Moody’s Projects Stability for NFP Healthcare Sector in 2016

Note: the editorial staff at iProtean will be taking a holiday break beginning next week and will return the first week in January. Happy Holidays!

 

The not-for-profit healthcare sector will be “stable” in 2016, according to the Moody’s Investor Service 2016 Outlook, released early this month. Moody’s analysts attribute stability to operating cash flow growth and reduction in bad debt.

 

Operating Cash Flow

The current strong growth in patient volumes and cash flow will return to normal levels, according to the analysts, because some of the factors driving recent strong performance such as gains in insurance coverage and strong patient volume growth, will not be repeated. Cash flow growth jumped to 12.3 percent in 2014, and growth through June 2015 remained strong at 10.5 percent. In 2016, cash flow growth will moderate to historical levels of 3 to 4 percent.

 

Bad Debt

Bad debt continues to fall, but at a slower rate than in the recent past. Large decreases in the uninsured rate during 2014 “have leveled out over the last few months as the Affordable Care Act (ACA) matures and there are smaller year-over-year gains to be made in insurance coverage.” States that expanded Medicaid have realized nearly all of the reduction in bad debt.

 

Moody’s notes that long-term risks remain:

 

Investments in population health management strategies could reduce margins. Hospitals will lose revenue unless they successfully enter into risk sharing contracts or make investments to capture volume in lower cost settings. Health policy experts believe that successful population health strategies will reduce inpatient utilization and lower costs. However, strategic investments, like physician practice acquisitions and insurance company start ups, are low margin businesses and can lead to large operating losses during the initial phase. In addition, investments in information technology and electronic health records will be costly.

 

Exposure to government insurance is growing. Factors include the expansion of Medicaid eligibility and an aging population resulting in an increase in Medicare enrollment. Government payers reimburse at rates lower than commercial insurance, and their rates typically are not subject to negotiation. This pressures hospital margins.

 

Health insurance markets continue to evolve. Consolidation among insurance companies “gives insurers greater leverage in negotiating payment rates with providers.” In addition to consolidation, the health exchanges continue to evolve and some are experiencing stress. Many major insurers reported losses on their exchange business, and many insurance co-ops failed in recent months.

 

Changes in patient behavior and regulation are on the horizon. Consumerism is changing how and where patients seek care by highlighting low-cost competition in the market. Additionally, significant political and regulatory challenges include changes to how Medicare reimburses for a variety of services, the imposition of the “Cadillac Tax” in 2018 which could reduce health insurance benefits for many commercially insured people, and the possibility of additional challenges to the ACA.

 

(Source: 2016 Outlook—Sector Stable: Lone-term Pressure Remains. Moody’s Investors Service, December 3, 2015.)

 

iProtean again thanks Moody’s Investors Service for allowing us to provide this information to our subscribers and to liberally quote from its Outlook.

 

 

iProtean subscribers, the advanced Finance course, Integrating Population Health Management into Your Strategic and Financial Plans, Part Two is in your library. This course continues the discussion by experts Marian Jennings, Mark Grube and Nathan Kaufman and covers whether population health management should be a priority for all hospitals/systems, transitioning and success indicators, risks and benefits of partnering for population health initiatives, and the population health hierarchy.

 

 

For a complete list of iProtean courses, click here.

 

 

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Hospital-Acquired Conditions Continue to Decrease

The Agency for Healthcare Research and Quality (AHRQ) issued preliminary estimates for hospital-acquired conditions (HACs) for 2014, noting a 17 percent decline since 2010. This translates to a cumulative total of 2.1 million fewer HACs for hospital patients from 2011 through 2014.

 

AHRQ estimated that nearly 87,000 fewer patients died in the hospital as a result of the reduction in HAQs during the four-year period, saving approximately $19.8 billion in healthcare costs.

