Healthcare Reform: Moody's Report Indicates Hospitals May Take It on the Chin

Karen Minich-Pourshadi, for HealthLeaders Media , May 3, 2010

Facilities need to take the time to really assess their programs' profitability, short and long term, against their long-term strategic hospital goals while factoring in the potential outcome that healthcare legislation may have on their facility. Additionally, look for the inefficiencies and eliminate them as swiftly as possible—now isn't the time to be shy about eliminating floundering programs.

Payer negotiations
As if negotiating with payers over the years hasn't been difficult enough, the new legislation is about to make it even harder. Financial leaders should pay close attention to Massachusetts hospitals and insurance companies and how their state's health insurance laws are affecting negotiations. Massachusetts government is getting more militant with local managed care organizations about whether they have been negotiating in the best interest of their clients. This, in turn, has meant more scrutiny on the hospital-payer contracts, Burik says.

That scenario is likely to be played out nationwide, Burik explains, as there is similar language in the healthcare reform bill—which the Moody's comment notes as well.

"Basically we're all paying more for administration cost and getting less. So the government is going to be watching that they don't allow rates to go up … and that leads to difficult climate for negotiations," he says.

Another good example, watch what's happening with WellPoint Inc., the parent company of Anthem Blue Cross, which backed down from a proposed 39% hike of health plan premiums for 800,000 Californians after state officials unveiled an audit showing "numerous and substantial errors" in a filing Anthem said justified the increase.

Hospital consolidation
Last, but certainly not least, is consolidation. "We always thought we'd be apart of something bigger and let's start the journey to get it done, and that's consolidation. A lot of it is to reduce costs," says Burik.

More than a few healthcare industry analyzers have noted that conditions are ripe for larger numbers of mergers, acquisitions, joint venture and partnerships. Consolidation can be used as a strategy to keep smaller hospitals afloat as well as physician groups.

"The irony is there are more conversations but the hurdles to complete a deal are higher; so the deal flow isn't indicative of the discussions taking place. We're sensing more activity on the part of private equity," Burik explains. "There may not be an appetite to do a full merger on the part of hospitals, but there is no hesitation to schedule a mutually beneficial partnership that delivers economies of scale."

Speaking of scales, it's best for hospitals to get to their fighting weights as quickly as possible. Healthcare reform is a heavyweight fighter that will really packs a wallop if you don't prepare—you'll need all the speed and strength you can muster to out maneuver this behemoth in the hospital financial ring and the prize is ultimately staying afloat.

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Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.

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