Dext Capital Quarterly Industry Update Q22023

The Fed continues to battle inflation with some success and hospitals are working diligently to improve their financial position by cutting administrative costs, turning to virtual nursing, and reducing travel nurse dependence. Forecasts for hospital recovery in 2023 are mixed but some positive results are being realized.

Hospital Financial Performance Improving

The latest Kaufman Hall National Hospital Flash Report reported some improvement in certain financial metrics for hospitals. Key takeaways include:

1. Hospitals’ operating margins moved back into positive territory in May. However, operating margins continue to stand well below historical norms.

2. People are becoming more comfortable with inpatient care. Discharges, emergency department visits and operating room minutes all climbed, although very modestly on a year-to-date basis.

3. There is a sizeable and growing gap between primary hospital revenue sources. Revenue from outpatient care is increasing at a much greater rate than revenue from inpatient care.

4. Labor expenses are beginning to decline. While labor costs remain significant, expenses in May were well below comparable levels from May 2022.

Virtual Nursing on the Rise

Hospitals across the nation are facing workforce challenges, and a nurse staffing shortage poses one of the biggest threats to care delivery. More than 100,000 nurses exited the U.S. workforce from 2020 to 2021 due to a perfect storm of issues ranging from burnout and job dissatisfaction to competing family obligations and COVID-19-related illness. An aging nurse workforce nearing retirement and student capacity limits in nurse education programs are putting additional pressure on nurse staffing. The American Nurses Association projects that the nursing shortage could reach up to 1.13 million additional nurses needed by 2028. This has produced a domino effect of issues for health systems to address. High costs associated with travel nurses and staff recruitment have been a significant financial strain. Retained staff members often face increased workloads and less favorable nurse-to-patient ratios. Workforce deficits in additional lower-level roles often add tasks to nurses’ plates as well.

Virtual nursing was introduced a couple of decades ago, but it’s getting a fresh look thanks in large part to its successful use during the height of the pandemic. Today, leaders at many health systems are piloting technologies and expanding programs as they work to systematically scale this model. Virtual nursing programs, whether through partnerships with telehealth providers or by using homegrown solutions, enable nurses to work in remote locations. They can observe and answer patients’ questions, speak with family members and ease the burden on bedside nurses by performing tasks that don’t require physical proximity such as handling admissions interviews, discharge instructions and explaining medication instructions.

The program’s platform allows an unprecedented partnership for care between bedside and virtual nurses who share responsibilities for medical-surgical and telemetry units.

The initiative grew out of a need for a nursing model to address the gap between the patients’ acuity and the expertise level of the nurses working in med-surg and telemetry, Sagastume notes. Instead of a consultant-based approach commonly used in electronic intensive care unit models, the virtual nurses are assigned a group of patients for whom they provide care for their shift duration. The virtual nurse leads communication efforts across all team members and consistently evaluates the patient’s progress, responses, clinical data and other aspects of care.

5 Keys for Successful Virtual Nursing Programs

1 | Be inclusive from the start.

Engage clinical staff, information technology (IT), quality assurance and other leaders and invite input throughout program development and implementation.

2 | Allow time for relationship building.

Virtual models require different ways to care for patients and shifts in overall nursing responsibility. Information sharing and building trust among participants is vital and will take time to develop.

3 | Anticipate technological difficulties.

Unplanned occurrences like equipment overloads and shutdowns can happen even with careful IT coordination. Determine early on how you will deal with hiccups.

4 | Don’t be afraid to change workflows.

The best ideas on paper don’t always work in real life.

5 | Make sure buildings have adequate wireless bandwidth.

Otherwise, you may end up continually expanding capacity and building in redundancy to keep up.

Healthcare Employment

An administrative backlog prompted the State Department to announce in its May 2023 bulletin that this year's allotment of EB-3 visas has been exhausted and no applications submitted after June 1, 2022, will be considered until further notice. An EB-3 visa is required for an overseas nurse to work in the United States.

This means hospitals that set out on the 10-month application and approval journey of bringing foreign nurses to work for them in the U.S. are now in a holding pattern with those plans, and thousands of international nurses who have moved through the majority of the process, having passed U.S. licensure exams and English fluency tests, have to wait.

It takes about 10 months from start to finish for a green card application to be processed. The government said hospitals shouldn't expect to see more immigrant nurses until 2025 — and that's assuming the application process reopens in October when the next fiscal year begins and more green cards are made available.

"Immigrants account for disproportionately high shares of essential workers across the U.S. economy," according to the Migration Policy Institute. "Nearly 2.8 million immigrants were employed as health care workers in 2021, accounting for more than 18 percent of the 15.2 million people in the United States in a health-care occupation."

