Politicized federal and state regulations are the biggest threat to for-profit hospitals. They are creating an “unpredictable operating environment,” Fitch Ratings said in a new report on acute care hospitals titled “U.S. Healthcare – Acute Care Peer Comparison.”
Fitch found government policy goes beyond setting Medicare and Medicaid reimbursement rates, such as with alternative payment model regulations.
Hospitals are also facing “secular threats to profitability,” including healthcare cost-cutting pressures, more Americans with chronic diseases and skyrocketing patient out-of-pocket spending.
After reviewing the finances of Community Health Systems, HCA Healthcare, LifePoint Health, Tenet Healthcare and Universal Health Services, Fitch Ratings said federal and state government policy decisions — which are often politicized — create an unpredictable environment. Federal and government regulations and political decisions are the biggest risks to the industry’s operating profile, with 30%-40% of hospital revenues coming from Medicare and Medicaid, according to the report.
Megan Neuburger, managing director and sector head for U.S. corporate healthcare at Fitch, said governmental influence “affects areas that change the economic incentives of various industry stakeholders, such as alternative payment models.”
This is a concern for providers now, as HHS has proposed scaling back or eliminating some mandatory bundled payment models. The agency has pushed for deregulation, which can have a variety of effects but is forcing some hospitals to alter their course for transitioning to value-based payment models. The bundled payment decision and other proposals have angered some providers but also relieved others. With Tom Price out as HHS secretary, however, regulatory changes may slow down.
Fitch said hospital revenues are also affected by consumer finances through high-deductible health plans (HDHP) and health savings accounts. Insurers and employers have been able to slow premium increases by using HDHPs, but these plans have also saddled members with more out-of-pocket costs.
Three recent reports explored the issue of rising out-of-pocket medical costs. A JPMorgan Chase Institute report, Paying Out-of-Pocket: The Healthcare Spending of 2 Million U.S. Families, found that Americans are struggling with out-of-pocket healthcare costs. Members are delaying healthcare payments until they have “liquid assets” to pay their medical bills.
Meanwhile, the HealthFirst Financial Patient Survey said more than 40% of respondents are “very concerned” or “concerned" about whether they can pay out-of-pocket medical bills over the next two years. It’s not even huge medical bills that are worrying them — 35% said they were concerned about a $500 bill.
Also, The Kaiser Family Foundation/Health Research & Educational Trust 2017 Employer Health Benefits Survey found that employees are shouldering more of the healthcare costs through out-of-pocket costs and higher deductibles. Out-of-pocket limits are $7,150 for an individual plan and $14,300 for a family plan and plan deductibles often exceed $3,000.
Rising out-of-pocket costs is a problem for both individuals and hospitals. If Americans don't have enough disposable income to pay a $500 medical bill, that becomes the hospital's problem — both in terms of trying to track down the payment and possibly winding up with bad debt if the person doesn't pay the bill.