Hospital financial managers continue to get pulled in different directions by the changes taking place in health care, demonstrating how transforming the industry can be a painful process in lesser-known ways.
A recent report from ratings agency Moody's Investors Service describes how declining patient volume is driving down the debt ratings of many nonprofit hospitals and health systems at a time when the changes taking place in health care are discouraging patient admissions.
"The most common contributor to admission declines continues to be a shift to observation stays from inpatient admissions," Moody's officials wrote in its Oct. 31 review of hospital ratings changes in the third quarter.
So it seems little has changed since August, when Moody's described the admissions quandary. "Inpatient admissions continue to shift to outpatient settings in an industry wide effort to reduce hospitalizations and lower costs," the authors wrote. "Hospitals are also increasingly reclassifying inpatient admissions to outpatient 'observations stays' to avoid penalties under Medicare recovery audit contractor audits for medically unnecessary admissions."
Because outpatient care reimburses at a lower rate than inpatient care, hospitals are taking a hit to revenue, and may find their cost of borrowing rise.
As Moody's notes in its latest quarterly review of hospital ratings, declining patient volumes were associated with six of the 10 hospitals or health systems that were downgraded during the quarter ending Sept. 30. At the same time, six of the eight receiving upgrades had rising patient volumes.
But hospitals are not in a good position to reverse the trend of lower volume, what with the move away from fee-for-service payment models into newer models tied to performance or populations.
Another financial trend that Moody's says is hurting hospital revenue is increased patient responsibility for co-payments and deductibles. Patients spend less if it costs more; that's basic economics.
I'm not suggesting that those changes should be reversed, stopped or slowed — or even that they could be if that were a goal.
But policymakers and regulators should be aware of all of the costs being incurred by providers as a result of health reform and take that into account in future decision-making.
A large academic medical center like UCLA Health System has the resources to likely navigate the waters of reform unscathed, even while doing right for the patient even if it is wrong for business. How many of the 5,000 or so community hospitals will be able to do so is another question.