Hospitals are funded by both private and public payers and are in constant negotiation with all sources of reimbursement and stakeholders, including consumers/patients, insurers, and our state and federal government. The pressure to keep healthcare costs down often leads to reduced funding and pressure on our hospital systems, which impacts both small and large communities alike.
“Moody's says NFP hospital financial performance tempered as margins declined from 2015 levels following two years of strengthening. The reversal in trajectory of profitability demonstrates the stress of lower reimbursement and the material rise in expenses.”1
Overall, the report found hospitals' median operating margin fell from 3.4 percent in FY 2015 to 2.7 percent in FY 2016.2
To close gaps between reimbursed care and cost of operations at margins among the lowest across US industry, hospitals rely on government funding provided in various programs intended to cover uncompensated care. Two of these programs are currently being debated at a federal level and will impact how our regional hospitals will operate in the future.
Medicaid DSH (disproportionate share hospital) program has historically supported those hospitals who serve a high numbers of low-income patients. The ACA (Affordable Care Act) planned for a substantial reduction in federal Medicaid DSH payments beginning in 2014. The reduction was based upon the assumption that the coverage expansions would translate into additional hospital revenue, thereby alleviating the need for as much direct DSH payment supplementation. However, uncompensated care remains a crucial issue for many hospitals, especially those located in the poorest communities, and, in particular, hospitals serving poor communities in Medicaid non-expansion states. Reductions in DSH payments are intended to shift funding based upon move from using the number of low income to the number of uninsured in methodology used for funding. Congress has enacted delays in planned cuts which are set to commence in 2018 over the next 10 years with a total impact of $43 billion. NY State DSH funding totaled $3.5 billion in 2017. As an expansion state, DSH cuts will be more significant for NY State at almost 20% for FY18.
The 340B Drug Discount program was created in 1992 (by the Bush administration) whereby hospitals purchase drugs with discounts from 20-50% then are reimbursed by CMS/government at ASP + 6%. The extra funds provided by reimbursement higher than cost were intended to be used to provide drugs to uninsured and for overall funding of uncompensated care. 340B program was expanded as part of the ACA and the number of providers doubled between 2011 and 2016 to 12,000 saving $3.8 billion in medication costs in 2013, according to the Health Resources and Services Administration. In New York, 60% of hospitals meet the criteria to access the benefits of the 340B Program. CMS Hospital Outpatient Prospective Payment System (OPPS) Final Rule for 2018 would cut reimbursement for 340B drugs at around 30% reduction in payment from average sales price (ASP) plus 6 percent to ASP minus 22.5 percent, which is in line with the estimate of the average minimum discounts hospitals receive in 340B. Rural sole community hospitals, PPS-exempt cancer hospitals, and children’s hospitals will be exempted from this policy for CY 2018. This final rule was budget neutral in that the cuts in reimbursement for these eligible drugs would be redistributed with an increase in payments for all other services paid under OPPS, and applicable to all hospitals. A large portion of the savings generated by the proposed changes would be diverted to non-340B hospitals as higher payments for services unrelated to the 340B program and low-income patients. Hospital advocacy organizations, such as the American Hospital Association (AHA) and the Healthcare Association of NY State (HANYS) are at odds with CMS viewpoint as to the benefit to hospitals and Medicare beneficiaries for changing reimbursement of 340B drugs.
“Medicare beneficiaries would benefit from the discounts hospitals receive under the 340B Program by saving an estimated $320 million on copayments for these drugs in 2018 alone,” said Seema Verma, Administrator of CMS.” “The savings from this change will be reallocated equally to all hospitals paid under the OPPS.” 3
“In New York State, 340B hospitals as a group currently have break-even operating margins, with many individual hospitals suffering from persistent negative margins. Operating margins of this nature make it difficult for these safety net hospitals to modernize their facilities and maintain access to care. As a group in 2015, New York State’s 340B hospitals suffered from a negative 4% financial margin under the Medicare program and highly negative Medicare outpatient payment margins.” 4
As we take our opinions to social media, advocacy to our elected officials, and collect paychecks from our healthcare employers, please consider overall support for hospitals and the communities they serve. Regardless of the vehicles to financially support our hospital institutions, we can all agree to the community value provided within these walls to our families and friends.
References:
- www.moodys.com/research/Moodys-Preliminary-FY-2016-US-NFP-hospital-medians-edge-lower--PR_366813
- www.advisory.com/daily-briefing/2017/05/18/moodys-report
- www.cms.gov/Newsroom/MediaReleaseDatabase/Press-releases/2017-Press-releases-items/2017-11-01-2.html
- White Paper from HEALTHCARE ASSOCIATION OF NEW YORK STATE January 2018 Federal Issues and Priorities 340B Drug Pricing Program www.hanys.org/
Amie Kulak is the Director of Quality and Education for Pandion Healthcare: Education & Advocacy. She has a Master’s degree in Health Services Administration and has worked in the healthcare arena for more than 20 years.