Multiple states already have benchmarks in place, while others have approved limits on price increases.
State caps on how much health systems can charge patients and payers are putting many operators at a disadvantage, according to new data.
The benchmarks instituted by several states could negatively impact revenue and operating margins by nonprofit hospitals during a time when operators are combating rising expenses, a Fitch Ratings report revealed.
Connecticut, Maryland, Massachusetts, Nevada, New Jersey, Oregon, Rhode Island, and Washington have caps on cost increases, which Fitch stated have limited rates and levels of reimbursement. More states are following suit, with Delaware having approved a bill that would cap price increases at 2% over the next two years, while California approved a price growth target of 3% to be phased in over the next five years.
For nonprofit hospitals, expenses have increased year-over-year in the high single digit range over the last several years, with median expense growth overtaking median revenue growth in 2021-22 and 2022-23, Fitch said.
Labor costs can constitute as much as 60% of those expenses and with the job openings rate of 9.6% more than doubling the average from 2010 to 2019, the labor market will continue to put pressure on hospitals.
While all hospitals are dealing with these challenges, nonprofit operators are more constricted in their ability to cut services due to their missions.
One nonprofit health system that's based in a state with cost caps is turning around its finances though.
Thanks to a rising in inpatient volume and reduced length of stay, Renton, Washington-based Providence reported $360.3 million in net income for the first quarter following two years of major losses.
The system also dealt with labor costs, salaries and benefits expenses increasing 4%, but cutting agency contract labor by 42% allowed it to keep expenses manageable.
Jay Asser is the contributing editor for strategy at HealthLeaders.
KEY TAKEAWAYS
Research by Fitch Ratings finds that hospitals are hampered by states instituting caps on price increases due to median expense growth surpassing median revenue growth.
Nonprofits are especially hampered by the benchmarks because their inability to cut services with the same flexibility as their for-profit counterparts.
Labor expenses continue to weigh down hospitals, which is why leaders must focus on reducing contract labor while cutting down on turnover.