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The Plight of Rural Hospitals (Part 1)

Even before the Covid-19 pandemic hit Iowa and the U.S., rural hospitals were confronted with their own pandemic of sorts – a financial crunch that could determine business survival. As we know, all rural communities rely on having viable access to a broad spectrum of essential health care services. Iowa is no exception.

Critical Access Hospitals (CAHs)

For decades, rural hospitals in the U.S. have experienced poor financials due to a number of reasons. One large reason is the gradual exodus of people leaving rural communities for urban areas, primarily for seeking more promising career opportunities. Over time, this migration resulted in an older, lower-income population remaining in rural communities, heavily relying on Medicare and Medicaid for their health coverage. On top of this, rising patient deductibles have contributed to the overall rise in bad hospital debt.

Unfortunately for rural providers, specifically hospitals, government reimbursement levels are often below the cost of providing these services. To help offset this revenue shortage, private payments through commercial insurance carriers and self-insured employers, largely due to cost-shifting, are considerably higher than government reimbursements.

To rescue rural hospitals from the ‘death spiral’ during the 1980s and early 1990s, Congress created the Critical Access Hospital (CAH) designation (Balanced Budget of 1997 – Public Law 105-33). The CAH designation was designed to reduce the financial vulnerability of rural hospitals and improve access to healthcare, thereby keeping essential services in our rural communities. CAHs receive certain benefits, such as cost-based reimbursement for Medicare services.

Over the years, additional legislation has been amended to the CAH designation and related program requirements. As of July 19, 2019, there were 1,350 CAHs located in the U.S. According to the American Hospital Association, there are 5,198 community hospitals. Iowa has 119 community hospitals, with 82 being CAHs.  A July 2020 map shows the locations of each Iowa CAH.

In 2019, the Iowa Hospital Association (IHA) developed a proposal to reform rural health care to help address the growing financial challenges of rural hospitals using a three-pronged approach. The outcome of this initiative is unknown at present.

Arrival of the Covid-19 Pandemic

Just before the pandemic arrived in mid-March, the Cedar Rapids Gazette published an article reporting that rural Iowa hospitals are at risk of closing. The article cites a 2019 national report by Navigant, a Chicago-based consulting company, that found nearly 18 percent of Iowa’s rural facilities (about 17 hospitals) “are at high risk of closing unless their financial situations improve.” Navigant also reported that 21 percent of all U.S. hospitals (430 total) are facing a similar fate.

When the pandemic tsunami arrived, the financial hit to hospitals, specifically small, rural hospitals, became even more acute. The primary reason – due mostly to the suspension of elective procedures in clinics and hospitals, including ambulatory surgeries, inpatient surgeries and inpatient discharges.

In June, the IHA reported that audit firm, CliftonLarsonAllen, through financial modeling, projected a potential ten-figure loss for hospitals statewide due to the pandemic, jeopardizing several rural hospitals. The modeling showed that 89 Iowa hospitals may lose more than $1.4 billion by the end of September, and possibly a worst-case scenario showing more than a $2 billion loss by the end of 2020.

A new analysis by Epic Health Research Network and the Kaiser Family Foundation found that, if recent pandemic trends continue through the 2020 calendar year, total hospital admissions will be down by at least 10.5 percent of predicted levels for the entire year. If this prognostication comes close to reality, loss of revenue will adversely impact many rural hospitals that were merely holding on during the pre-pandemic era. According to an October 16 article from Becker’s Hospital CFO Report, at least 47 U.S. hospitals have closed or entered into bankruptcy in 2020.

Kirk Norris, the CEO of IHA, commented that Iowa hospitals have received millions in federal support from stimulus bills, CARES act and Paycheck Protection Program, but not enough to cover predicted losses.

