Economic Conditions Push Margins Lower
The well-documented struggles critical access hospitals (CAHs) face can be overcome through performance improvement initiatives. The challenges are daunting: budget cuts brought on by diminishing federal funding, high rates of uncompensated care, skilled worker shortages, and aging infrastructure. While these issues have plagued CAHs for decades, their situation has only worsened since the COVID-19 pandemic. Current conditions have forced CAHs to undergo performance improvement initiatives to survive the current economic climate. The good news is that several performance improvement opportunities can provide significant financial upside to hospitals struggling to stay afloat. These areas include improved managed care contracting, better revenue collection in the billing office, and financial operations and infrastructure improvements.
Federal funding from the CARES Act assisted CAHs during the COVID-19 pandemic. However, as this funding has dried up, many hospitals find that their net income has deteriorated rapidly. Astute hospital leaders have recognized that this significant government assistance masked declining operating performance. Removing federal pandemic funds has laid bare the dire financial straits in which some CAHs find themselves.
CAHs have always suffered from high levels of uncompensated care. Serving more rural communities with higher levels of self-pay patients increases these hospitals’ financial burdens. Furthermore, Medicaid expansion efforts have stalled in numerous southeastern states. “Several studies have shown that rural hospitals do better financially in states that have expanded Medicaid,” and hospital leadership is increasingly calling on state officials to pass such legislation.(1) Until then, CAHs will remain on the front line serving those in need and not getting reimbursed.
Worker shortages currently plague the country, and rural hospitals suffer more than most. Physician workforce reports for many states demonstrate the struggles of attracting physicians to rural counties.(2) Shortages extend to physician assistants, nurses, and billing staff and can impact virtually all jobs at rural hospitals. Many hospitals are perpetually understaffed, leading to backlogs and “treading water” to stay afloat. In these circumstances, many leaders find it challenging to set aside time to provide the supplementary job training or career coaching necessary to bolster the hospital’s long-term success.
Rural hospital leaders commonly express concerns about aging facilities and inadequate infrastructure. Without the financial ability to invest in improvements, these hospitals rely on federal funding for assistance, which often never arrives. These problems inhibit the ability to administer care. For example, the FCC estimates that 26.4% of rural residents do not have access to broadband Internet, preventing healthcare providers from offering telehealth solutions to serve their communities better.(3) Hospitals repeatedly find that if they wish to invest in additional care delivery such as general surgery, OBGYN, or cardiovascular services, they must find a way to pay for it themselves.
One major area for improvement is the payer contracting space. While CAHs often have lower amounts of commercial insurance, these contracting rates are still vitally important. The reasoning is simple: if CAHs are paid via the Medicare Cost Report (i.e., at cost), the only way to be profitable is with managed care rates above Medicare levels. The profit from the minority of commercial patients can be used to invest in the hospital’s capabilities and service offerings. The challenge is that any one CAH is a rounding error for the major insurance companies. They do not have much payer acuity and can struggle to understand what realistic reimbursement rates are for their market. Partnering with an organization with lengthy experience negotiating managed care contracts is often necessary to secure good terms.
Perhaps the largest area for performance improvement lies in billing and collections. CAHs often struggle to collect the dollars owed to them. The most common areas of improvement are enhancing the clean claim rate and reducing denials. In Coker’s experience, the first pass resolution rate should be 98% or better, and the net collection rate should be greater than 95%. Many collection issues stem from the front desk; tasks such as verifying insurance, confirming eligibility, and updating the patient’s demographic issues are key reasons for subsequent denials or cleanup work by the billing team. Fortunately, investments made to enhance collections frequently yield a clear, substantial return on investment. Prioritizing improvements across the full revenue cycle spectrum can be a lucrative endeavor.
Additionally, there are several opportunities for performance improvements in financial operations. A comprehensive review of current operations is often necessary before implementing any changes. Given this, there are several key areas worth examining. The charge description master plays a vital role in maximizing collections from payers. A diligent review of the Medicare Cost Reports is needed to ensure all correct expenses are accounted for. Financial reports can be immensely informative and valuable, yet far too often, organizations are overrun with data reports and are unable to perform any actionable analysis.
CAHs are struggling, and waiting for government assistance is not the solution. To strengthen its hospitals, forward-thinking leaders must be aware of the necessity to increase their operating efficiencies. Organizations focusing on improving their net operating income will find opportunities for profitability and growth, despite significant financial headwinds. CAHs play a vital role in serving America’s rural communities; therefore, they must overcome the challenges faced through the implementation of performance improvement initiatives.
Percy S. Rural hospitals: fighting for survival. GeorgiaTrend. https://www.georgiatrend.com/2020/11/30/rural-hospitals-fighting-for-survival/ . Accessed 1/19/2023.
Georgia Board of Healthcare Workforce. Physician workplace primary care/core specialty reports. https://healthcareworkforce.georgia.gov/main-publications-reports/data-publications/physician-workforce-primary-carecore-specialty-reports . Accessed 1/25/2023.
American Hospital Association. Fact sheet: Infrastructure investments needed to support access to care in rural America. https://www.aha.org/fact-sheets/2021-05-26-fact-sheet-infrastructure-investments-needed-support-access-care-rural . Accessed 1/25/2023.