Hospitals face an accelerating financial squeeze over the next 12 to 18 months, with operating cash flow projected to shrink by 2 to 4 percent during that period. One of the key factors at play: Reimbursement from insurers won’t even match the rate of medical inflation, pegged at 1.6 percent as of September 2017.1

“We are hearing anecdotally across the country [about] tougher negotiation, sometimes more acrimonious negotiation, as payers want to pull back on reimbursement rates,” said Eva Bogaty, Moody’s vice president and senior credit officer, “but yet hospitals can demonstrate rising costs … higher costs of delivering care. So there is a natural tension between provider and payer.”2

How can hospitals counter the trend in terms of maximizing reimbursements?

What to Do

The four main components of the U.S healthcare system—physicians, patients, hospitals and payers—each have different financial interests at stake.3 Physicians deserve to be fairly compensated for their services. Meanwhile, patients may be more inclined to seek treatment if they know insurance will cover it. Simultaneously, hospitals can’t turn away patients who lack or carry insufficient insurance to pay for costs of care. And, following the lead of Medicare/Medicaid, commercial insurers scale back reimbursements on procedures they deem “overused.”

Amid this scramble of spiraling costs and diminishing revenue, something has to give. As a starting point, hospitals should gain control over their fiscal destiny by ensuring timely access to data on:

  • labor and material costs, accounts receivable levels, and denial rates;
  • readmission rates and lengths of stay; and
  • referral patterns, patient satisfaction scores and costs/profitability by service line and practitioner.4 

Additionally, hospitals must deal with numerous insurers whose payment rates vary widely. Larger insurance companies typically have the most leverage when demanding payment discounts.5 Insurers tend to argue that new medical technologies add costs to the healthcare system while the aging patient population consumes more services than ever before. Therefore, payers strive to drive down the cost they’ll pay per encounter through lower reimbursements.6

As such, hospitals should establish negotiating priorities. One factor working in their favor is the shift toward value-based care models. A hospital’s ability to demonstrate improved outcomes through agreed-upon quality measurements could trigger a bonus payment that would help offset reimbursement cuts. The provider can initiate such a discussion through a letter to the payer indicating the hospital’s value in regard to unique services offered.7

For example, a hospital using the latest generation of single-use bronchoscopes would have a compelling case for added value and safety by improving workflow (eliminating resource-intensive cleaning procedures) and avoiding patient exposure to device-related infections. Moreover, the new bronchoscopes offer physicians enhanced image quality, making them relevant to 50 percent more pulmonary endoscopy procedures.8

Hospitals sometimes overlook or underestimate their ability to challenge reimbursement cuts. Because contracts of any sort are negotiable, hospitals stand to benefit in payer discussions when they can show efficiencies that align with the insurer’s mission of covering access to effective, high-quality healthcare services. A well-documented proposal spells out the hospital’s value to insurance network members, paving the way toward increased reimbursements.9

1. Moody’s Investor Service. Moody’s US Not-for-Profit and Public Healthcare Outlook Changed to Negative with Rising Operating Pressure. https://www.moodys.com/research/Moodys-US-not-for-profit-and-public-healthcare-outlook-changed–PR_376421 Accessed December 14, 2017.

2. Low Reimbursement, High Expenses Contribute to Poor 2018 Not-for-Profit Healthcare Outlook. Modern Healthcare. http://www.modernhealthcare.com/article/20171204/NEWS/171209962 Accessed December 14, 2017.

3. Health Care Economics: The Real Source of Reimbursement Problems. American Speech-Language-Hearing Association.  https://www.asha.org/Articles/Health-Care-Economics-The-Real-Source-of-Reimbursement-Problems/ Accessed December 15, 2017. 

4. Use Data to Attack Declining Reimbursements. Healthcare Finance News. http://www.healthcarefinancenews.com/blog/use-data-attack-declining-reimbursements Accessed December 15, 2017.

5. Hospital Billing Explained. American Hospital Association. http://www.aha.org/content/13/hospbill-explain.pdf Accessed December 15, 2017.

6. Why Do Reimbursements Cause Friction Between Insurers and Healthcare Providers? Birmingham Medical News. http://birminghammedicalnews.com/news.php?viewStory=289 Accessed December 15, 2017. 

7. Provider-Payer Rate Negotiations Changing as Care Model Evolve. Healthcare Dive. https://www.healthcaredive.com/news/provider-payer-rate-negotiations-value-based-care/435670/ Accessed December 15, 2017.

8. Ambu Launches 4th Generation of Single Use Bronchoscopes. Ambu.https://www.ambu.com/about/corporate-info/investors/news/news Accessed December 15, 2017.

9. How Physicians Should Negotiate with Payers. Medical Economics. http://medicaleconomics.modernmedicine.com/medical-economics/news/how-physicians-should-negotiate-payers?page=full Accessed December 17, 2017.