Becker's Hospital Review

35 CFO / FINANCE Fitch: Medicaid Work Requirements Put Pressure on LifePoint, Quorum and CHS By Ayla Ellison K entucky received a waiver from CMS Jan. 12 allowing it to add work require- ments for Medicaid recipients, and sev- en other states are working to impose similar eligibility requirements. is trend could have a negative effect on for-profit hospital opera- tors' finances, according to Fitch Ratings. "Work requirements, on their own, should only have a modest impact on hospitals given small at-risk revenues and as the patient population tends to be lower margin," Fitch said. "Howev- er, the requirements compound volume pres- sures buffeting hospitals, which have reported four straight quarters of negative same-facility admissions growth." If the seven other states follow Kentucky's lead and implement Medicaid work requirements, it would likely have a negative effect on hospital margins. Although there would be an insig- nificant impact on hospital revenues, the new Medicaid eligibility requirements could cause large declines in EBITDA, as it would be diffi- cult for hospitals to lower their fixed operating expenses in the short term, according to Fitch. Fitch estimates the new eligibility requirements would put about 1.1 percent of Brentwood, Tenn.-based LifePoint Health's revenues at risk and 1 percent of Brentwood-based Quo- rum Health's revenues at risk. Below are the percentages of other major for-profit hospital operators' revenues at risk due to the possible Medicaid eligibility changes. • Community Health Systems (Franklin, Tenn.): 0.6 percent of revenues at risk • Universal Health Services (King of Prus- sia, Pa.): 0.4 percent of revenues at risk • HCA Healthcare (Nashville, Tenn.): 0.2 percent of revenues at risk • Tenet Healthcare (Dallas): 0.2 percent of reveues at risk n Moody's: Severe Flu Season Will Pressure Nonprofit Hospital Margins By Alia Paavola D espite an increase in patient admissions, the severe flu outbreak this season will pressure nonprofit hospital margins, according to a re- cent report by Moody's Investors Service. A surge in patient volume is often credit-positive for hospitals since reim- bursements are often tied to the number of patients served. However, the surge in flu-related patient volume will pressure hospital margins because re- imbursements for flu-related services often fail to cover the cost of treatment. "Minimizing the length of stay for flu patients is essential to maintaining margins, but the severity of this year's flu will complicate those efforts," the Moody's report reads. In addition, the heightened patient volume increases other costs, such as overtime payments and other unbudgeted staffing costs, and may also lim- it facility capacity for more profitable services, such as elective surgeries. Many hospitals across the nation are considering canceling elective surger- ies, which are a valuable source of revenue, as their facilities grapple with an influx of flu-related cases. Since flu-related admissions are often unplanned, and in many markets there are shortages of primary care physicians, many flu patients are head- ing to emergency departments to receive care, which is costly. "Treating large numbers of patients in the ED creates a bottleneck to effi- cient flow of patients through the hospital and is often an expensive place to receive care," the report reads. Moody's also notes flu patients are at a higher risk for complications, which may increase hospital costs. n Rural Hospital in California Files for Bankruptcy By Ayla Ellison S urprise Valley Health Care District, which operates the 26-bed Surprise Valley Hospital in Cedarville, Calif., filed for Chapter 9 bankruptcy Jan. 4. In court documents, the district's board said without bankruptcy protection, the financial state of the organization "jeopardizes the health, safety, and/or well-being" of local residents. The board authorized the healthcare district to partner with Denver, Co- lo.-based medical testing company CadiraMD. Under the agreement, CadiraMD will lend the healthcare district up to $1.5 million, subject to the achievement of certain milestones, including the sale of Surprise Val- ley Hospital. In the bankruptcy petition, the district listed its assets as between $500,000 and $1 million and its liabilities as between $1 million and $10 million. n

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