for patient care and outcomes. Improvements not only benefit the institutions and Medicaid patients but the communities these hospitals serve.

Current attempts to repeal the ACA aim to eliminate the Medicaid expansions over time and curtail Medicaid spending by more than $800 billion over 10 years. The Congressional Budget Office estimates that about 14 million people could lose their Medicaid coverage by 2026, which would have an adverse effect on safety-net hospitals in those states. Specifically, safety-net hospitals’ gains in reduced uncompensated care and improved overall financial margins could be lost in the future.

 

Fitch affirms ‘AA-‘ on Virtua Health’s revenue bonds

https://www.beckershospitalreview.com/finance/fitch-affirms-aa-on-virtua-health-s-revenue-bonds.html

Related image

Fitch Ratings affirmed its “AA-” rating on Marlton, N.J.-based Virtua Health’s revenue bonds, affecting a total of $605 million of debt.

The affirmation is a result of several factors, including the health system’s solid liquidity growth, strong market position, favorable operating margins, sizable clinical platform and moderate debt burden.

The outlook is stable.

 

Why Major Hospitals Are Losing Money By The Millions

https://www.forbes.com/sites/robertpearl/2017/11/07/hospitals-losing-millions/#67f501c67b50

Related image

 

A strange thing happened last year in some the nation’s most established hospitals and health systems. Hundreds of millions of dollars in income suddenly disappeared.

This article, part two of a series that began with a look at primary care disruption, examines the economic struggles of inpatient facilities, the even harsher realities in front of them, and why hospitals are likely to aggravate, not address, healthcare’s rising cost issues.

According to the Harvard Business Review, several big-name hospitals reported significant declines and, in some cases, net losses to their FY 2016 operating margins. Among them, Partners HealthCare, New England’s largest hospital network, lost $108 million; the Cleveland Clinic witnessed a 71% decline in operating income; and MD Anderson, the nation’s largest cancer center, dropped $266 million.

How did some of the biggest brands in care delivery lose this much money? The problem isn’t declining revenue. Since 2009, hospitals have accounted for half of the $240 billion spending increase among private U.S. insurers. It’s not that increased competition is driving price wars, either. On the contrary, 1,412 hospitals have merged since 1998, primarily to increase their clout with insurers and raise prices. Nor is it a consequence of people needing less medical care. The prevalence of chronic illness continues to escalate, accounting for 75% of U.S. healthcare costs, according to the CDC.

Part Of The Problem Is Rooted In The Past

From the late 19th century to the early 20th, hospitals were places the sick went to die. For practically everyone else, healthcare was delivered by house call. With the introduction of general anesthesia and the discovery of powerful antibiotics, medical care began moving from people’s homes to inpatient facilities. And by the 1950s, some 6,000 hospitals had sprouted throughout the country. For all that expansion, hospital costs remained relatively low. By the time Medicare rolled out in 1965, healthcare consumed just 5% of the Gross Domestic Product (GDP). Today, that number is 18%.

Hospitals have contributed to the cost hike in recent decades by: (1) purchasing redundant, expensive medical equipment and generating excess demand, (2) hiring highly paid specialists to perform ever-more complex procedures with diminishing value, rather than right-sizing their work forces, and (3) tolerating massive inefficiencies in care delivery (see “the weekend effect”).

How Hospital CEOs See It

Most hospital leaders acknowledge the need to course correct, but very few have been able to deliver care that’s significantly more efficient or cost-effective than before. Instead, hospitals in most communities have focused on reducing and eliminating competition. As a result, a recent study found that 90% of large U.S. cities were “highly concentrated for hospitals,” allowing those that remain to increase their market power and prices.

Historically, such consolidation (and price escalation) has enabled hospitals to offset higher expenses. As of late, however, this strategy is proving difficult. Here’s how some leaders explain their recent financial struggles:

“Our expenses continue to rise, while constraints by government and payers are keeping our revenues flat.”

Brigham Health president Dr. Betsy Nabel offered this explanation in a letter to employees this May, adding that the hospital will “need to work differently in order to sustain our mission for the future.”

A founding member of Partners HealthCare in Boston, Brigham & Women’s Hospital (BWH) is the second-largest research hospital in the nation, with over $640 million in funding. Its storied history dates back more than a century. But after a difficult FY 2016, BWH offered retirement buyouts to 1,600 employees, nearly 10% of its workforce.

