How sicker patients can drain health systems’ finances

Modern Healthcare – Monday, November 25, 2024
By Caroline Hudson

High-acuity patients are putting a dent in financial results for certain hospitals and health systems, even though other providers see these patients as a revenue-driver.

Some providers are struggling to cover the increasing costs of care for high-acuity patients as reimbursements fail to rise at the same rate. Safety-net hospitals and other facilities treating a high percentage of patients covered by government payers are particularly vulnerable. Those providers are forced to tighten up operations and look for alternative revenue streams to close the gaps.

Complex treatments and services can yield better profit margins for certain providers, as payers offer higher reimbursement rates when patients need specialized care and intensive monitoring. This is especially true for health systems with a payer mix concentrated on commercial insurers.

Dallas-based Tenet Healthcare, for example, has shifted its strategy in recent years to focus on higher-acuity services, including more orthopedic capabilities, throughout its expanding network of ambulatory surgery centers and specialty hospitals. AdventHealth in Altamonte Springs, Florida, partly attributed 17% revenue growth in the first nine months of the year to providing “advanced and expanded services,” according to the health system’s third-quarter financial report released earlier this month.

But high-acuity patients can be expensive, given the specialized clinicians and equipment needed to treat them. These patients can also lead to an overall reduction in discharged patient volumes when treatment requires longer hospital stays, according to consulting firm Kaufman Hall’s latest National Hospital Flash Report, which pulls data from more than 1,300 hospitals.

The average length of stay among hospitals in September rose 3% from the prior month and 1% from a year ago, driving up the cost per patient discharge. Total expenses per adjusted discharge increased 4% from August and 3% year-over-year, according to the report.

As a result, providers say treating more high-acuity patients doesn’t always pay off.

Charleston, South Carolina-based MUSC Health was forced to reassess its case mix after the COVID-19 pandemic, as labor and supply costs soared but contracted reimbursement rates stayed the same, CEO Dr. Patrick Cawley said. Some of those labor and supply cost increases were driven in part by high-acuity patients.

“All of a sudden you’re caught in a situation where something that was profitable or did have positive margin yesterday is not a positive margin or profitable today,” Cawley said. “It’s a tricky situation to balance these things out.”

Cawley said MUSC is the only local provider equipped to handle certain high-acuity situations. The health system employs various tactics, such as cutting down on temporary workers and renegotiating supply contracts, to help offset the financial implications of treating those patients, he said.

The effects of treating high-acuity patients vary based on market dynamics.

Focusing on high-acuity patients tends to yield better financial results in markets with more commercially insured patients, as commercial reimbursement rates are generally higher than government payer rates, said Erik Swanson, senior vice president of data and analytics at Kaufman Hall. Providers serving a higher percentage of patients insured by government payers such as Medicare or Medicaid may not receive the level of reimbursement needed to cover high-acuity services, he said.

“The losses that are being generated from some of those high-acuity services are actually quite substantial,” Swanson said.

He said improving clinical documentation and ensuring coding appropriately accounts for patients’ risk factors can stem some losses for hospitals.

Safety-net hospitals, which serve low-income and uninsured patients, are among the most vulnerable providers when reimbursements don’t measure up to the level of care.

Sinai Chicago sees a lot of high-acuity patients, including trauma cases. About two-thirds of its patient population has Medicaid coverage, President and CEO Dr. Ngozi Ezike said. Low reimbursement rates for high-acuity cases make it difficult for the system to reinvest in operations and offer competitive salaries, she said.

Other health systems may be able to offset some losses with reimbursements from commercial payers, but that’s not an option for Sinai, Ezike said. Sinai relies on grants, government-led support and partnerships with other providers to make ends meet.

“We are essentially helping provide viability to the other institutions because we’re taking on these patients,” Ezike said. “We need a better way of looking at institutions like us because on our own, it’s not sustainable for us.”

The challenges don’t stop at coverage for medical services. Oftentimes financial burden comes from wraparound services not addressed by payer plans, said Beth Feldpush, senior vice president of policy and advocacy at America’s Essential Hospitals, an advocacy group that supports safety-net hospitals.

Patients with more complex conditions tend to also need social services to address risk factors such as housing instability or food insecurity, Feldpush said.

She said the organization’s hospitals rely on supplemental payment streams to close funding gaps.

America’s Essential Hospitals sent a letter to Congress this week urging lawmakers to stop $24 billion in cuts to Medicaid disproportionate share hospital funding scheduled for fiscal 2025 through 2027.

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