As hospital markets evolve and we move through the latest phases of the COVID-19 pandemic, we continue to see an escalation of health care costs and hospital spending. According to the Centers for Medicare and Medicaid Services, national health care expenditures through 2028 are projected to grow at 5.4%. This growth trajectory will result in total spending reaching $6.2 trillion by 2028. Moreover, because these expenditures will grow faster than gross domestic product, on average, the share of the US economy tied to health care is anticipated to grow 2% by the end of the decade. To nearly 20% of GDP by 2028.
A multi-year time horizon for these trends might indicate time to address the concerns of hospital costs in the future. However, recent results reported by some very large health systems indicate that increasing healthcare costs negatively impact hospital operations right now. For example, Alia Paavola with Becker’s Hospital Review reported just this week on three large health systems that recorded operating losses for 2021. Of particular note is the New York City-based Montefiore Health System. Montefiore saw its operating losses increase to $294 million in 2021. The hospital’s operating revenue fell by slightly less than 1% last year, while expenses rose by nearly 4%. Montefiore’s example clearly illustrates how increasing operating costs significantly impact a hospital’s operating positions right now.
However, I believe there is a more concerning component of this trend. Large health care organizations might have the scale, efficiencies, and cash reserves to weather these cost impacts. In contrast, small rural hospitals and providers are particularly susceptible to significant negative consequences resulting from escalating health care costs. For example, according to Ayla Ellison, there are currently 892 hospitals at risk of closure across the US. This alarming statistic equates to more than 40% of all rural hospitals in the United States being at high risk of closure. Moreover, “in 21 of 50 states, 25% or more or rural hospitals are at risk of closing immediately.”
A great deal of this information concerning financial challenges to rural hospitals comes from the Center for Health care Quality and Payment Reform (CHQPR). CHQPR does a great job consolidating and reporting on many details and realities impacting small rural hospitals. I think it’s easy for many of us who do not live in rural areas to believe that the increasing costs of health care services do not impact us. However, CHQPR does a great job proposing some salient reasons we should all care about escalating costs and disparities in rural America. For example – “Most of the nation’s food supply comes from rural communities, and the farm and ranch workers and their families in those communities rely on rural hospitals for health care services.” I believe it’s a relatively easy task for those in urban areas whose supply chains have been impacted over the last two years to draw a line between our communities and health care in rural areas.
So for me, the thing that’s really at the top of my mind when I think about how to impact operating performance for rural hospitals is what role financial decision support can play in driving improvements. Again, according to CHQPR – “The cost of inpatient care, laboratory tests, imaging studies, primary care visits, and most other essential services is also inherently higher at small rural hospitals.” So getting true and accurate insight into operating costs by service line and down to the patient level could be a game-changer for small struggling rural hospitals fighting to stay alive. Understanding which service lines are profitable and not and aligning care pathways around patient-level costs could help improve operating performance and quality of care for rural hospitals.
However, financial decision-support solutions can potentially be costly for small providers. In addition, the timeline to implement these solutions can be lengthy. It can be challenging for rural hospitals to dedicate significant resources to a decision support initiative with limited staff. So the question arises; how can we help rural hospitals take advantage of financial decision support?
One of the things that I’ve seen many decision support vendors start piloting over the past 24 months is a new concept known as Costing as a Service (CaaS). I believe this new paradigm is great because it allows rural hospitals to take advantage of accurate Activity-Based costing without devoting the time, high costs, or labor required to implement and manage a full financial decision support solution. Instead, in most cases, the vendors will outsource the cost reporting to their in-house staff under a turn-key model. As a result, CaaS means that rural hospitals can take advantage of costing insights much quicker than implementing an entire solution. Moreover, this service-based model is generally more affordable, often only a couple of thousand dollars a month in an ongoing operating expense. Further, it’s flexible enough to scale up or down to meet the needs of rural providers depending on constantly changing conditions.
So when I consider what we can do with financial decision support to help struggling rural hospitals, I believe that one of the answers is to drive continued focus around this Costing as a Service model. It’s potentially one of the quickest and most effective ways for us to really help rural providers understand what’s driving their margins. As a result, they’ll hopefully be able to manage cash flows and operating income more strategically. CaaS is positioned to help improve rural hospital services in rural areas to continue to meet their commitments to the communities they serve. Supporting rural health care is a goal that is important not just to those rural communities but also to all of our communities.
-Jay Adams, Executive Vice President, Sales and Marketing