DALLAS – Facing “momentous changes,” public and nonprofit health-care systems must focus on risk management to maintain their growth, according to a sector report Monday from Moody’s Investors Service.

“Hospitals will increasingly need to strengthen their ability to manage the risks,” analyst Brad Spielman wrote. “The risks lie with changing reimbursement models involving both traditional insurers and the growing number of hospital-owned plans.”

Despite the threat of more turmoil in the health-care sector, Catholic Health Initiaitves reported strong growth in its third-quarter earnings.
Despite the threat of more turmoil in the health-care sector, Catholic Health Initiaitves reported strong growth in its third-quarter earnings.

After years of mergers and costly adjustments to the 2010 Affordable Care Act, managers must now anticipate possible repeal of the law under President Trump. Under a bill passed by the U.S. House earlier this month, an estimated 24 million Americans would lose health insurance over the next decade.

Trump's budget that is expected to be unveiled on Tuesday will include $800 billion in cuts to Medicaid as part of Trump’s plan to significantly downsize the federal program.

The $800 billion reduction, first reported by The Washington Post, assumes that the GOP health care bill that the House passed earlier this month would become law.

According to the Congressional Budget Office, 14 million more people would be uninsured next year under the legislation than under current law. Overall, the report estimates that nearly 24 million people would lose coverage over 10 years.

The CBO estimates that the legislation would reduce federal deficits by $337 billion over the 2017-2026 period. The largest savings would come from reductions in outlays for Medicaid and from the elimination of the ACA’s subsidies for non-group health insurance.

In 2020, states that expanded the Medicaid program to cover the working poor would no longer receive enhanced funding to cover low-income adults, while states that did not expand previously would not be prevented from expanding.

“Hospitals may be able to reduce some reimbursement risk by partnering with long-standing insurance plans, often operated by regional or national payors adept at the financing side of the industry,” Moody’s wrote. “Still, whether they partner or own the health plan directly, hospitals run the risk of marring relationships with existing plans, which they depend on for much of their other business.”

Against that backdrop, key areas of risk management for major hospitals include information technology and cybersecurity, clinical quality and brand protection, balance sheet health, and reimbursement, according to Moody’s. Upgrading IT systems for greater patient access and information sharing was a key element of the law known familiarly as “Obamacare.”

“Cutting-edge IT systems can assist hospitals with customer service and patient outcomes but pose risks with costs and cybersecurity,” Spielman noted. “Investments in IT routinely account for 25%-33% of a health system's overall capital budget and an even larger amount in years with a particularly expensive project such as a conversion or upgrade to a new EMR system.”

At the nation’s third-largest not-for-profit health-care system, Colorado-based Catholic Health Initiatives, top executives see encouraging signs in the most recent financial results.

“The first three quarters – and March, in particular – demonstrated that we are on track for substantial improvement in our financial situation as we near the end of the 2017 fiscal year,” said Dean Swindle, CHI’s president for enterprise business lines and chief financial officer. “Our focused efforts in key areas are having a big impact, and we will continue to build on key improvements – including those in labor and supply chain – throughout this year.

“While we are extremely pleased with the results in the third quarter, we have a lot of work to do to continue this performance-improvement effort,” Swindle added.

Excluding one-time items, CHI’s earnings before interest, depreciation and amortization, or EBIDA, increased 31% in the third quarter of the system’s fiscal year compared to the same period last year, Swindle reported.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.