Should not-for-profit hospitals have a negative outlook for 2018?

Authored by Mary Ellen Kasey 

Publications predict a negative outlook for not-for-profit hospitals in 2018 due to a continued downward trend in operating cash flow. This is mostly due to slowing revenue growth and high expenses. The following circumstances also lend credence to the unfavorable outlook for not-for-profits in 2018:

• Increased reliance on governmental health plans due to the aging population and Medicaid expansion; however, low reimbursement rates from these health plans, particularly Medicaid, is reducing revenue growth 
• Insurance companies providing only moderate rate increases 
• Patient utilization patterns continuing to shift from inpatient to outpatient services 
• The repeal of the individual mandate
• Pending federal legislation regarding federal reinsurance that would help subsidize high-cost plan members resulting in higher premiums or insurers exiting the individual market 

High expense growth (also contributing to the negative outlook) is attributed to:

• Rising labor costs impacted by nursing shortages and physician and specialist hiring
• Patient out-of-pocket costs (e.g., from high deductible plans) that impact  payments and increase bad debt
• Technology costs that continue to increase 
• Federal taxes increasing costs for hospitals

How should not-for-profit hospitals respond to this forecast of pessimism? 

There are immediate actions that not-for-profit hospitals can employ to move forward in this time of uncertainty, as well as strategies that can increase cash flow and generate revenue. 

Contracts and managed care plans

In the short-term, not-for-profit hospitals should look at the contracts and rates of their top commercial managed care plans. Analysis of reimbursement and subsequent renegotiations with plans, particularly for high-cost, high-volume services, will increase reimbursement. Defining provider “value” and implementing value-based payment models will add revenue. 

Revenue cycle optimization

Not to be overlooked, are revenue cycle improvements to address missed opportunities in pricing, charge capture, managing HDHPs, claim denials and bad debt.  Revenue cycle improvements can also improve efficiencies and help manage expenses.  Learn more about optimizing your revenue cycle operations with the Revenue Cycle Innovation Center.

Increased market share

Not-for-profit hospitals should look into ways to secure and grow their market share; this may encompass building a continuum of care. There are multiple strategies a hospital can take to start increasing their market share: 

• Develop a value proposition to distinguish your hospital from the competition
• Establish relationships with health plans providing incentives and an investment in resources to transform healthcare delivery
• Consider strengthening your overall position through a merger and/or acquisition

Yes, 2018 will have its challenges, but there are strategic options for not-for-profit hospitals. Healthcare specialists such as Baker Tilly’s healthcare team can assist in redefining your challenges and turning them into opportunities and timely responses.

For more information on this topic, or to learn how Baker Tilly healthcare specialists can help, contact our team.