Hospitals confront mounting reimbursement challenges and diminishing cash reserves

By Nathan Eddy for Healthcare Finance News

Escalating reimbursement delays and declining cash reserves are placing hospitals and health systems across the nation in a precarious financial predicament, according to data from Syntellis Performance Solutions’ analysis of 1,300 hospitals.

The findings, published in partnership with the American Hospital Association, underscore the pressing need for measures aimed at alleviating financial pressure on healthcare providers to ensure uninterrupted patient care delivery.

The median health system witnessed a significant decline in cash reserves, measured as days cash on hand, plummeting by 28%, from 173 days in January 2022 to 124 days in June 2023.

Rising expenses, particularly in maintenance, utilities, professional fees and drug expenses compounded this decline, with maintenance costs skyrocketing by 89.8% over 19 months.

Hospital accounts receivable also experienced volatility, with fluctuations influenced by inconsistent reimbursement practices.

WHY THIS MATTERS

The persistent strain on hospitals’ financial resources has amplified due to burdensome insurance policies and administrative hurdles, adversely impacting patient care.

The report revealed the financial strain stems from multiple sources, including commercial and Medicare Advantage plans, which have left healthcare providers financially burdened and ill-equipped to navigate market shifts and disruptions.

Physicians and staff spend an average of 14 hours per week on prior authorization requests, diverting valuable time from patient care, the report said.

Moreover, reimbursement challenges from healthcare payers, exemplified by mounting denials, have severely impacted hospitals, the report said.

Revenue reductions linked to Medicare Advantage denials surged by 55.7%, while those from commercial payers rose by 20.2% from January 2022 to July 2023.

The American Hospital Association is in fact asking the Centers for Medicare and Medicaid Services to crack down on Medicare Advantage insurers it says are blatantly flaunting CMS coverage rules.

In addition, challenges with Medicare fee-for-service and Medicaid reimbursements further exacerbate financial strain and impede hospitals’ ability to deliver essential care.

“The latest data highlight the persistent challenges that hospitals and health systems face in having the financial resources needed to maintain access to care for their patients, and to be prepared for the next crisis that may arise at any time,” the report concluded. “Combatting inappropriate payer delays and denials costs these vital organizations valuable time and resources.”

THE LARGER TREND

Moody’s Investors Service recently revised its 2024 outlook for the not-for-profit and public healthcare sector to stable from negative, driven in large part by a decrease in labor costs.

In addition, increased state financial backing and Federal Emergency Management Agency (FEMA) funds will aid some healthcare providers’ financial turnaround.

Financial challenges are also spurring healthcare merger and acquisition activity, with nearly 40% of the announced transactions in the third quarter of this year were spurred at least in part to financial distress, Kaufman Hall noted in an October report.