According to IowaWatch, 77 Iowa hospitals collected $928.3 million in accelerated and advance Medicare payments as a government stimulus to cover expenses in the Covid-19 pandemic’s early days last spring. These funds, however, allowed health care providers to receive, in advance, three months of anticipated Medicare billings that must be paid back to Medicare and Medicaid Services. This program was separate from the CARES Act and other Covid-19-related emergency plans – such as a 20 percent add-on payment by Medicare for inpatient hospital Covid-19 patients. All told, 77 Iowa hospitals applied and received accelerated Medicare payments, including 44 critical access hospitals, who could seek ahead-of-time up to 125% of their anticipated Medicare payments for a six-month period. CMS suspended the accelerated program on April 24 to re-evaluate the other revenue sources being made available to healthcare providers.

Nationally, stimulus efforts included $175 billion in two initial rounds of CARES Act funding, with another $10 billion for rural hospitals and other distributions based on high Covid-19 admissions, etc.

Public Health Plan Option Under Biden

Another storm that could potentially hit rural Iowa hospitals will first depend on the upcoming election results. Joe Biden and the Democrats are proposing to create a public option to compete with private insurance companies. This public option would allow individuals to purchase a public option plan from marketplaces in addition to allowing employees to elect a public option plan through their employers. This would mean the payment mix received by Iowa hospitals would further erode because more Iowans would now have health coverage that reimburses hospital care at a lower rate than private insurance.

The key question, however, is just how much different will the public option reimburse healthcare providers when compared to the current Medicare arrangement? If Biden is elected and the Democrats control Congress, this will be a critical piece to watch when the public option is debated.

The process of culling out the eventual mayhem of rural hospitals under a public option approach began last year. In August 2019, Navigant released an analysis finding that Iowa’s rural hospitals could lose more than $476 million dollars under a public option, putting dozens of rural hospitals at risk for closure. Using three different scenarios, the study suggests that between 25 and 52 of Iowa’s rural hospitals would be at high financial risk for closure due to a loss of revenue.

It must be noted, however, the Navigant study was funded by an industry coalition, Partnership For America’s Health Care Future, an alliance consisting of pharmaceutical, insurance and hospital lobbyists whose desire is to fight off the expansion of Medicare and any government-driven payment system. According to IHA CEO Norris, Medicare is a low payer in Iowa relative to other parts of the country. Again, the big unknown is the reimbursement level a public option would have if passed by Congress and signed by the President. The devil will be in the details.

Transparency in Hospital Financial Reporting

In the U.S., hospitals account for the largest expenditure of healthcare dollars, comprising about 33 cents of each dollar spent. It is imperative, therefore, that to effectively address rising healthcare costs and assure financial viability of all types of hospitals serving Iowa communities, state policymakers and the public will need appropriate financial information necessary to assess and understand the financial health of hospitals.

Each state has disparate reporting requirements for hospitals to report audited financial information – with some states being more comprehensive than others. In addition to the IHA providing some hospital data on their website, Iowa does ‘require’ hospitals and healthcare facilities to report a balance sheet detailing assets, liabilities, net worth, income and expenses and “other reports of the costs incurred in rendering services as the department (of Public Health) may prescribe.” This requirement comes from Iowa Code, Section 135.75.

But is this information adequate?

According to my contact at the Iowa Department of Public Health (IDPH), Iowa hospitals submit their yearly balance sheets and capital expenditures to the IDPH, but not every hospital participates, and the IDPH does “not have the time to track down the ones that do not (report).” This statute does not have a template for hospitals to use when reporting, nor is the information collated when received by IDPH. Hospital financial information is not shared outside IDPH unless it is requested. On an as-needed basis, the financial data is reviewed for “future projects that may trigger a Certificate of Need (process)” In short, “We do not have the staff to do much more with the information and have not had for many years.”

If the fate of each rural hospital is truly critical to our communities and state – and it is – how can Iowa and other states successfully address the needs of each hospital and the communities being served?

Next week’s post will discuss an interesting initiative that a national organization has designed to help state officials assess the financial viability and transparent practices of hospitals.