Three factors contributed to the need for layoffs: (1) reduced reimbursements from payers, including the Massachusetts government, which limits annual growth in healthcare spending to 3.6%, a number that will drop to 3.1% next year, (2) high capital costs, both for new buildings and for the hospital’s electronic health record (EHR) system, and (3) high labor expenses among its largely unionized workforce.

“The patients are older, they’re sicker … and it’s more expensive to look after them.”

That, along with higher labor and drug costs, explained the Cleveland Clinic’s economic headwinds, according to outgoing CEO Dr. Toby Cosgrove. And though he did not specifically reference Medicare, years of flat reimbursement levels have resulted in the program paying only 90% of hospital costs for the “older,” “sicker” and “more expensive” patients.

Of note, these operating losses occurred despite the Clinic’s increase in year-over-year revenue. Operating income is on the upswing in 2017, but it remains to be seen whether the health system’s new CEO can continue to make the same assurances to employees as his predecessor that, “We have no plans for workforce reduction.”

“Salaries and wages and … and increased consulting expenses primarily related to the Epic EHR project.”

Leaders at MD Anderson, the largest of three comprehensive cancer centers in the United States, blamed these three factors for the institution’s operational losses. In a statement, executives attributed a 77% drop in adjusted income last August to “a decrease in patient revenues as a result of the implementation of the new Epic Electronic Health Record system.”

Following a reduction of nearly 1,000 jobs (5% of its workforce) in January 2017, and the resignation of MD Anderson’s president this March, a glimmer of hope emerged. The institution’s operating margins were in the black in the first quarter of 2017, according to the Houston Chronicle.

Making Sense Of Hospital Struggles

The challenges confronting these hospital giants mirror the difficulties nearly all community hospitals face. Relatively flat Medicare payments are constraining revenues. The payer mix is shifting to lower-priced patients, including those on Medicaid. Many once-profitable services are moving to outpatient venues, including physician-owned “surgicenters” and diagnostic facilities. And as one of the most unionized industries, hospitals continue to increase wages while drug companies continue raising prices – at three times the rate of healthcare inflation.

Though these factors should inspire hospital leaders to exercise caution when investing, many are spending millions in capital to expand their buildings and infrastructure with hopes of attracting more business from competitors. And despite a $44,000 federal nudge to install EHRs, hospitals are finding it difficult to justify the investment. Digital records are proven to improve patient outcomes, but they also slow down doctors and nurses. According to the annual Deloitte “Survey of US Physicians,” 7 out of 10 physicians report that EHRs reduce productivity, thereby raising costs.

Harsh Realities Ahead For Hospitals

Although nearly every hospital talks about becoming leaner and more efficient, few are fulfilling that vision. Given the opportunity to start over, our nation would build fewer hospitals, eliminate the redundancy of high-priced machines, and consolidate operating volume to achieve superior quality and lower costs.

Instead, hospitals are pursuing strategies of market concentration. As part of that approach, they’re purchasing physician practices at record rates, hoping to ensure continued referral volume, regardless of the cost.

Today, commercial payers bear the financial brunt of hospital inefficiencies and high costs but, at some point, large purchasers will say “no more.” These insurers may soon get help from the nation’s largest purchaser, the federal government. Last month, President Donald Trump issued an executive order with language suggesting the administration and federal agencies may seek to limit provider consolidation, lower barriers to entry and prevent “abuses of market power.”

With pressure mounting, hospital administrators find themselves wedged deeper between a rock and a hard place. They know doctors, nurses, and staff will fight the changes required to boost efficiency, especially those that involve increasing productivity or lowering headcount. But at the same time, their bargaining power is diminishing as health-plan consolidation continues. The four largest insurance companies now own 83% of the national market.

What’s more, the Centers for Medicare & Medicaid Services (CMS) announced last week a $1.6 billion cut to certain Medicare Part B drug payments along with reduced reimbursements for off-campus hospital outpatient departments in 2018. CMS said these moves will “provide a more level playing field for competition between hospitals and physician practices by promoting greater payment alignment.”

The American healthcare system is stuck with investments that made sense decades ago but that now result in hundreds of billions of dollars wasted each year. Hospitals are a prime example. That’s why we shouldn’t count on hospital administrators to solve America’s cost challenges.

