Hospitals in Arkansas, and indeed throughout the U.S., are facing a financial crisis. It can be difficult to grasp why this industry, in particular, needs specific and immediate relief and why that involves legislation, changes in rulemaking, and constant advocacy efforts at the local, regional, state and national levels. What’s much easier to understand is that if any of our hospitals were to collapse under this mounting pressure, it would put the health of our state – its economy and its people – at risk. The following Q&A is meant to offer some context on this complex and increasingly dire situation.
Why are hospitals experiencing financial difficulties?
It is as simple as expenses outpacing revenues. You can say that all businesses are experiencing this right now to some extent, but unlike other businesses, hospitals cannot simply raise prices and pass expense increases along to consumers. Hospitals are paid by Medicare, Medicaid and commercial insurance, and those reimbursements have, for the most part, remained stagnant while labor and supply costs have significantly increased.
Is it a management problem?
No. With expenses increasing and revenue remaining stable, the challenge becomes what expenses to cut. Hospital costs consist largely of salaries; more than half of a hospital’s expenses fall under compensating the health care workers who provide care to patients. If a hospital were to reduce the number of nurses employed, for example, that would mean fewer beds available for patients. With flu, COVID and RSV reaching peak levels this fall, the result of these types of reductions would equate to reduced bed capacity statewide for sicker patients.
Other possible reductions could include cutting unprofitable lines of service, such as labor and delivery or rural health clinics. Cuts like these have an overwhelmingly detrimental impact on health care access. Arkansas currently has fewer than 40 hospitals operating labor and delivery departments, and that number continues to decrease. Driving hundreds of miles to deliver a baby or to access prenatal care will inevitably have a negative impact on the health of mothers and newborns.
Similarly, closing rural health clinics may save money in the short run, but these cuts also limit preventive care which in turn results in sicker patients who develop diabetes, suffer heart attacks and strokes or succumb to other illnesses.
Are hospitals in danger of closing?
The Center for Healthcare Quality and Payment Reform issued a report last November that identified 22 rural Arkansas hospitals (46%) at risk of closing, and six hospitals at risk of immediate closure. It’s clear that Arkansas’s health care industry is not only facing cutting services and bed capacity, but is also in danger of shuttering locations altogether, the victims of sustained financial losses on patient services reimbursement and low financial reserves.
Why have labor costs increased?
Health care was already experiencing a workforce shortage prior to the pandemic, but the last couple of years have greatly intensified the pressure of this shortage. Nurses, for example, have retired, moved on to non-bedside care or changed professions altogether. Some nurses have embraced the flexibility of the travel nurse industry, which has contributed to increased costs for hospitals to attract and retain qualified help.
With the bar raised on expenses, and no evidence that the workforce shortage will ease on its own, Arkansas must act. Our state must invest in attracting members of the next-generation workforce to choose health care as a profession. That means increasing pay for our nurse educators, providing more opportunities for students to attend nursing schools, offering loan forgiveness and raising awareness of health care careers to middle and high school students.
What are the solutions to the hospital financial crisis?
For hospitals to continue to serve patients and communities, there must be payment reform. Consider the following:
• Medicaid and the Arkansas General Assembly must appropriate more funding to hospital rates to correct the inequity of paying hospitals significantly below the cost of providing care.
Hospitals have not received an increase in the rate of reimbursement for providing care to Medicaid patients in decades. In fact, the last time Medicaid outpatient rates were changed was in 1992, and that was a reimbursement decrease. That is 32 years without a favorable rate adjustment, despite the reality that costs – and the shift toward utilizing outpatient care – have increased considerably over this time.
Rates of reimbursement for inpatient care have not seen an increase since 2007, when it was raised to $850 a day. This daily rate includes all care, including costly procedures like heart bypass or hip replacement, yet Medicaid reimburses hospitals $850 a day rather than the full cost of the procedure.
• Congress desperately needs to step in and correct the inadequacies of the Area Wage Index.
Medicare payments in Arkansas are woefully low. The main cause is the Area Wage Index, which rewards states that pay higher wages and penalizes more efficient, smaller states like Arkansas.
• Commercial insurers must do their part.
Some commercial insurers have adjusted payments to account for inflation, but others have not stepped up. All commercial insurers must address the increased costs of treating their policy holders, not by raising premiums, but by investing dollars in the health care providers treating patients.
• Laws and regulations are needed to protect seniors from gaps and loopholes in Medicare Advantage plans.
Medicare Advantage companies advertise plans to seniors as a cost-saving solution to reduce out-of-pocket expenses, but when it comes down to paying for care, they excel at erecting barriers to payments. Paying hospitals and physicians below Medicare rates is unacceptable, and denying care or payment for service by using a prior authorization system causes even more harm.
We continue to see Medicare Advantage patients “hotel” at hospitals because plans will not authorize transfer of care to a post-acute setting, such as rehabilitation, acute-care hospital or a nursing home. Laws and regulations are needed to ensure these plans allow seniors to receive care without prior authorization barriers and to not financially punish hospitals and physicians for providing that care.
Hospitals have demonstrated their profound commitment to our state throughout the pandemic by expanding bed capacity and staff numbers to treat patients during COVID surges. At the same time, they continued to provide trauma care and service everyday health care needs.
Arkansas’s hospitals also contribute to the economy statewide by directly and indirectly employing more than 90,000 workers and generating $15.2 billion in economic impact. These numbers are not minor contributions to a state that needs a strong health care system and a strong economy. Hospitals are asking for assistance so that we may continue, according to our mission, to protect access to outstanding health care for all Arkansans, now and in the future.
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