Will poor performing hospitals survive?

The Affordable Care Act (ACA) was designed to make medical care less expensive for the American public; it was not intended to put healthcare providers out of business. But a recent analysis of U.S. hospitals suggests the law could contribute to the demise of hundreds of poor performers.
2014 HealthStrong Hospitals, published by iVantage Health Analytics, analyzed publicly available data from 4,299 hospitals, dividing the results into five tiers based on parameters that included competitive strength, market size and growth, population risk, quality, outcomes, financial stability, and costs. The survey turned up 409 hospitals in the lowest tier, which it considers most at risk of failing.
So, can these poor performers survive in the environment created by the ACA? “All hospitals are going to better manage costs,” said John Morrow, executive VP at iVantage. Some of the ways to remove costs include closing facilities, consolidating services, and affiliating with other institutions, he said. “Every industry has performers at both ends of the spectrum” and the 409 hospitals at the bottom of the spectrum are the most challenged. “It’s likely economics will sort it out one way or another,” Morrow added.

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The problem created by ACA, in Morrow’s estimation, is that it has yet to generate the revenue that everyone hoped it would. U.S. hospitals agreed to accept a significant reduction in government reimbursement because they anticipated that the estimated 48 million uninsured Americans would soon be knocking at their doors. To date, only 5 to 9 million newly insured patients have been enrolled through the health insurance exchanges, leaving those 409 struggling hospitals in serious trouble.
Morrow cited a recent report from Tenet Healthcare, which said it had seen a 17 percent increase in Medicaid patients and a 33 percent drop in uninsured and charity admissions in the first quarter of 2014. But “if you were one of these 409 hospitals, and you were anticipating an increase in Medicaid… and anticipating a 100 percent insured population, you’re more than 70 percent off the number…. We were all hoping the Act would do what the Act said it was going to do.”
Tips for success
That’s not to suggest that low performing hospitals are doomed. Morrow offers several suggestions. “The first thing they should look at is variability in their care delivery” in specific service areas. In practical terms, that means making sure there are no unjustified differences in the cost of the same surgical procedure done by two different surgeons, for example. It also means offering better care coordination, so that patients aren’t needlessly readmitted within 30 days of discharge.
Morrow’s advice on care coordination was echoed by Cynthia Ambres, MD, a partner in KPMG’s Global Healthcare Center of Excellence. “Improving quality and coordination of care are increasingly important in this new ACA climate,” she said. Ambres also stressed that hospitals must be fully committed to quality care, which “can reduce errors, unnecessary and duplicate testing, as well as outmigration of patients to competitors, while improving the hospital’s reputation.” And finally: “Hospitals, in general, need to improve their revenue collection processes, especially with patients that have high deductible plans. Monitoring patients who self-pay or have coverage gaps will increasingly be important.”

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Even with these potential solutions in place, there’s clearly trouble ahead. According to Joel Shalowitz, MD, clinical professor and director of Health Industry Management at the Kellogg School of Management, Northwestern University, a lot of health plans enrolled in the insurance exchanges are contracting with hospitals at much larger discount rates, reasoning that hospitals can make up the difference as they see more revenue from previously uninsured patients. For wealthy hospitals that have been giving away care, that’s not an issue because they have other sources of income, but for other hospitals, the financial burdens are significant because the growth in newly insured patient may not be fast enough.
To climb out of this hole, poorly performing hospitals “need to improve both their clinical quality and patient satisfaction. The question is where are they going to find the money to do that,” said Shalowitz.  “They’re in this sort of death spiral.”