John Commins | December 3, 2013
While the uncertainty around healthcare reform and lower reimbursements will prove a challenge in the near future, hospital leaders also see opportunities to succeed within local markets.
Moody’s Investors Service has for the sixth straight year forecast a “negative” outlook for the nation’s not-for-profit hospitals. While the uncertainty around the Patient Protection and Affordable Care Act and lower reimbursements will prove a challenge in the near future, hospital leaders also see opportunities to succeed within their local markets.
Mina Ubbing,president/CEOof Fairfield Medical Center in Lancaster, OH,says the 200-bed, independent community hospital just went through the bond rating process this spring and emerged with a “stable” rating. But she says the “negative” outlook for the industry is understandable.
“There are certainly lots of challenges, and the biggest one truly is the uncertainty of what happening in healthcare reform and the Affordable Care Act,” Ubbing told HealthLeaders Media. “There is the whole challenge with the online enrollment. There is a lot of pushback on the narrow networks. You are going to see some antitrust issues coming out of that. So everything is in a state of flux. If I were a lending rating agency, that uncertainty would bother me the most.”
In a report issued last month, Moody’s cites drops in revenues and inpatient volumes for the negative outlook, and says it expects that not-for-profit hospitals’ median revenue growth in fiscal year 2013 will fall to a range of 3% to 3.5% (significantly down from FY2012’s 5.2% growth rate) and will remain low in 2014.
While reduced inpatient admissions are cause for concern, Ubbing says she is particularly concerned about site-of-service legislation in Congress that would equalize reimbursements for care provided regardless of the setting.
“You are doing so many things today on an outpatient basis that you didn’t used to. There are some cost savings in that just by its nature,” she says. “But that shift by itself is not as concerning to me as the idea of the level payment regardless of site of service. The reimbursement difference is predicated on the idea that hospitals have to be 24/7, 365 days, and nonselective of patients. That issue, should that come to the fore, I would be much more concerned about than the outpatient shift.”
Ubbing says the uncertainty is a negative for the not-for-profit hospital sector but that individual health systems are rising to the occasion.
“You partner where you can. You get as efficient and lean as possible,” she says. “We have a number of independent hospitals in southeastern Ohio. Some of our conversations are around how can we work better together. Can we have a virtual system that would drive down costs and that would have reasonable buying power and negotiating power in the marketplace so we are viable with payers and vendors? That is some of what we are working on right now with our colleagues who in some cases are as much colleague as competitor geographically, to see if we can’t make it.”
With the focus on patient volumes and reimbursements, Ubbing says few leaders are addressing the larger question of what healthcare consumers want. “That is going to be a factor in terms of how they want healthcare delivered. And what the consumer wants is going to dictate where the money goes,” she says.
Tim Maurice,CFO at UC Davis Health System in Sacramento, CA, acknowledges “a lot of unknowns looking forward, but I feel like we are in a fairly stable position out here.”
“Our volumes have not declined as they have in other areas, largely because our market is pretty competitive and pretty well managed,” he says. “We operated UC Davis very close to full inpatient capacity so we haven’t seen the decline in inpatient volumes that have been experienced in other parts of the country. Because of competition over the years, we are in the situation where we don’t have a lot of excess capacity in the market. The market is stable in that regard.”
Maurice says UC Davis has enjoyed “a very strong credit rating over the years, and we expect that to remain stable because we’ve been very skilled at managing our costs and effectively maintaining our commercial market share and managing through the declines in government reimbursement. We know that they are coming.”
“What we are primarily focusing on is finding economies of scale at a five medical center health system across California,” he says. “We are one of the largest health systems in the state, yet we have plenty of opportunity to collaborate and join forces in terms of operating more efficiently and finding best practices among ourselves. That has been our primary focus.”
Maurice says the PPACA rollout has been relatively successful in California, particularly the health insurance exchanges coordinated under Covered California, where UC Davis is participating in two of the four plans available in its market. Maurice says UC Davis continues to look for partnership opportunities with other hospitals in the area.
“It doesn’t necessarily mean acquisition. It could be other forms of partnership, such as cancer center networks that we are very successful with here at UC Davis with community hospitals in the area, or other forms of partnerships,” he says. “We also have developed our primary care network at UC Davis and have over 300 physicians across 16 sites in the Sacramento area who provide primary care that support our faculty practice plan.”
But like Ubbing, Maurice is concerned about particular aspects of healthcare reform. “We definitely would not like to see the contraction of government reimbursements with the uncertainty related to the exchanges and the effect on the commercial markets,” he says. “We are hoping the disproportionate share payment reductions in particular are reconsidered in terms of the size and scale of the reductions. Those are the biggest challenge we see from the government.”
Ubbing says that over the long term, hospital administrators “must have their facility at its maximum possible value-added, so that everything you do to reduce costs and gain efficiencies and everything else is not a wasted transaction, no matter how the future unfolds.”
“You want to be in a position to be negotiating for a buy-out or whatever at an advantage, where you are bringing value- added as opposed to a bailout kind of transaction,” she says. “You have to do the same thing for either one of those outcomes down the line, and that is certainly something we consider.”
Despite the threat of lower inpatient volumes and reimbursements, Ubbing and Maurice both remain upbeat about the future.
“There are always opportunities,” Maurice says. “We do feel we have a lot of opportunities to manage effectively and provide high-value care in our communities.”
Source: Health Leaders Media