Update on Tax Reform Bill

iProtean staff will be celebrating the holidays over the next two weeks. We hope you will celebrate as well! Enjoy your holiday season.

 

Very little has changed in the tax reform bill from our report in late November. Here is a summary.

 

  • Republicans have agreed to preserve tax-exempt, municipal private-activity bonds as a way for hospitals and other not-for-profit organizations to raise capital for construction projects. But the final bill prohibits advance re-funding of prior tax-exempt bond issues. (These make up a significant portion of municipal bond activity.

 

  • NFP organizations would pay a 21 percent excise tax on compensation to executives exceeding $1 million. Compensation paid to certain qualified medical professions for their medical services would be exempted. The American Hospital Association and others have argued they have to pay market rates for top management talent, and the proposed new excise tax would reduce resources for providing healthcare to their communities.

 

  • The Affordable Care Act’s tax penalty for people who don’t buy health insurance would go away in 2019. The provision is strongly opposed by health insurers, providers and consumer groups. It is anticipated it would reduce the number of insured Americans by 13 million in 2027 and drive up average premiums each year by 10% more than they otherwise would rise.

 

Healthcare analysts warn that the tax cut bill overall will have big downstream effects on funding for Medicare, Medicaid, Affordable Care Act subsidies and other federal and state healthcare programs. That’s because the projected $1 trillion-plus increase in the federal deficit resulting from the tax cuts will pressure Congress to slash healthcare spending.

 

In addition, the Congressional Budget Office estimated that passing the tax bill would trigger an automatic $25 billion cut in Medicare in 2018 to offset the reduced revenue, under the pay-as-you-go rule.

 

(Source: “Final GOP tax cut bill has big loss and smaller wins for healthcare stakeholders,” Modern Healthcare, December 15, 2017)

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

Coming soon in your library: the advanced Governance course The Board’s Role in Leading Through Transition featuring Karma Bass and Marian Jennings.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.

 

Moody’s Investors Service: 2018 NFP & Public Health Care Outlook Dips to Negative

Moody’s Investors Service revised its 2018 outlook for not-for-profit and public health care from stable to negative, according to its recent report. It based its revision on its projections that operating cash flow will contract by 2-4 percent over the next 12-18 months.

 

Revenue growth is under pressure because of very low reimbursement rate increases, an ongoing rise in government payers and a continued shift to high deductible plans. “We expect rapid expense growth to outpace revenue growth with high labor costs, nursing shortages and rising bad debt.” (Not-for-profit and public healthcare – US: 2018 outlook changed to negative due to reimbursement and expense pressures, Moody’s Investors Service, December 4, 2017)

 

Key points in the report follow:

  • Operating cash flow will contract by 2-4 percent in 2018. Operating pressures are accelerating at hospitals because of low revenue growth and untamed expense growth.

 

  • Low reimbursement rates drive slowed revenue growth despite consistent volumes. Hospitals are unable to translate volume increases into stronger revenue growth because of below inflationary growth of reimbursement rates and rising bad debt.

 

  • Expense pressures further compress margins. Nursing shortages, continued physician and medical specialist hiring, as well as technological investments are accelerating expense growth. Bad debt will grow in 2018 with high deductibles, rising copays, and contracting exchange enrollment because of changes in federal marketing.

 

  • Federal policy will have marginal near term direct impact, but continued uncertainty is credit negative. Uncertainty around the Affordable Care Act (ACA) makes it very difficult for hospitals to effectively plan and model long-term strategies. Recent federal tax proposals will also contribute to rising costs for hospitals.

 

  • Heightened operating pressure will drive additional consolidations. The report’s authors noted that mergers and acquisitions will continue at a rapid pace as smaller and more rural hospitals struggle for financial stability.

 

  • What could change the outlook. Resumed operating cash flow growth of 0-4 percent over a 12-18 month period, after accounting for healthcare inflation, could drive a change to stable. A positive outlook could result from expectations of accelerated operating cash flow growth of more than 4 percent after inflation. Long-term resolution of federal policy or positive regulatory changes could result in a change in outlook.

 

Moody’s releases and updates annual outlooks that indicate its expectations for the fundamental credit conditions driving the not-for-profit and public healthcare sector over the next 12-18 months.


 

(Source: Not-for-profit and public healthcare – US: 2018 outlook changed to negative due to reimbursement and expense pressures, Moody’s Investors Service, December 4, 2017)

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

Coming soon in your library: the advanced Governance course The Board’s Role in Leading Through Transition featuring Karma Bass and Marian Jennings.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here. 

