The full effect of the Change Healthcare hack has yet to be measured.
Hospital Margins averaged 3.96% in February, continuing a strong trend in 2024. However, the data collected for February from more than 1,300 hospitals nationwide do not reflect the total effect of the Feb. 21 Change Healthcare hack, Kaufman Hall says in March National Hospital Flash Report.
While the numbers are generally favorable, especially when compared to those of the pandemic era, Erik Swanson, senior vice president of Data and Analytics at KH says hospitals aren't in the clear.
"Robust hospital margins in February demonstrate continued recovery from the pandemic years, but challenges are on the horizon," Swanson says. "The aftermath of the Change Healthcare cyberattack and continued competition from industry disrupters may test financial performance in coming months, as disrupters capture more profitable, lower-acuity, and lower-capital-intense services from hospitals."
The flash report also notes that gross revenue continues to rise at a faster rate than net revenue, highlighting payer mix changes, while bad debt and charity care have also risen over the last few years. And while revenue growth is primarily being driven from the outpatient setting, the ongoing decline in inpatient revenue continues.
In the aftermath of the Change Healthcare hack and its effect on provider cash flows, KH notes that cybersecurity has become a top priority of hospital leaders, who are still sorting out the operational implications.
With that in mind, KF recommends that hospitals:
• Prioritize steps to preserve liquidity, including extending accounts payable, slowing capital spending, drawing on lines of credit, or liquidating assets such as T-bills;
• Monitor denial rates as claim backlogs lessen. If denials spike, manage the processing backlogs as well as possible; determine the impact of delayed claims on cash, both for operations and balance sheet metrics;
• Anticipate interest in cybersecurity in future rating presentations, paying special attention to how they are dealing with cyber hygiene and the risk of contamination in interactions with third-party vendors.
• Diversify clearinghouses and banking partners to diminish counterparty concentration risk;
• Anticipate rating pressures on lower-liquidity credits, although wholesale rating downgrades are not likely.
“Robust hospital margins in February demonstrate continued recovery from the pandemic years, but challenges are on the horizon.”
Erik Swanson, senior vice president of Data and Analytics, Kaufman Hall
John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.
KEY TAKEAWAYS
Gross revenue continues to rise at a faster rate than net revenue, highlighting payer mix changes, while bad debt and charity care have also risen over the last few years.
While revenue growth is primarily being driven from the outpatient setting, the ongoing decline in inpatient revenue continues.
In the aftermath of the Change Healthcare hack and its effect on provider cash flows, cybersecurity has become a top priority of hospital leaders, who are sorting out the operational implications.