 

AHRQ admits that the exact cause of the decline is “not fully understood,” but notes the increase in safety has occurred “during a period of concerted attention by hospitals” throughout the country to reduce adverse events as part of the Affordable Care Act including Medicare payment incentives. Additional possible causes noted in the report include:

 

  • Public reporting of hospital-level results
  • Technical assistance offered by the QIO program to hospitals
  • Technical assistance and catalytic efforts of the Department of Health and Human Services Partnership for Patients initiative led by CMS
  • Widespread implementation and improved use of Electronic Health Records at hospitals
  • AHRQ investments in producing evidence about how to make care safer, tools and training to catalyze improvement, and data and measures to be able to track change

 

(Saving Lives and Saving Money: Hospital-Acquired Conditions Update: Interim Data From National Efforts To Make Care Safer, 2010-2014, AHRQ, December 1, 2015)

 

According to the report, about 40 percent of that reduction was from adverse drug events, about 28 percent from pressure ulcers, and about 16 percent from catheter-associated urinary tract infections. (“AHRQ: Efforts to Reduce HACs Have Saved Lives and Lowered Costs,” AHLA Weekly, December 4, 2015)

AHRQ noted, “ . . . even with the 17 percent decline in the HACs,” the interim 2014 HAC rate of 121 HACs per 1,000 discharges is the same as was seen in 2013, and it means that in 2013 and 2014 almost 10 percent of hospitalized patients experienced one or more of the HACs AHRQ measured.

 

“That rate is still too high . . . much work remains to be done to ensure that the U.S. health care system is as safe as it can possibly be,” AHRQ said.

 

To read the full AHRQ report (lots of graphs), click here.

 

 

 

iProtean subscribers, the advanced Finance course, Integrating Population Health Management into Your Strategic and Financial Plans, Part Two will be in your library this week. This course continues the discussion by experts Marian Jennings, Mark Grube and Nathan Kaufman and covers whether population health management should be a priority for all hospitals, transitioning and success indicators, risks and benefits of partnering for population health initiatives, and the population health hierarchy.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

Medicare Issues Final Rule for CJR Bundled Payment

Medicare issued the final rule for its first mandatory bundled payment program, Comprehensive Care for Joint Replacement (CJR). Participation in this model will be mandatory for 791 hospitals in 67 geographic regions. It will begin April 1, 2016.

 

These hospitals will be accountable for the quality and cost of care provided to Medicare fee-for-service beneficiaries for lower extremity joint replacement procedures and recovery, including all hip and knee replacement surgeries.

 

The retrospective bundled payment will apply to inpatient stays and all related care provided during the 90-day period following discharge (Episode). Hospitals will receive an incentive payment from CMS if the total aggregate cost for all Episodes is below the aggregate target price, or may owe CMS if the total aggregate cost for all Episodes is above the aggregate price. The downside risk will be phased into the payment model after the first year; however, “the availability of incentive payments will be immediate.” (“CRJ: CMS Issues Final Rule, AHLA email alert, November 23, 2015)

 

CMS encouraged hospitals to partner with other providers in an Episode to both incentivize reductions in cost and increases in quality, and to potentially share in the downside risk of CJR.

 

CJR will be in place for five performance years.

 

Hospital advocates have concerns about some of the provisions in the final rule. For example, CJR has regional pricing targets for hospitals. In large regions, the effect of average pricing could mean hospitals in costly urban areas will compete against benchmarks derived in part from hospitals in lower-cost suburban centers.

 

“The structure could create significant financial challenges for hospitals. For instance, among lower-volume teaching hospitals, average payments ranged from approximately 205 percent greater than the regional average to 39 percent less than the average, according to an analysis of the proposed rule.” (“CMS Delays Start of Joint Replacement Bundle,” HFMA Weekly, November 20, 2015)

 

Overall, hospital advocates are watching for signs of whether any facilities in regions with mandatory participation in the payment bundle will reduce or eliminate their joint replacement services in response to the new requirements. (“CMS Delays Start of Joint Replacement Bundle,” HFMA Weekly, November 20, 2015)

 

The CJR bundled payment model will impact only a small portion of the $7 billion Medicare spends on hip and knee replacements annually. However, CMS expects it to have a significant impact on participating hospitals—an estimated $343 million in net savings to Medicare over the five-year period

 

 

iProtean subscribers, the advanced Finance course, Integrating Population Health Management into Your Strategic and Financial Plans, Part One, is now in your library. Marian Jennings, Mark Grube and Nathan Kaufman discuss physicians and population health management, the infrastructure required, return on investment for population health initiatives, risks for smaller organizations and evaluating capital allocation priorities. And Part Two will be in your library soon!

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.