CMS gave flexibility for hospitals to provide inpatient care at home and additional telehealth services during the pandemic. The rules were extended under the 2023 Consolidated Appropriations Act but expire Dec. 31 unless Congress acts to renew the programs.
“Hospitals have increasingly incorporated these services into their operations, which has helped to alleviate revenue and expense pressures,” according to Fitch. “Hospital financials have shown signs of improvement, although challenges lurk with increased Medicare payers as the U.S. population ages, shifts from inpatient to outpatient services and achieving sustainable levels of cash flow given high costs and fixed revenues.
CMS implemented the hospital-at-home program during the pandemic; the program has helped hospitals reduce length of stay by allowing certain lower acuity patients to recover at home. Patient quality and patient/provider satisfaction data have been positive for the program, according to a study conducted by the CMS.
Telehealth was essential in providing access to care during the pandemic and has become a normal part of hospital operations. The key provision that will expire Dec. 31 allows Medicare patients to receive broad telehealth services at home. Telehealth reduces hospital costs and provides additional revenue by increasing patient volumes and expanding access — particularly in rural areas — where physician coverage is limited.
Hospitals’ median operating margin improved to 0.4% in 2023 from 0.2% in 2022, but ongoing headwinds will keep margins compressed relative to pre-pandemic levels of 2%-3%, even as volumes remain strong, according to Fitch. Labor costs have eased from the peaks of the pandemic but remain elevated, and hospitals have limited flexibility to raise rates.
“We anticipate hospital Medicare volumes will increase over time, absent service line and catchment area expansion, as the baby boom generation ages,” according to Fitch. “In addition, given the strong patient volumes, capacity constraints are re-emerging, with the need for capital spending and a corresponding increase in debt issuance.”
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