Becker's Hospital Review

Financial Management 41 Study: Lower-Price Hospitals Trigger Price Reductions at Other Hospitals By Molly Gamble W hen patients were steered to hospitals that had lower prices for hip and knee replacements, other hospitals in the market reduced their prices for these procedures as well, according to a study from the Center for Studying Health System Change. In 2011, the California Public Employees Retirement System and Anthem Blue Cross adopted reference pricing to guide enrollees to California providers that hit below a certain threshold for routine hip and knee replacements. CalPERS is a state agency that manages pension and health benefits for more than 1.6 million California public employees, retirees and their families. The cost for these procedures ranged from $15,000 to $110,000, but CalPERS and Anthem set the threshold at $30,000. Anthem provided members with a list of 45 hospitals that met the reference price and quality criteria. Patients who went to a designated hospital paid coinsurance for the cost of the procedure and an out-of-pocket maximum up to $3,000. Members who selected a facility with a negotiated price of more than $30,000 paid both typical cost sharing and the full amount above the $30,000 cap. Soon after CalPERS rolled out the program, several non-designated hospitals renegotiated their contracted price with Anthem for all Anthem-covered patients, not just CalPERS members, to become designated hospitals and retain CalPERS patients. Anthem's list of designated hospitals grew from 45 to 54 hospitals by September 2012, according to the study. Also, orthopedic surgeons reportedly did not want to operate exclusively at designated hospitals. They persuaded some non-designated hospitals to reduce their prices to accommodate CalPERS patients. This was due in part to orthopedic surgeons' considerable ability to influence a hospital's payer relationships. One study respondent — a market observer or individuals involved in implementing CalPERS's or other purchasers' reference pricing initiatives — said, "Next to cardiologists, orthopedists are the most powerful physician group in terms of the relationships that they form with hospitals. So orthopedists' concerns about where to admit their CalPERS patients for hip and knee replacements were reflected in hospital contract negotiations." n Fitch: 2014 Does Not Look Good for Nonprofit Hospitals J By Bob Herman oining the opinions of Moody's Investors Service and Standard & Poor's Ratings Services, Fitch Ratings believes nonprofit hospitals and health systems face a negative operating environment in 2014. According to the annual outlook report from Fitch, several industry pressures are expected to speed up next year. As the rating agency mentioned in November, maintaining  profitability will be the most urgent challenge. Median financial ratios were generally stable in 2012, as well as most of this year, Fitch said. However, Medicare cuts and sequestration, Medicaid funding issues, declining inpatient volumes and the rise of highdeductible health plans are heightening threats to hospital profitability. "Hospitals continued to produce sound profitability [in 2013], benefitting from continued focus on preserving margins," Fitch analysts said in the report. "Liquidity metrics exhibited improvement as organizations focused on capital preservation and enjoyed favorable investment returns. However, Fitch expects the fiscal 2013 median ratios to begin showing signs of weakening from revenue pressures and lower-than-expected volumes." Fitch also said an organization's financial performance will be more influenced by how CEOs and CFOs control expenses, find clinical efficiencies and manage staffing costs. This may result in more providers reducing or eliminating less profitable service lines to preserve margins. Fitch's 2014 outlook for hospitals and health systems echoes that of Moody's and S&P. In November,  Moody's  issued a negative outlook for the nonprofit hospital sector for the sixth straight year. This week,  S&P  said the outlook is "decidedly negative" and left little room for optimism. n Sign Up Today! Hospital CFO Report Concise, practical information for hospital CFOs and financial leadership Current news, analysis and best practices on hospital revenue cycle issues, including coding, billing and collections, the transition to ICD-10 and Recovery Audit Contractors To sign up for the FREE E-Weekly, visit www.BeckersHospitalReview.com or call (800) 417-2035

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