Health systems are on the verge of collapse. Labor expenses keep rising as less money is received from payers
March 06, 2024, Chicago, (GLOBE NEWSWIRE) — According to a survey released by the Healthcare Financial Management Association (HFMA) and Eliciting Insights, a healthcare strategy and market research organization, 84% of health systems attribute low operating margins to decreasing payer reimbursement.
An further factor complicating health system margin issues is the growing administrative load that payers impose on providers. According to 82% of CFOs, payer rejections have gone up dramatically from their pre-pandemic levels. Medicare Advantage payers are the biggest perpetrators of administrative burden; 19% of health systems have abandoned at least one Medicare Advantage plan, and 61% want to cease or are contemplating doing so.
96% of CFOs in the health system believe that higher labor costs are the main cause of margin pressure, and 99% of CFOs believe that nursing is the primary cause of labor shortages. There is a deficit in other positions as well, such as radiology and lab technicians.
The majority of systems are considering conventional ways to save costs, such hiring fewer people, streamlining the supply chain, and postponing the adoption of new technologies. Health systems are searching for more cost-saving measures since these approaches are insufficient to make a difference in margin. According to the survey, health systems are trying to outsource revenue cycle jobs to 26%, cutting down on less lucrative service lines (32%), and cutting back on capital and real estate investments (40%).
While cutting operating expenses is an important step, health systems require more revenue in order to see real improvements in margins.
“Over the past three years, we have seen a slight overall improvement in average operating margins as we recover from the pandemic,” stated Todd Nelson, FHFMA, MBA, Chief Partnership Executive at HFMA. But this survey confirms that many health systems are still having difficulty turning a profit. Health systems’ total cost of collection is rising as a result of health insurers’ growing prior authorization requirements and rejections, even while they are only slightly increasing reimbursement.
Denials are the biggest obstacle Revenue Cycle teams face, according to 90% of health institutions. Medicare Advantage is “much more difficult to work with” than Commercial or Medicare plans, according to 62% of health systems. There are more denials because Medicare Advantage plans may have different clinical policies than Medicare and other commercial plans. 19% of health systems have already canceled one or more Medicare Advantage plans due to frustration.
When it comes to maximizing payer reimbursement, “It’s all about denials,” says Trish Rivard, CEO of Eliciting Insights. “We are hearing loud and clear that health systems are struggling with denials — 82% of health systems tell us their denial rate is up relative to 2019. This is a tremendous opportunity for the RCM vendor community to develop advanced tools that create solutions leveraging robotic process automation, AI and advanced analytics.
According to HFMA Health System CFO Pain Points 2024: Margin Challenges & Opportunities for Vendors, over 15% of health systems anticipate significant budget increases for critical areas like automation and cybersecurity, even while margins are still narrow.
Based on survey answers from 135 health system Chief Financial Officers and qualitative interviews with CFOs performed in the first quarter of 2024, the research offers practical insights into the CFO pain issues as well as labor and budget projections for 2026.