Hospitals that treat large numbers of uninsured patients also will operate in 2014 with sharply smaller subsidies from Medicare, known as disproportionate-share payments, which were cut under the Affordable Care Act.
Curt Whelan, managing director with consultant Huron Healthcare, said hospitals that have squeezed savings from basic operational expenses such as labor and supplies now face the more difficult task of strategically reorganizing operations, such as health systems that may consolidate a specialty spread across multiple locations and closing or opening services in new geographic locations, to bolster revenue and reduce costs.
Hospitals also face a challenge as the sector seeks to reduce wasteful utilization but continues, for the most part, to be paid by commercial insurers for the volume of hospital care they provide, he said. In the coming year, some will try and fail to strike a balance between revenue loss from reduced hospital use and the shift in payment from volume to value. That will force some into merger and acquisition deals, he said.
Hospitals' revenue may have slowed, but they continue to invest in doctors, information technology, deals and diversification. Those investments come with risk, analysts said, but also may better position hospitals for changes to healthcare payment and delivery that are expected to accelerate this year. That includes more insurance contracts that pay for performance on quality and cost-control measures, rather than based on the volume of care hospitals provide. The Affordable Care Act tests such contracts under Medicare, and private insurers have adopted more risk-based payment models.
Fitch (Ratings) anticipates a higher level of year-over-year volatility within the sector as the full effects of health reform are fully realized and reflected in erratic volumes and shifting reimbursement models,” the agency said in its outlook for the sector, which was lowered last month to negative from stable.
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