The American Association of International Healthcare Recruitment issued a statement on April 20 saying it expects the green card freeze to throttle the influx of international healthcare talent.

"Visa retrogression amounts to a catastrophic interruption of the stable flow of healthcare talent to the bedside, and it will be felt acutely by ordinary patients, from pregnant mothers to dialysis patients," Patty Jeffrey, RN, president of the AAIHR, said in the statement.

"One in six registered nurses practicing medicine today in the United States is an immigrant. American hospitals, particularly those serving rural populations, would have collapsed long ago without the contributions of international nurses," she said.

340B Lump Sum Payment

340B of the Public Health Service Act (340B) allows participating hospitals and other providers to purchase certain covered outpatient drugs or biologicals (hereinafter referred to collectively as “drugs”) from manufacturers at discounted prices. Prior to 2018, the Medicare payment rate for Part B covered outpatient drugs provided in outpatient hospitals was generally the statutory default of average sales price (ASP) plus 6%. In the CY 2018 OPPS/ASC final rule that was finalized in 2017, CMS adjusted the payment rate for 340B drugs to ASP minus 22.5% to reflect more accurately the actual costs incurred by 340B hospitals when acquiring 340B drugs. This rate applied from CY 2018 through approximately the third quarter of CY 2022. To comply with statutory budget neutrality requirements under the OPPS, CMS made a corresponding increase to payments to all hospitals (340B hospitals and non-340B hospitals) for non-drug items and services, which was in effect from CY 2018 through CY 2022.

On June 15, 2022, the Supreme Court unanimously ruled that the differential payment rates for 340B-acquired drugs were unlawful because, prior to implementing the rates, HHS failed to conduct a survey of hospitals’ acquisition costs under the relevant statute.

On September 28, 2022, the District Court for the District of Columbia vacated the differential payment rates for 340B-acquired drugs going forward. As a result, all CY 2022 claims for 340B-acquired drugs paid on or after September 28, 2022, were paid at the default rate (generally ASP plus 6%).

In the CY 2023 OPPS/ASC final rule, CMS finalized a general payment rate of ASP plus 6% for drugs acquired through the 340B Program, consistent with the agency’s policy for drugs not acquired through the 340B program. As required by statute, CMS implemented a 3.09% reduction to the payment rates for non-drug items and services to achieve budget neutrality for the 340B drug payment rate change for CY 2023. This budget neutrality change ensured the CY 2023 OPPS conversion factor was equivalent to the conversion factor that would have been in place had the 340B drug payment policy never been implemented. In the proposed rule, CMS is proposing to make an additional payment to affected providers for 340B-acquired drugs as a one-time lump sum payment. CMS estimates that for CY 2018 through the approximate third quarter of 2022, certain OPPS 340B providers received $10.5 billion less in 340B drug payments than they would have without the 340B policy. However, many CY 2022 340B drug claims have been processed, or reprocessed through standard claims processing, at the higher default payment rate since the 340B payment policy was vacated on September 27, 2022. As a result, affected 340B providers have already received from Medicare and beneficiaries $1.5 billion of the $10.5 billion that would otherwise have had to be remedied through these reprocessed claims. For the remaining $9 billion owed to affected 340B providers for claims covering CYs 2018 through 2022, CMS is proposing to make a one-time lump-sum payment to each 340B-covered entity hospital that was paid less due to the now-invalidated policy. The proposed rule contains the calculations of the amounts owed to each of the approximately 1,600 affected 340B covered entity hospitals.

Beneficiary copayments make up approximately 20% of the payments affected 340B covered entity hospitals did not receive due to the 340B payment policy. Because CMS plans to structure the remedy as a lump-sum remedy payment, providers would not be able to bill beneficiaries for that cost sharing. To account for that fact and to ensure that affected 340B providers are put in as close to the same position as if the 340B payment policy had never existed, Medicare proposes to account for beneficiary cost sharing within the one-time lump sum payment to affected hospitals. Under this proposal, affected 340B covered entity hospitals may not bill beneficiaries for coinsurance on remedy payments.

As part of this proposed remedy, CMS proposes to maintain budget neutrality as required by statute. As described above, CMS finalized the 340B policy for CY 2018 in 2017 in a budget neutral manner that included increasing payments for non-drug items and services; this payment increase was in effect from CY 2018 through CY 2022. CMS estimates that hospitals were paid $7.8 billion more for non-drug items and services during this time period than they would have been paid in the absence of the 340B payment policy. Because CMS is now making additional payments to affected 340B covered entity hospitals to pay them what they would have been paid had the 340B policy never been implemented, CMS proposes to make a corresponding offset to maintain budget neutrality as if the 340B payment policy had never been in effect. To carry out this required $7.8 billion budget neutrality adjustment, CMS is proposing to reduce future non-drug item and service payments by adjusting the OPPS conversion factor by minus 0.5% starting in CY 2025. CMS proposes to continue making this adjustment until the full $7.8 billion is offset, which CMS estimates to be 16 years.