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New Kaiser Survey on Employer Health Coverage Released

National Study on Employer Health CoverageNearly every September for the past two decades, I have released our survey findings from the Iowa Employer Benefits Study and, during that same month, would eagerly await the results from the annual Kaiser Family Foundation Employer Health Benefits Survey. The Kaiser findings put a complementary national perspective to our Iowa results.

Unfortunately, due to the Covid-19 pandemic, I pumped the brakes on surveying Iowa employers for this year. Kaiser, however, did pursue their national survey and it was released a little later than usual – on October 8.  The results provide an important glimpse into what is happening to employer-sponsored health insurance around the U.S.  Overall, Kaiser surveyed 1,765 non-federal public and private organizations with three or more employees, and from this number, 540 employers were located in 12 Midwestern states (an average of 45 employers per state). The Kaiser study, I must mention, does not break out the results by each state, only by region.

Key Findings by Kaiser

The Kaiser survey is very helpful because it documents national health trends for employer-sponsored plans. Some of the key findings in 2020 include the following:

  • About 56 percent of employers offer health benefits, a percentage that remains unchanged over the past five years. Similar to Iowa, the larger the employer, the more likely health benefits are offered. About half (53 percent) of U.S. organizations with fewer than 50 employees offer health coverage, and nearly all (99 percent) of the organizations surveyed by Kaiser with at least 200 employees offer health coverage.
  • The average single and family premiums increased by four percent over the past year, while worker’s wages increased by 3.4 percent and inflation increased by 2.1 percent.
  • The average annual premium for single health coverage is now $7,470, while the average family health premium is at $21,342. Over the last five years, the family premium has increased over 22 percent, and over the last 10 years, it has increased 55 percent.
  • On average, covered workers contribute 17 percent of the total single coverage premium and 27 percent of the premium for family coverage. In our 2019 Iowa study, we found that covered workers contributed 18.6 percent for single coverage while workers for family coverage contributed 30 percent of the premium.
  • The average single deductible found by Kaiser now stands at $1,644, which is remarkably similar to last year’s $1,655 average. In 2020, 83 percent of covered workers have a deductible in their plan, similar to last year.
  • Most large organizations (81 percent) offer at least one type of wellness or health promotion program. However, among those that offer the coverages, only 11 percent) view the programs as “very effective” at reducing the organization’s health care costs.
  • About 83 percent of surveyed employers who offer health benefits say they are satisfied with the overall choice of providers available through their insurance plans, however, only two-thirds (67 percent) say the same about their mental health and substance abuse networks.

The 2020 Kaiser survey was conducted from January to July, with about half of the interviews conducted before the full extent of the pandemic had been felt by surveyed employers.  Kaiser President and CEO Drew Altman acknowledged, “…our survey shows the burden of health costs on workers remain high, though not getting dramatically worse. Things may look different moving forward as employers grapple with the economic and health upheaval sparked by the pandemic.”

Because of this, next year’s survey will provide a more realistic look at how the pandemic may have impacted employer-sponsored health benefits in the U.S.

To learn more about the Kaiser study, the article was published in the peer-reviewed journal Health Affairs.

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2020 is a Mixed Bag for Health Insurers – Surging Revenue but Low Grades

Imagine that you are the CEO of a large, midwest-based, health insurance company and have just learned the results of a national survey where employers gave your company a mid-level grade on the ability to direct employees to high-quality health care. Somewhat discouraging news, don’t you think?

But there’s also good news. Net income for your organization is up almost 100 percent during the recent quarter and you have personally received over $52 million in total pay for 2019.  In fact, your total realized compensation increased 143 percent from the $21.5 million you took home in 2018.

Such is the life of this non-fictional CEO, whose compensation is comprised of salary, stocks, contributions to pension and many other wonderful perks.

Steady Revenue for Insurers – Reduced Claims

Due to the widespread deferral of elective and routine care during the COVID-19 pandemic in the second quarter, health insurance companies have benefited from plummeting medical costs while still collecting predetermined health premiums from their customers. This fortuitous ‘perfect storm’ has resulted in insurers obtaining skyrocketing net income compared to the same period a year ago.

