Tough Times Getting Worse?
MARGIN SOLUTIONS
Context:
- 40% of all hospitals operate in the red.
- The new Administration may dig some deeper financial holes for these hospitals.
Of these hospitals in the red, those meeting each of the six high-risk criteria below are in fact at significant risk of service reductions and eliminations, often as a precursor to ultimate closure:
- Below $150MM in net patient revenues.
- Five consecutive years of negative operating margins.
- Three consecutive years of days cash on hand below 60 days.
- Recent annual net incomes in negative territory.
- Independent: a standalone hospital.
- Commercial payer coverage is less than 30% of patient coverage.
Those hospitals meeting these criteria are in troubled waters. These turbulent waters are about to be seriously roiled and potentially exacerbated by the new Administration, as based on repeated public statements made by members of the new Administration. Their suggested or asserted “reforms” could prove very costly to the affected hospitals.
Hospitals under $150MM in net patient revenues (NPR) are routinely confronting and implementing a pandemic of service reductions and eliminations of emergency care, critical care, labor and delivery, inpatient surgery, behavioral health, dialysis, pediatrics, palliative care, closed beds, and more. Further, it’s not just service lines that are being cut, it’s entire hospitals that are closing at a national rate of one closure every 14.6 days, i.e., more than two closures every month.
The good news is that it’s not much worse. The bad news is that it’s going to get much worse, as if that’s possible. All the above service reductions and hospital closures will unavoidably and avoidably accelerate if the major health reform assertions of the new Administration are in fact implemented.
Among the many reasons for the worsening of the above scenarios will be the continued, significant expansion of the Medicare Advantage program. Medicare Advantage, as implemented, has accompanying rapid increases in its prior authorization complexity as part of its denial, delay, and underpayment orientation. Medicare Advantage’s additional, associated unaffordable costs of data collection, arbitration, litigation, and consultation are substantive and agonizing.
Given that the Medicare Advantage program represents a form of privatization of Medicare, the new Administration finds this appealing and will promote it. Further, increases in so-called “site neutrality” payment recalculations will drive down hospitals’ inpatient revenues. So will a greater emphasis on hospital risk-based “quality care,” where the hospital is at risk for meeting “quality criteria,” as defined and enforced ultimately by the hospital’s contracted carriers and CMS. Those hospitals not meeting the care quality criteria will be penalized with no or lower payments.
The new Administration is promising across-the-board 20% tariffs. The President can legally implement these tariffs without any Congressional or judicial approval. These new tariffs will increase hospital supply costs, in some cases dramatically increasing them. These added costs will ultimately be passed on to patients, as neither carriers nor hospitals will on their own absorb the costs, nor will Medicare or Medicaid. These added costs will be unaffordable for many patients, thus converting many of these patients to a “self-pay” status, further lowering hospital patient revenues, relative to their expenses.
“Obamacare” ACA subsidies will likely not be increased to cover these increased patient costs. In fact, members of the new Administration have openly and repeatedly discussed and advocated for “sunsetting” (via inaction) major ACA patient subsidies for 20 million Americans. This will result in at least 3.4 million people losing insurance coverage altogether, many in areas where rural/small hospitals are the major hub of care.
The new Administration’s DOGE advisory committee is seeking to cut federal budgets by two trillion (with a “T”) dollars. These budget reducers place an emphasis on drastically reducing Medicaid coverage. This would result in 2–4 million Medicaid recipients losing their Medicaid coverage. Many, perhaps most, of these poor recipients are served at hospitals under $150MM in NPR.
Virtually all non-Commercial payment coverages are of a negative margin variety. This means that the icing on the cake is that commercially insured growth, which has and can provide a survival margin for these hospitals, is, at best, often flatlining, and at worst declining. This is particularly true in relationship to hospital expense inflation for both materials and staffing, relative to coverage. That is, fewer patients will have increasingly expensive Commercial coverage. And worse, those that do have Commercial coverage will find that coverage dollars are less than the increase in hospital inflation rates.
What's to Be Done?
For the most part, hospitals under $150MM in NPR do not have the resources, time, expertise, or experience to confront these existing and growing problems. And they don’t have the resources (financial and people) for what’s about to potentially overwhelm these already heavily at-risk hospitals.
Fortunately, contingency-based, hospital-specializing consulting firms do have the expertise and experience to remedy or at least ameliorate these potentially fatal hospital financial dynamics. Microscope has successfully served similarly situated hospitals with its comprehensive, integrated, enterprise-wide revenue-generating Solutions. These Solutions encompass a much broader, more effective, easier, and lucrative-for-the-hospital approach to quickly creating critical cash than is routinely done.
For example, our Revenue Generating Solutions Bundle goes way beyond traditional revenue cycle management and covers/implements, on an enterprise-wide basis, virtually every known way for semi-rural hospitals to easily gain new cash. With our Revenue Generating Bundle, we do 90% of the work and charge on a purely contingent basis. This positions us to contractually guarantee a semi-rural hospital a minimum net countable cash gain of at least 4% of the hospital’s NPR.
This is all on a zero-risk basis for the financially challenged or about-to-be-struggling hospital. We have successfully served and mitigated many such semi-rural hospitals’ financial pains.
These hospitals under $150MM in NPR (and hundreds of others) are about to be confronted, if not already, by a tsunami of administrative/financial difficulties, the likes of which have not yet been fully understood or exposed. Fortunately, we know and understand them and can enhance your margin-growing confrontational posture against them, maximizing your net patient revenues.
We’d be pleased to discuss with you, at no charge, any questions or concerns you might have about comprehensive revenue generation as the new Administration establishes itself.
For more information, please contact:
Rick Kunnes, MD
Managing Principal, Margin Solutions
MicroscopeHC, LLC
