Health systems say they are facing more denials from payers, including Medicare Advantage plans, and it’s a big reason why they have less cash on hand.
Health systems have been facing stiff financial challenges over the past two years, and hospital leaders say the difficulties are being compounded by rising denials from insurers.
Hospitals say their cash reserves are dwindling, and the higher rate of denials are a key factor, according to a new report from Syntellis and the American Hospital Association.
The median health system saw its cash reserves drop 28% from January 2022 to June 2023, the latest semi-annual “Hospital Vitals” report states. Put another way, the measure, commonly called the number of days of cash on hand, fell from 173 to 124 in that span. Industry analysts say that’s a key measure they watch when assessing the financial performance of hospitals and health systems.
Health systems say they’re seeing more denials from insurance companies, and they are also experiencing more battles over payments with Medicare Advantage plans, the report says.
“Combatting inappropriate payer delays and denials costs these vital organizations valuable time and resources,” the report stated.
Medicare Advantage plans are becoming increasingly popular with seniors, as more than 30 million Americans are now enrolled in those programs. However, health systems say they’ve been seeing more prior authorization headaches with Medicare Advantage plans.
Hospital revenue reductions tied to Medicare Advantage denials rose 55.7% for the median organization from January 2022 to July 2023, according to the new report released Friday. Revenue reductions rose 20.2% from commercial insurers over that same span.
“As payers deny more claims, hospitals are increasingly not reimbursed for medically necessary care provided to patients,” the report states. And the report forecasts these problems are likely to worsen as Medicare Advantage plans continue to rise in popularity.
The American Hospital Association recently surveyed its members and found that 50% of hospitals and health systems said they had more than $100 million in unpaid claims that were more than six months old, the report states.
Health systems are also seeing wild shifts in accounts receivable, due to the unpredictability in payments from insurers, according to the report.
Hospitals continue to grapple with higher expenses, and the report outlines cost increases in a number of areas.
Health systems said they saw the biggest increase in maintenance expenses, which rose 89.8% from January 2022 to July 2023. Many hospitals had to postpone work on their facilities during the COVID-19 pandemic, and now they are turning their attention to those much-delayed projects.
Over that same 19-month span, the second-largest increase came in utility expenses (35%), followed by professional fee expenses (33%) and drug expenses (29.8%).
Health systems continue to pay more in labor expenses. From January 2022 to July 2023, hospitals’ total labor expenses rose 24%. While hospitals are using staffing agencies to fill vacancies less than they did at the height of the COVID-19 pandemic, health systems are turning to those agencies for travel nurses and other staff.
More hospitals are starting to see some improvement in their operating margins, according to Kaufman Hall, the healthcare consulting firm.
But hospitals and health systems say the uptick in claim denials is taking a toll. Physicians, medical groups and hospitals have long denounced prior authorization, saying the process of getting insurers to approve treatments leads to delays that hurt patient care. Health systems and doctors say it’s a leading cause of burnout among clinicians.
Payers have said the process is a vital tool to reduce healthcare costs and curb unnecessary treatments. But the American Hospital Association and other trade groups have urged the government to take more action to reform prior authorization.
“Taken together, a lack of proper and prompt reimbursement has both upstream impacts on hospitals’ cash flow as well as downstream impacts on patient care,” the report concludes.
Nearly three out of four hospital executives (73%) said they have seen an increase in claims denials, according to a recent Kaufman Hall report. Some health executives say they are tracking denial rates by payers and bringing up those issues in contract negotiations.