Bolstering Your Strategic Plan

(Source: Veralon, a healthcare consulting company providing services in strategic planning, mergers & acquisitions, healthcare valuation and physician compensation, and clinical transformation and value-based payment. Dan Grauman, an iProtean expert who appears in many iProtean courses, is the managing director and CEO.)

 

In addition to setting direction for the organization, a strategic plan must provide financial results required for long-term success. Therefore, financial implications should be integrated throughout the planning process to focus on the initiatives that will have the most profound positive impact on the organization.

 

It is essential that finance leadership be actively engaged in strategic planning from the very beginning of the process. This goes beyond just including them on the planning committee. It needs to be clear to all that finance’s role is critical to the plan. This will ensure both prudent stewardship of the organization’s resources, and selection of strategies and initiatives that are consistent with its financial capabilities and future performance requirements.

 

The seven steps to ensuring financially sound planning nest under three of the four major tasks of strategic planning.

 

Task 1: Environmental Assessment

 

  1. Understand Current and Financial Performance and Position

An environmental assessment, one of the first steps in the planning process, will assess both internal and external factors impacting the organization. A deep dive into financial position and financial performance is vital.

 

All stakeholders involved in decisions about how resources will be allocated need to have a shared understanding of the current state of the organization’s finances and its capacity to fund new initiatives. This should include performance compared to key industry benchmarks, rating agency criteria and comparison to local competitors.

 

  1. Develop Base Case Financial Projections

A base case is needed as a starting point for understanding how proposed strategies may impact financial performance. This base case, typically looking ahead at least five years, will provide insight into the expected financial outlook of the organization without any strategic actions, given current trends and expected changes in utilization, reimbursement, expenses, and other factors. With a solid base case, the incremental impact of proposed strategies and initiatives can be properly evaluated in relation both to that base case and to each other.

 

Task 2: Strategic Direction

 

During the setting of strategic direction, an organization will re-evaluate its mission (why the organization exists) and vision (what the organization seeks to achieve), and values. This re-evaluation may touch on financial issues – for example the values may include stewardship and vision may address financial sustainability – but no specific financial task must necessarily be completed as part of this task.

 

Task 3: Strategy Formulation

 

  1. Set Financial Goals

During strategy formulation, finance reemerges as a critical factor. Organizations often need to incorporate financial performance metrics into goals related to growth, efficiency, or population health strategies.

 

  1. Model the Financial Impact of Proposed Initiatives

With goals established, the next step in Strategy Formulation is to identify the specific initiatives that will be pursued to achieve the goals. Once a short list of potential initiatives is vetted and agreed upon, a financial impact analysis should be performed for each strategic initiative. This should include identification of capital resource requirements as well as high-level impact on revenues and expenses typically for five years or more as strategic initiatives often take time to ramp up.

 

  1. Conduct Scenario Planning/Sensitivity Analyses

Modeling several scenarios for each proposed initiative will test the potential range of financial impact under various conditions. While one initiative may provide the most positive impact under current conditions, it may look less favorable under other potential conditions; other initiatives may bring stable results under varying conditions. By modeling alternative scenarios, the planning team will develop an understanding of each strategy’s sensitivity to changes in volume and other factors. This will allow the planning team to pursue the most appropriate strategies given the organization’s goals and risk tolerance.

 

  1. Revise Planned Initiatives if They Will Fail to Achieve Financial Goals

Force your organization to make the tough decisions. If the combined impact of the initiatives does not achieve the required financial performance, go back and try again. This is the critical moment for finance leadership to use the planning process to achieve the required results. A strategic plan developed within the financial constraints of the organization should be ambitious yet feasible.

 

Task 4: Implementation Planning

 

  1. Commit Resources and Track Results

The Implementation phase of strategic planning is often undervalued and overlooked. Finance can play a critical role in ensuring effective implementation. First, finance is responsible for integrating initiatives into operating budgets and committing resources. Then finance must track results and incorporate the selected financial metrics into the periodic review of the strategic plan. This helps to determine whether each initiative is on track and whether the overall desired result is being achieved. As the strategic plan is reviewed annually, initiatives should be refined, with appropriate adjustments to budgets.

 

(Thank you to Veralon for allowing us to pass this information along to our subscribers. For a link to Veralon, click here.)

 

 

Strategic Issues for Boards, iProtean’s latest advanced Mission & Strategy course, now appears in your library. It features speakers on cyber-security and the Medicare Access and CHIP Reauthorization Act of 2015—complex topics that stymie many of us! Martin Liutermoza, Global Head of Information Security at Nasdaq, discusses IT security and risk management as well preparing for and mitigating cyber attacks. Seth Edwards talks about MACRA and MIPS versus the Advanced Alternative Payment model.

 

 

For a complete list of iProtean courses, click here.

 

 

For more information about iProtean, click here.