The financial pressure on hospitals has rarely been more visible but for Michael Stern, president and CEO of West Reading, Pa.-based Tower Health, the clearest measure of that pressure isn’t a line on a balance sheet. It’s the daily effort to get paid for care that has already been delivered.
“It’s something we deal with every day, and it’s heading in the wrong direction, and that’s the growing disconnect between the cost of providing care and the reimbursement we ultimately receive,” Mr. Stern said in an interview for the “Becker’s Healthcare Podcast.” “Labor costs have risen dramatically over the last several years as hospitals compete for a limited healthcare workforce. Supply costs, pharmaceuticals, medical technology expenses, they’ve also increased at rates that far outpace historical norms. But at the same time, we’re seeing commercial payers becoming increasingly aggressive with denials, retrospective reviews, prior authorization requirements, and honestly, service-level downgrades that are made unilaterally.”
The result, Mr. Stern argued, is a squeeze from both sides that redirects resources away from the patients hospitals exist to serve.
“When people ask why healthcare organizations are under financial pressures, it’s not one issue; it’s a combination of rising labor costs, rising supply costs, increased reimbursement friction, which basically has hospitals being squeezed in both directions,” he said. “The cost of caring for patients continues to climb, while the effort required to secure payment for that care continues to grow. That’s a difficult equation for any industry, and it’s particularly concerning in healthcare because it impacts dollars that could otherwise be reinvested in caregivers and technology, access, or experience.”
The broader pattern is one Mr. Stern has tracked for years. The relationship between payers and hospitals was once more collaborative with the shared goal of providing care to patients. It has become increasingly litigious, driven in part by disputes over the two midnight rule and prior authorization requirements that hospitals say are increasingly applied to care already approved.
“If you go back even as far as 5 years, the idea of having litigious events between insurers and health systems didn’t exist,” he said. “It just seems every day we’re in another legal battle with an insurance company over the two midnight rule or over unilateral changes to how they pay or what they pay.”
That pattern extends well beyond Tower Health’s experience. Many hospital and health system leaders faced with similar pressures are seeing the same strife with local payers.
“It doesn’t matter which insurer, but almost every insurer is in some sort of legal battle over something with a health system, and you can see it across the country,” Mr. Stern said. “I understand that insurers have a responsibility to manage costs and ensure appropriate utilization. I get that. We all share that goal of affordable, high-quality care, but I think most health system leaders would tell you that the relationship has become increasingly adversarial when it really should be more of a partnership.”
When both sides remain focused on fighting rather than aligning, the patient absorbs the cost. The time and financial resources spent on arguing over claims and resolving conflicts are taken away from the ultimate goal of serving patients. Tower Health’s near-term response has been to build tighter contract language and more deliberate relationships with local payers.
“The best thing that we can do, and we’re trying to do with some of the local payers, is develop that relationship, a personal relationship, but also be very careful as we negotiate contracts to make sure they’re tight, to make sure it’s clear-cut what the reimbursement structure would be for that service and what the rules are inside of that,” he said.
Whether the broader environment returns to collaboration is an open question. Mr. Stern acknowledged the “tough time” health systems are in right now and sees a long road ahead for payers and hospitals to collaborate more closely again.
“The health systems are at the point financially where we have no choice than to push back and say no, we kept them that extra day for the right reasons, medically necessary care,” he said. “It took us pushing back, and again, you see that nationally, that will hopefully change the conversation and get people’s attention.”
At Becker's 4th Annual CEO + CFO Roundtable, taking place November 2–5 in Chicago, more than 1,500 hospital and health system executives tackle decisions that determine whether organizations thrive or merely survive: protecting margins under cost pressure, choosing where to grow, renegotiating payer relationships, stabilizing the workforce and proving real ROI on technology. This is where leaders work through them together, face-to-face. Apply for complimentary registration now.
