Hospitals receive healthy financial check-up

Pressures include potential Medicare penalties

By Claude Solnik
The Daily Record Newswire
LONG ISLAND, NY — While hospitals generally deal with patients’ prognosis, a ratings agency has said the sector’s finances are in stable condition, but could deteriorate over the next year.

With all the turmoil around health insurance, bankrupt insurers and declining reimbursements, one could easily expect the Affordable Care Act would be Armageddon for hospitals.

Many hospitals, however, are financially healthy, according to a new report by Fitch Ratings, which finds that not only are hospitals weathering the storm, but they are, at least in many cases, going strong.

Fitch Ratings cited “improving liquidity” when it in early December gave U.S. nonprofit hospitals a stable rating outlook next year.

But the rating agency warned that “they will have to adapt to a changing reimbursement environment” in 2016.

“Hospitals by and large have built a solid financial cushion to absorb potential operating volatility, thereby allowing for relative stability in overall 2016 rating actions,” according to Fitch.

Fitch Director Jennifer Kim said “reimbursement pressures should be relatively benign” in 2016. But she added that bigger entities are likely to fare better.

Kim said “providers lacking relevant market penetration and the platform to properly align the continuum of care will increasingly be challenged.”

She added that “providers with highly specialized expertise like children’s hospitals will be somewhat insulated,” especially if they’re part of large organizations.

Fitch said the sector, while stable, did have a negative outlook, because of “increasing headwinds that will challenge hospitals over time.”

Those pressures include employers shifting costs to employees through rising co-pays and deductibles, “a development that hospitals are learning to adapt to.”

They also face potential increased Medicare penalties, as well as cuts on certain Medicare payments and limits on insurance increases.

Various Long Island hospitals said they’re expecting to be in the black, but hardly looking for a windfall in this and the upcoming year.

Oceanside-based South Nassau Communities Hospital CFO Mark Bogen said his hospital “should meet or do better than budget, breaking even this year.”

Bogen said South Nassau invested in outpatient facilities “with the understanding that outpatient growth would occur at the expense of inpatient admissions.”

“We, like everybody else, invested in more ambulatory sites and programs,” he continued, noting hospitals need to invest in infrastructure. “We invested a good portion of our rate increases into the ambulatory world.”

South Nassau is seeking to compete with freestanding physician-owned ambulatory sites.

North Shore-LIJ Health System, to be renamed Northwell Health next year, has been growing, adding hospitals, boosting both revenues and profits.

“It’s a very competitive landscape in healthcare,” North Shore-LIJ spokesman Terry Lynam said. “There have been ongoing reductions in reimbursement from insurance payers including Medicare and commercial payers.”

North Shore-LIJ two weeks ago approved a 2016 budget with $9.5 billion in anticipated operating revenue, a roughly $1 billion rise from $8.5 billion for 2015.

The system, which has been adding more hospitals off Long Island, is projecting a roughly 1 percent profit margin equal to about $92 million in earnings for 2016 after about $78 million or 0.9 percent in 2015.

“There are still a lot of challenges,” Lynam said. “This whole dynamic in the healthcare market is something all providers are dealing with. It’s still a very challenging financial environment.”

While there’s a lot of talk about ambulatory care, Lynam said “hospitals are still the main driver of revenue and operating margin.”

Outpatient or ambulatory care is projected to account for 42 percent of North Shore-LIJ’s 2015 revenue, although that’s up from 33 percent in 2010.

The federal government is leading a shift from fee for service to value-based care, where hospitals are paid for managing people’s overall health.

“Economically, it’s less revenue,” Lynam said. “Everybody recognizes that’s the direction we need to go. Medicare has made it very clear that’s expected.”

He said that Medicare by 2018 wants to largely reduce the number of fee-for-service payments, while paying to manage the health of populations.

North Shore-LIJ has been hiring care managers, hoping to better manage chronic illness, the biggest source of costs, through Care Solutions.

“We put a huge focus in place about trying to target those with chronic illness and stop the revolving door in and out of hospitals,” Lynam said.

He added that North Shore-LIJ is spending heavily, investing in technology and otherwise.

“We’ve become a lean organization. There’s continual pressure to re-invest,” Lynam added. “We’re spending. “