How CFOs Are Maintaining Financial Stability Amid 'Woefully Inadequate' Payment Rates

CFOs are considering expanding their outpatient footprint to ward off incessant inflation and inadequate payment rates.

CMS recently released its fiscal year (FY) 2024 inpatient prospective payment system (IPPS) final rule increasing payment rates by a net 3.1%. Overall, this will increase hospital payments by $2.2 billion compared to FY 2023.

The AHA, unsurprisingly, was quick to strike back at the “woefully inadequate” payment rate increase for FY 2024.

In a statement shared with the media, Ashley Thompson, AHA’s senior vice president for public policy analysis and development, said, “The AHA is deeply concerned with CMS’ woefully inadequate inpatient and long-term care hospital payment updates. The agency continues to finalize rate increases that are not commensurate with the near decades-high inflation and increased costs for labor, equipment, drugs and supplies that hospitals across the country are experiencing.”

While a $2.2 billion increase seems significant, hospitals are facing historic financial challenges, meaning CFOs are digging deep to find ways to ensure financial stability.

Most hospitals underperformed in June of this year, even as the median year-to-date operating margin index increased to 1.4%, compared to 0.7% in May.

These challenges highlight the fact that leaders can’t depend on payment rate increases to keep them afloat.

"This 'new normal' is an incredibly challenging environment for hospitals," Erik Swanson, senior vice president of Data and Analytics with Kaufman Hall, said in a press release regarding its market analysis.

"It's time for hospital and health system leaders to begin developing and implementing a strategy for long-term sustainability, including expanding their outpatient footprint and re-evaluating where finite resources are being utilized," Swanson said.

And some CFOs have been planning just that.

The key to warding off challenges caused by rising inflation and poor reimbursement rates is reassessing any plans for growth and major capital, Matthew Arsenault, CFO at Baptist Health South Florida, recently told HealthLeaders.  

“We are in a community and a service area that is growing through people continuously moving into South Florida. So, we want to make sure that we provide care, but deciding which projects happen when and evaluating the cost of those projects and inflationary environment is something that we're constantly doing more of now, and more frequently than we have been historically because of the current inflationary environment,” he said.

When planning growth and investments in order to maintain financial stability, Arsenault said the system looks toward expanding outpatient footprints.

“We've always had a very large outpatient footprint throughout the community, and I think that really served us and our patients well. It's all about how you provide easy access to care for patients, whether it be in a virtual setting, whether it be in an outpatient clinic, or whether it be in an urgent care center,” he said.

Growing and increasing revenue is about continuing to build upon that footprint, Arsenault said. “I think that shift to outpatient is a big part of [financial stability].”