Becker's Hospital Review

22 CFO / FINANCE $1.6B in Medicare payment cuts likely to cripple struggling hospitals, S&P says By Kelly Gooch M edicare payment cuts under the 340B Drug Pricing Program pose a poten- tial financial threat to nonprofit hos- pitals serving vulnerable patients, according to a report from S&P Global Ratings. e $1.6 billion reduction in Medicare pay- ments, put in motion Jan. 1, was part of CMS' 2018 Medicare Outpatient Prospective Pay- ment System Rule. e reduction is reached by paying hospitals 22.5 percent less than the average sales price for drugs purchased through the 340B program. While many larger 340B hospitals and sys- tems won't see direct effects from the cuts due to their size and scope, smaller participat- ing providers and rural hospitals could see a greater financial effect, according to S&P. "e impacts of the cuts to the 340B Drug Pric- ing Program on nonprofit hospitals that rely on 340B drug savings will likely weaken their op- erating performance at a time of already tight- ening margins," the agency wrote. "is could lead to negative rating actions if hospital-spe- cific funding reductions were material and not offset by other management actions." If the Medicare cuts result in insufficient cash flow for some hospitals, they likely will serve fewer patients, prompting more patients to seek treatment in other hospital emergency rooms or clinics, S&P stated. e American Hospital Association, Associa- tion of American Medical Colleges, America's Essential Hospitals and various health sys- tems have challenged the cuts in court. Judge Rudolph Contreras in the U.S. District Court for the District of Columbia dismissed the lawsuit in December, saying it was brought prematurely. S&P said it expects the case to continue, as a federal appellate court was considering reviv- ing it. S&P also noted calls for 340B reform at the fed- eral level., including a federal proposal requiring 340B hospitals to report their low-income uti- lization rates for outpatient and inpatient ser- vices, as well as further 340B reform outlined in Trump administration's proposed drug pricing changes. Even if a legal challenge to the cuts is revived, "additional proposed program reforms at the federal level could further negatively affect these providers' finances," S&P concluded. n Dartmouth-Hitchcock records $58.1M turnaround in operating results By Morgan Haefner L ebanon, N.H.-based Dartmouth-Hitchcock saw operating results improve in the first nine months of fiscal year 2018 after imple- menting a cost-reduction plan. The nonprofit academic medical system reported operating income of $33.7 million for the nine months ended March 31. That's com- pared to a $24.4 million operating loss the system recorded in the same period a year prior, according to unaudited bondholder doc- uments. Dartmouth-Hitchcock largely attributed the $58.1 million turnaround to three key factors: a performance improvement plan rolled out in the fall of fiscal year 2017, which included freezing the system's em- ployee pension plan and reductions in workforce expenses; an in- crease in case mix and appointments; and the closure of its Imagine- Care health solution, which bled $5.3 million from operations through March 2017. The system kept expenses in check at $1.5 billion in the most recent nine-month period, up less than 1 percent compared to the nine- month period in fiscal year 2017. Dartmouth-Hitchcock said increases in salary and supply costs were partially offset by a $21.2 million re- duction from the frozen pension plans. After including nonoperating gains, Dartmouth-Hitchcock ended the most recent nine-month period with net income of $45.6 million on revenues of $1.5 billion. That's up 31.7 percent from net income of $34.6 million on revenues of $1.5 billion reported in the same period a year prior. n Houston surgical hospital abruptly closes after discovering accounting errors By Ayla Ellison H ouston-based U.S. Pain and Spine Hospital closed unexpectedly, leaving 63 employ- ees without jobs, according to KTRK-TV. The hospital shut down its inpatient unit May 30. Sur- geons, nurses and anesthesiologists were among those laid off when the facility closed. "This has been a heartbreaking day for us and our hospital employee family," U.S. Pain and Spine Hos- pital Interim President Christopher Packard told KTRK-TV. Mr. Packard didn't give a detailed account of the hospital's finances, but said accounting errors neg- atively affected the facility's financial situation. "After the recent termination of our corporate CEO and CFO, we discovered a number of accounting er- rors and omissions [regarding] our hospital operations, which severely impacted our bottom line," he said. Although the hospital will no longer offer inpatient procedures, its imaging center, emergency room and clinics are still open, according to the report. n

• Cover