Lower reimbursement a leading cause for poor margins, CFOs say

A recent report from the Healthcare Financial Management Association and Eliciting Insights, a healthcare strategy and marketing research company, found that 84% of health systems have cited lower payer reimbursements as a leading cause for low operating margins. 

The "HFMA Health System CFO Pain Points 2024: Margin Challenges and Opportunities for Vendors" report is based on survey responses from 135 health system CFOs and CFO qualitative interviews that were held in the first quarter of 2024, according to a March 6 HFMA news release.

Here are six other findings from the report:

1. Eighty-two percent of CFOs said they have seen a significant increase in payer denials since pre-pandemic levels. Nineteen percent of hospitals have dropped at least one Medicare Advantage plan, with 61% of health systems planning to or considering leaving Medicare Advantage payers, which are the top administrative burden offender, the report said.

2. Higher labor costs were reported by 96% of CFOs as the largest margin pressure driver, with 99% of CFOs claiming that the top labor shortage driver is nursing. Lab technicians and radiology technicians were also listed as healthcare roles experiencing shortages.

3. In an effort to reduce cost, the report found that 40% of health systems are cutting back on capital and real estate investments, 32% are reducing less profitable service lines, and 26% are searching for ways to outsource revenue cycle roles.  

4. "This study validates that there are many health systems still struggling to find a positive margin," Todd Nelson, chief partnership executive of HFMA, said in the release. "While health plans are modestly increasing reimbursement, they are also ratcheting up prior authorization requirements and denials, which raises the overall cost to collect for health systems."

5. Ninety-percent of health systems said the top challenge for revenue cycle teams is denials, with 62% of health systems claiming that Medicare Advantage is "significantly more difficult to work with" compared to Medicare or commercial plans. 

6. Although many health systems are experiencing tight margins, 15% expect significant budget increases for areas like automation and cybersecurity. 

The full report can be found here.

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