Financially speaking, it’s a tough time to be a hospital.
Health systems across the country are being squeezed by flat or stagnant revenue, while their costs — especially for things like labor and supplies — continue to rise, pointed out Rod Hanners, CEO of Keck Medicine of USC, during an interview last month at the HFMA Annual Conference in Denver.
This situation is made worse by hospitals’ ongoing reimbursement challenges, which Hanners said are due mainly to payer denials, prior authorization delays and complex claim processes.
He noted that payers often seize on technicalities in order to deny payment, resulting in frequent arbitration. Even though hospitals end up winning arbitration cases much of the time, this often yields only partial reimbursement, and legal fees further reduce payment, Hanners remarked.
“I think the general sentiment you’re going to hear from most providers is that the payers will look for any possible reason not to pay you. If you give them one opening, you’re not getting paid. And therefore, a lot of stuff goes to arbitration. When you go to arbitration, the arbitrator wants to make everybody happy, so they basically give you 75 cents on the dollar of what your expected reimbursement for those services should have been,” he explained.
All of this bureaucratic friction not only burdens providers, but it can also delay or disrupt care for patients, Hanners added.
Patients are often caught in the middle of weekslong authorization denials and redirection to lower-cost providers — even after they were diagnosed by and received treatment plans from Keck physicians. Hanners pointed out that this causes confusion and undermines continuity of care.
He noted that many health system leaders, himself included, try to understand where payers are coming from and want to work together to fix these issues.
“We tend to be pretty collaborative with the payers. When I talk with the leaders of the big payer groups, they understand the issues and are very amenable to change and all that, but it doesn’t seem to get down to those that are processing the claims day in and day out. There’s some disconnect there,” Hanners stated.
Cost-cutting has long been a priority for health system leaders, but the urgency is now more acute, he said.
As he continues to look for ways to keep costs under control at his health system, one thing Hanners finds particularly problematic is the effort by California’s Office of Health Care Affordability to cap hospital reimbursement rate increases to 3.5%, even as hospital costs are climbing 5–6% annually.
“The equation doesn’t work,” Hanners declared.
He noted that Massachusetts capped hospitals’ reimbursement rate increases a decade ago with the goal of lowering healthcare costs, particularly employers’ insurance premiums.
The policy change never delivered on this intended goal, Hanners stated.
“An executive that I know did a little bit of a study on the Massachusetts project, and while it did have the effect of lowering rate increases to hospitals, when you look at what the true outcome was supposed to be — and that was lower premiums for health plans — that didn’t manifest. So the premium levels that employers were getting didn’t change, but the amount the hospitals were getting went down lower. So it seems to me, we know that profit that went to the health plans,” he explained.
He questioned why legislative cost control efforts tend to primarily focus on providers rather than more profitable players in the healthcare world, like drugmakers, payers, PBMs and suppliers.
Hanners urged policymakers to examine the much more comfortable margins of these companies rather than just squeezing providers.
Photo: Julia_Sudnitskaya, Getty Images