Change will need to come from outside the traditional healthcare system. The final part of this series explores three potential solutions and highlights the innovative companies leading the effort.

 

Advocate Health Care’s net income falls 27%

https://www.beckershospitalreview.com/finance/advocate-health-care-s-net-income-falls-27.html

Image result for advocate health care headquarters

Downers Grove, Ill.-based Advocate Health Care saw net income fall as expenses climbed in the third quarter of fiscal year 2017.

The nonprofit health system reported net income of $169.6 million in the third quarter ended Sept. 30, according to unaudited financial documents. That is down 26.8 percent compared to $231.8 million in the third quarter of 2016. Advocate Health Care attributed the decrease to lower return on investment in the most recent quarter compared to the same period last year.

At the same time, the system reported a 13.8 percent increase in expenses. Advocate Health Care recorded expenses of $1.5 billion in the third quarter of 2017, up from $1.3 billion reported in the same quarter of 2016. The uptick in expenses reflected inflation increases and labor costs, with Advocate Health Care posting a one-time expense of $10 million for employees accepting early retirement plans.

Advocate Health Care also saw revenue increase 13.8 percent to $1.6 billion in the third quarter of this year compared to the same period in 2016. When excluding the elimination of revenue under contracts with the system’s physician arm, Advocate Physician Partners, total revenue reflected higher admissions and medical group visits, among other factors.

Advocate Health Care ended the third quarter of 2017 with operating income of $56.2 million, up $7.2 million from the same period in 2016. The system attributed the change to higher inpatient volumes and payment rates. Advocate Health Care achieved the same operating margin for the third quarter of this year as the third quarter of 2016: 3.6 percent.

Mayo Clinic’s operating income more than doubles

https://www.beckershospitalreview.com/finance/mayo-clinic-s-operating-income-more-than-doubles.html

Image result for mayo clinic rochester minn

 

Rochester, Minn.-based Mayo Clinic recorded operating income of $182 million in the third quarter of 2017, more than double its operating income of $86 million in the same period last year, according to recently released bondholder documents.

Mayo saw revenues climb 9.3 percent year over year to $2.97 billion in the third quarter of 2017. The financial boost included an increase in patient service revenue and premium revenue.

The system kept its expenses in check in the most recent quarter. Mayo said expenses rose to $2.79 billion in the third quarter of this year, up 5.9 percent from the same period of the year prior.

Mayo’s operating margin in the most recent quarter was 6.1 percent, compared to the third quarter of 2016, when the organization recorded a 3.2 percent margin.

What does “profit” mean for U.S. hospitals?

http://www.healthaffairs.org/doi/abs/10.1377/hlthaff.2015.1193?journalCode=hlthaff

Image result for hospital profitability

The issue: More than half of U.S. hospitals lose money, at least on patient care. But some hospitals are very profitable, with the top 10 earning more than $163 million, the authors report. Crunching the data points to some important factors in whether hospitals make or lose money, including whether they are part of a large hospital group, enjoy market or regional dominance, and have a higher proportion of patients covered by private insurance.

The takeaway: A hospital’s status as a nonprofit or for-profit has virtually no significance when it come to the question of making money—but other factors, like local market power, make a big difference.

To identify the characteristics of the most profitable US hospitals, we examined the profitability of acute care hospitals in fiscal year 2013, measured as net income from patient care services per adjusted discharge. Based on Medicare Cost Reports and Final Rule Data, the median hospital lost $82 for each such discharge. Forty-five percent of hospitals were profitable, with 2.5 percent earning more than $2,475 per adjusted discharge. The ten most profitable hospitals, seven of which were nonprofit, each earned more than $163 million in total profits from patient care services. Hospitals with for-profit status, higher markups, system affiliation, or regional power, as well as those located in states with price regulation, tended to be more profitable than other hospitals. Hospitals that treated a higher proportion of Medicare patients, had higher expenditures per adjusted discharge, were located in counties with a high proportion of uninsured patients, or were located in states with a dominant insurer or greater health maintenance organization (HMO) penetration had lower profitability than hospitals that did not have these characteristics. These findings can inform policy reforms, while providing a baseline against which to measure the impact of any subsequent reforms.