Nurse Pay Rose 8.5% in 2022

All nursing positions saw an average increase of 8.5 percent in median total compensation from 2021 to 2022, according to the latest MGMA report. The "MGMA Datadive Management and Staff Compensation Data Report" reported on compensation benchmarks for positions ranging from C-suite to frontline. The report includes data on more than 157,000 management and staff positions from more than 2,940 organizations.

Here are seven more key takeaways:

? The average compensation for nurses has increased 19.37 percent since 2018.

? Five-year compensation trends were highest for certified nursing assistants at a 27.67 percent increase.

? Licensed practical nurses saw a pay increase of 18.7 percent from 2021 to 2022.

? Registered nurses and triage nurses saw hourly rates climb by $5.80 and $5.72, respectively, from 2021 to 2022.

? Registered nurses with 21 or more years of experience earned about $27,500 more than nurses with five years or less of experience.

? Recruitment and retention remained top challenges for organizations.

? Formalized diversity recruitment programs have not gained significant traction during the pandemic or the labor crisis.

Other Items:

? The average weekly travel nurse pay in June in the U.S. was $2,466, down 8.56 percent from $2,697 during the same month in 2022, according to a report from Vivian Health, a national healthcare hiring marketplace. Month over month, average weekly travel nurse pay decreased 0.89 percent, from $2,488.38 in May to $2,466.27 in June, the report found.

? Amazon is also discounting healthcare for Prime Day. The online retailer is selling discounted memberships for its healthcare company One Medical as part of the annual sales event. Amazon bought One Medical in February for $3.9 billion, giving the Big Tech company big inroads into healthcare. The primary care chain has more than 200 clinics across the United States. The Prime Day memberships are part of a trend toward "sales" in healthcare, whether on Black Friday or through tech companies. These events could become even more attractive as patients face an affordability crisis with insurance premium hikes expected to lag inflation. Through July 12, Prime members can get their first year's membership to One Medical for $144 a year, Amazon said July 6. That's a 28 percent savings over the typical annual rate of $199. The memberships give patients 24/7 access to virtual care, online appointment scheduling and prescription renewals.

? Albany, N.Y.-based St. Peter's Health Partners will no longer hire travel nurses who live within a 50-mile radius of their workplace, according to local CBS affiliate WRGB. The high pay for nurses working as travel staff is unsustainable for the health system, according to Steven Hanks, MD, president and CEO of Trinity Health New York, which includes St. Peter's. He told WRGB the extra compensation has strayed from its original purpose. "What we're experiencing in the post-pandemic period is that our travel staff are more likely to not be actually traveling, and instead are moving over from neighboring facilities in order to take advantage of the enhanced rates," Dr. Hanks told the news station. "That's not what the rates were designed for," Dr. Hanks continued. "They were meant to be paid during the exceptional circumstances where you have no other choice but to hire labor from outside the market. Having travel staff who aren't actually traveling work alongside our colleagues at a higher rate of pay causes resentment among co-workers and is not financially sustainable for our health system."

? Many workers desire the ability to work remotely, even if they only get the option a few days a week. Flexibility allows people to maintain the work-life balance some developed during the pandemic — and in a high-burnout field like healthcare, balance can be crucial. But how much off-site work can be done by healthcare practitioners, many of whom are required to care for patients in person? As it turns out, a fair amount of healthcare workers work remotely — both in support roles and technical, practitioner jobs, according to recent data from McKinsey & Co. The firm's third edition American Opportunity Survey questioned 25,000 U.S. workers, including those in the healthcare industry. Forty-five percent of healthcare support employees work remotely, according to the survey. Thirty-one percent do so full time, and 14 percent do so part time, averaging 2.8 remote work days per week. Forty-three percent of healthcare practitioners and technical workers surveyed said they work remotely at least sometimes. Twenty-seven percent do so full time and 16 percent do so part time, averaging 2.6 remote work days per week. Healthcare professions were still on the lower end of remote work options compared to other occupations. On the upper side of the spectrum, 89 percent of computer and mathematical workers, 86 percent of business and financial workers, and 82 percent of architectural and engineering workers said they work remotely at least sometimes.

Things I’m monitoring during 3Q23:

? Hospital sector financials for 2Q23

? Inflation battle

? Macroeconomic conditions

Scott Eshleman, MBA

Chief Risk Officer

Dext Capital

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