Neg­a­tive fore­cast

Medi­care drop ex­ac­er­bates not-for-profit out­look

Modern Healthcare - - The Week In Healthcare - Melanie Evans

Hos­pi­tals fac­ing Medi­care pay­ment cuts to­tal­ing $440 mil­lion this fall have be­gun scour­ing bud­gets for cuts of their own. But they may not find enough there to sat­isfy one ma­jor rat­ings agency that says not-for-profit hos­pi­tals’ out­look re­mains bleak.

Start­ing in Oc­to­ber, the be­gin­ning of the fed­eral fis­cal year, Medi­care will pay hos­pi­tals less for hos­pi­tal­ized pa­tients than it did in 2010. The sched­uled 0.4% re­duc­tion to in­pa­tient pay­ments, Moody’s In­vestors Ser­vice said in a re­port last week, is “an un­am­bigu­ous credit neg­a­tive for not-for­profit hos­pi­tals and a key driver to our main­tain­ing a neg­a­tive out­look for the in­dus­try.” It’s also the first time in more than a decade that Medi­care sim­i­larly re­duced hos­pi­tal rates, said Moody’s, cit­ing the 1997 Bal­anced Bud­get Act, which strained hos­pi­tal fi­nances and weak­ened credit rat­ings.

Mark Pas­caris, a vice pres­i­dent and se­nior an­a­lyst for Moody’s health­care team, said the stress on rev­enue is ex­pected to con­tinue af­ter 2011 and Medi­care rates will grow more slowly than in prior years—or not at all. Medi­care may make fur­ther rate cuts, he said.

“We’re not an­tic­i­pat­ing we’re go­ing to see much in the way of in­creases,” from Medi­care, said Steven Glass, chief fi­nan­cial of­fi­cer for the Cleve­land Clinic. Glass said that leaves the sys­tem’s 11 hos­pi­tals to grap­ple with stag­nant Medi­care pay­ment rates as the econ­omy con­tin­ues to strug­gle and op­er­at­ing costs rise. “Cer­tainly, we are ex­pe­ri­enc­ing in­fla­tion,” he said.

Hos­pi­tals and health sys­tems say the Oc­to­ber drop in Medi­care rates has them look­ing to make up lost rev­enue with ef­forts to curb ex­penses or in­crease pay­ments else­where.

To main­tain its mar­gin, Glass said the Cleve­land Clinic reg­u­larly eval­u­ates its costs and cap­i­tal spend­ing, and Medi­care’s re­duc­tions will in­crease the pres­sure on op­er­at­ing per­for­mance.

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