On its own, the COVID-19 pandemic has wreaked financial havoc at the nation’s hospitals. But other longstanding trends like hospital systems’ overpaying for medical practices have made things worse.

Such moves have not necessarily paid off on the bottom line. Patient volume has dropped, bad patient debt has increased and expenses have risen. Excluding federal relief funds, operating margins had fallen 31.5% from pre-pandemic levels.¹

Three steps towards building up finances

Ensuring financial resiliency can be relatively straightforward, but not necessarily easy. Here’s what hospitals can do to start:

1. Focus on collection and billing: In Wisconsin, a state that didn’t expand Medicare through the Affordable Care Act, hospital lawsuits over unpaid medical bills rose 37% between 2001 and 2018.² And the pandemic aggravated the issue for hospitals across the country, regardless of their state’s Medicare status.

   Ultimately, collection and billing issues pose a major financial risk, as uncollected revenues disrupt the bottom line.

   One starting point is to split patient-paid and insurance-paid accounts and tackle them separately. It’s also important to have a solid accounts receivable management team with dedicated resources to maximize its effectiveness.

2. Service-line analysis: To help return to a solid financial footing, hospitals should examine whether offering certain types of care makes fiscal sense.

   A service-line analysis can inform long-term plans of meeting community needs without sacrificing financial sustainability.

   Part of this perspective reflects risk and insurance considerations. Obstetrics, for example, can be a low-margin specialty considered high-risk for professional liability lawsuits. Or take behavioral health services, which are often offered outside a hospital setting and face reimbursement challenges.

   A service-line cost-benefit analysis is not for the faint of heart, mandating hard questions and tough decisions:

   • Do performance shortfalls reflect mismanaging resources?
   • Are reimbursements for the service adequate?
   • Should a certain service be consolidated with another provider — or eliminated altogether?

   Despite the difficulty involved, service-line analysis is data-driven, helping justify hard choices and paving the way for long-term financial resiliency.

3. Reconsider consolidation: Healthcare has been on a merger and acquisition binge the last decade, with hospitals buying physician practices in hopes of ensuring a steady pipeline of patients. And, as hospitals continue to struggle financially, the pace of consolidation may actually speed up.

   But such moves haven’t necessarily improved the quality of care and has contributed to higher costs.³ Medical practices are expensive. Some hospitals may find the better option is to shed some of these assets, in line with findings of service-line analyses.

HUB International’s healthcare experts are ready to help your organization respond to the opportunities and risks in a constantly changing healthcare environment.

¹ KaufmanHall, “National Hospital Flash Report,” November 2021.
² Becker’s Healthcare, “Hospital lawsuits for unpaid bills rose by 37% in Wisconsin from 2001-2018: 6 things to know,” Dec. 6, 2021.
³ KFF, “What We Know About Provider Consolidation,” Sept. 2, 2020.