Stabilizing Hospital Finances
Hospitals have never wavered from their commitment to providing lifesaving care and essential public health services. But the unprecedented pressures of COVID-19 have placed tremendous strain on hospital staff and resources. During the initial wave of infections, hospitals were forced to cancel all non-emergent procedures, sending finances into a tailspin. Congress stepped in by providing some relief through the Coronavirus Aid, Relief and Economic Security Act of 2020 and the American Rescue Plan Act of 2021. While this assistance helped to temporarily stabilize hospital finances, pressures on the supply chain and labor market have persisted.
A September 2022 Analysis by the national firm KaufmanHall finds:
- Hospital margins remain depressed relative to pre-pandemic levels. After a difficult first half of 2022, optimistic projections for the rest of the year indicate margins will be down 37% relative to pre-pandemic levels.
- More than half of hospitals are projected to have negative margins through 2022. Projections for the remainder of the year demonstrate an increase in hospitals with negative margins relative to pre-pandemic levels, to 53%.
- Expenses are significantly elevated from pre-pandemic levels. Expenses are projected to increase throughout the rest of 2022, leading to an increase of nearly $135 billion over 2021 levels. Labor expenses are projected to increase by $86 billion, while non-labor expenses are projected to increase by $49 billion.
- Hospitals have faced a profound financial toll. Hospitals have incurred serious losses in 2022 relative to pre-pandemic levels and future federal support is uncertain.
In line with these national trends, a survey of AzHHA member hospitals finds net operating margins fell from an average of 4.6% in 2021 to .5% in the first quarter of 2022 and then plunged to -8.7% in the second quarter of 2022. These losses have been driven by extraordinary inflation in the labor and supply market, with contract labor increasing by 170% in the first quarter of 2022 and by 231% during the second quarter compared to the same periods in 2021.
AzHHA will continue to collect quarterly financial, workforce and utilization data from hospitals to ensure policymakers understand the financial strain hospitals are under as they try to recover from the pandemic. Without adequate payment from public payers like Medicare and Medicaid and appropriate oversight of private commercial payers, patients’ access to quality care will suffer. In addition, investment in the healthcare workforce is of paramount importance as labor costs continue to be a key driver of healthcare expenses.
AzHHA Quarterly Financial Analysis
Strengthening the Healthcare Workforce
A high-quality healthcare delivery system depends on access to well-trained staff, including physicians, nurses and allied health professionals. Arizona has had a shortage of these professions for many years, especially persistent in rural counties, which has worsened during the COVID-19 pandemic. According to a recent analysis of the Bureau of Labor Statistics data, Arizona ranks 48th among 50 states in the number of healthcare workers per capita. Two of the state’s rural metropolitan statistical areas rank in the lowest 10.
AzHHA worked with the Arizona Legislature in 2022 to provide new funding for academic nursing programs, clinical rotations, and nurse transition-to-practice programs to both grow the nurse pipeline and improve retention. We are also working with our congressional delegation on legislation to incentivize nurse preceptorships in health professional shortage areas. Through our Care Improvement Steering Committee and other committees, we will continue to identify opportunities to improve physician, nurse and allied professional recruitment and retention. This includes addressing the underlying causes of clinician burnout and improving the resiliency of our workforce.
You can learn more about workforce issues from the American Hospital Association 2022 Health Care Talent Scan.
Addressing Unfair and Abusive Health Plan Practices
Private health insurance serves as a central pillar of our country’s health insurance system, including Medicare and Medicaid. However, many health plan policies and practices relating to prior authorization and “medical necessity” determinations increasingly:
- Compromise patient safety through delayed care and denial of medically necessary services;
- Increase health system costs with little or no value added; and
- Lead to clinician burnout by increasing physician workload and diverting time away from direct patient care.
In fact, an April 2022 Department of Health and Human Services Office of the Inspector General report found that 13% of prior authorization denials and 18% of payment denials by Medicare Advantage plans met Medicare coverage rules and should have been granted. According to a 2021 American Medical Association survey,
- 93% of respondents indicated that prior authorization delayed access to necessary care
- 34% reported that prior authorization had led to a serious adverse event such as a death, hospitalization, disability or permanent bodily damage, or other life-threatening events for a patient in their care
- 82% reported that prior authorization hassles led to a patient abandoning treatment
AzHHA strongly supports efforts by policymakers to increase oversight of health plans and implement a comprehensive simplification agenda, beginning with streamlining prior authorization requirements and processes, monitoring and addressing abusive payment delays and denials—including increasing transparency around medical necessity determinations, and curtailing inappropriate patient steering, including white bagging and brown bagging.
Improving Mental Health
Accessing mental health services is a challenge for many Arizonans. Much of the state is designated as a professional shortage area for mental healthcare. Workforce shortages exist in the areas of psychiatry, counseling, therapy, and social services. Even the opening of new inpatient beds—which has been concentrated in Maricopa County—has not resolved these access-to-care challenges. Inadequate funding, workforce shortages, inappropriate health plan practices and a fragmented delivery system have had severe consequences—for patients, healthcare providers and the community. Untreated or insufficiently treated depression, substance use disorders, and serious mental illnesses impact the ability of patients to work, attend school, maintain physical health, and foster interpersonal relationships. Patients who decompensate are sometimes “boarded” in an emergency department for days until appropriate inpatient or outpatient services become available. In addition, patients awaiting authorization for medically necessary outpatient services can be held for days in a behavioral health hospital, further “bottle-necking” the system. As a state, Arizona must and can do better. AzHHA supports public policies that will:
- Strengthen the behavioral health workforce, including better access to telepsychiatry;
- Reduce regulatory barriers to care, including eliminating the IMD exclusion;
- Improve timely access to involuntary evaluation and treatment;
- Ease the administrative burden surrounding health plan utilization management decisions; and
- Improve access to social supports for patients experiencing mental and behavioral health diagnoses.
Access to Affordable Drugs
The escalating price of prescription drugs and high volume of drug shortages threatens the safety of patients and the affordability of healthcare in Arizona and across the nation. A February 2022 analysis by the Kaiser Family Foundation finds that half of all drugs covered by Medicare had price increases between 2019 and 2020 above the rate of inflation. According to a research letter in the Journal of the American Medical Association, the launch prices of new brand-name drugs increased by nearly 11% every year from 2008 through 2021 and AzHHA members report their drug costs have increased 13% in 2022 relative to last year.
In addition to high costs, hospitals and health systems continue to face severe shortages in life-saving drugs, which result in delayed care, risk of adverse reactions, and additional healthcare costs. Limited inventories of critical medications place a tremendous strain on the daily operations in hospitals across Arizona. Moreover, shortages force healthcare providers to spend time and resources locating medications rather than focusing on direct patient care.
AzHHA appreciates the strides Congress has made to bring down the costs of drugs in the Medicare program through the Inflation Reduction Act of 2022, but more must be done. To protect the supply chain, the Food and Drug Administration should provide greater oversight of the quality management processes of drug manufacturers, and the Drug Supply Chain Security Act should be amended to require greater transparency of manufacturers around API sources and manufacturing locations. Elected officials and policymakers must also protect the integrity of the 340B drug savings program, which allows certain safety net hospitals to purchase outpatient drugs at a discounted price. And the relationship between health plans, their pharmacy benefit managers (PBM), and drug manufacturers must be scrutinized to ensure consumers are protected against unfair and deceptive PBM business practices.