Dive Brief:
- The Cleveland Clinic's latest financials show the hospital system ended the first half of 2016 with a significantly lower operating margin than at the same time in 2015, landing at 1.2% after the six-month period that ended June 30, 2016 vs. 5.6% in June 2015.
- Although the system's revenue went up 17% during this period compared to last year, reaching $3.93 billion, that revenue failed to keep pace with a 23% increase in expenses.
- The system had anticipated a smaller margin this year, Cleveland Clinic chief financial officer Steve Glass told Modern Healthcare, partly as a result of increased investments in new care-delivery models and consultants to manage those projects, as well as providing raises to medical and other employees to retain in-demand clinicians.
Dive Insight:
Apart from Cleveland Clinic's own investments, other issues have cut hard into its revenue--notably skyrocketing drug costs and the impact of high-deductible health plans, which have long been recognized as a post-ACA bane to hospitals despite the health law's success at officially reducing the uninsured rate.
“When someone has a really high deductible, effectively they’re still uninsured," as CEO John Henderson of Childress Regional Medical Center in Texas told Bloomberg Business earlier this year.
With the rise of high-deductible health plans, Cleveland Clinic has seen poor payment outcomes. More patients than ever are winding up on these plans due to their prevalence on the ACA marketplaces and the trend for higher deductibles in employer-based plans as well, because they help keep premiums more affordable. However, that leaves many people on the hook to shell out $2,000 or more before their insurance kicks in.
The plans "are very popular with employers and insurance companies, but they create burdens on the patients,” Glass told Modern Healthcare. “And it's very difficult for healthcare providers to get these deductibles collected.”
Rising pharmaceutical costs have also caught the nation's attention. While the issue was most recently highlighted by the EpiPen scandal that has brought promises of scrutiny and calls for change, price hikes and demand for high-cost new drugs have become the norm. “We're seeing price increases that are absolutely significant,” Glass told Modern Healthcare.