How this will continue to play out when the pandemic recedes, however, will not be known for some time.

Both small and large insurance organizations experienced miraculous financial returns from the second quarter of 2020. UnitedHealth Group reported a net income of $6.7 billion – a 97.8 percent increase. Anthem Blue Cross and Blue Shield reported an increase of 99.8 percent, while Cigna Corp. reported a net income increase of almost 25 percent during this same period.

Many executives promise to correct this financial imbalance by eventually returning excess funds to customers and health providers.

CEO Compensation Growth

Meanwhile, according to a BDO USA survey released earlier this year, health insurer CEOs are doing quite well financially.  I don’t begrudge their success, I really don’t. I do believe, however, in responsible capitalism. Making millions upon millions of dollars just to be an administrator is both excessive and unconscionable. The ‘value’ provided by health insurers within our dysfunctional health system raises some concern. The question of ‘how much is too much’ is a subjective gymnastic exercise, however.

The 2019 compensation for the aforementioned CEO was 348 times more than the median pay earned by an employee at his organization ($54,322). This example is merely illustrative of the health insurance industry.

Lack of Price Transparency

Both insurance companies and hospitals are resisting the tidal wave that is moving toward healthcare price transparency, which should call into question the commitment insurers have to their premium-paying clients. For example, are insurers in business to serve medical providers or their employer clients? Perhaps insurers serve both parties? If so, are employers at a disadvantage by not having specific knowledge of the prices negotiated between insurers and providers? I believe they are.

Without transparency in prices and patient outcomes, how do employers know they are receiving commensurate value for the premiums they pay – which also includes administrative costs charged by insurers? Frankly, it is very subjective.

According to 2019 data from the Kaiser Family Foundation, over 156 million non-elderly Americans – or almost half of the country’s total population – receive employer-sponsored health insurance. By sheer numbers, employers are entitled to know what negotiated arrangements are made between the insurers they use and the medical provider community.

But now comes a newly-released survey. This one addresses whether employers are satisfied with their insurers.

Employers’ View on Insurers is Lukewarm

In July, The Leapfrog Group released very interesting survey results regarding an online survey of employer executives that administer and fund benefits for employees and their dependents. Leapfrog, an independent national healthcare watchdog organization on healthcare issues for employers around the country, desired to “gain employer perspectives on health plan effectiveness in achieving health care quality, safety and value.”

Survey respondents, a total of 174 employers* – small, midsize and large – cited their experiences with health plans that included, Aetna, Cigna, UnitedHealthcare, and over a dozen Blue Cross and Blue Shield plans around the country. Four key issues were rated by employers:

  1. Responsiveness of the health plan to employer concerns;
  2. Transparency in helping employers and employees choose the best (health) providers;
  3. Payment reform initiatives that incentivize excellence in the market; and
  4. Value strategies driven by health plans.

The responses by employers on each issue is quite revealing on just how they perceive the value provided by insurers on high-cost healthcare. These perceptions, by the way, are not flattering to health insurers, especially the views coming from larger employers.

According to the summary of results, Leapfrog indicated that “Most employer respondents appeared to have reservations about whether their health plan puts their needs above the preferences of contracted providers. About a third of Cigna and Aetna clients believed their plan put them first, while only 14 percent of UnitedHealthcare employers were similarly satisfied.

Overall, when asked to grade their health plans, from A to F, employer respondents gave their plans a C-plus (2.57 GPA) on their ability to direct their employees to high-quality healthcare. UnitedHealthcare received the poorest grade, with a 2.29 GPA.

Having accountability in healthcare delivery, payment and outcomes is extremely important to payers. But – at least with the Leapfrog survey – insurers have a long way to go in making their value commensurate with how insurers earn their profits in a poorly-run health system.

Insurance company CEOs should take a hard look at themselves in their mirrors to really see what their reflection candidly reveals.

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*I would’ve like to have seen a bit larger number of respondents, but this is, nonetheless, a very good survey.