Q2 2023 RCM Insights

Quarterly Insights

Revenue cycle remains square in the crosshairs of regulators.  

The revenue cycle management vertical experienced a decline in M&A deal volume but an increase in transaction count in the second quarter of 2023 relative to the first quarter. This was led predominantly by smaller transactions and some capital raises in the revenue cycle ecosystem. With the recent CFPB hearing regarding medical billing and collections, the regulatory crosshairs seem to be firmly pointed on clearing up some key issues that the CFPB identified, including but not limited to: removing deferred interest rates on medical credit cards, eliminating advancing fees prior to delivery of service, increasing financial policy requirements, not allowing for care denial (more on this below), and removing medical debt from consumer credit reports. All of these policies will certainly impact companies participating in the revenue cycle vertical and will increase costs associated with compliance. CAS will continue to closely monitor the CFPB and their remarks.  

According to the latest Milliman Medical Index (MMI) report, healthcare costs for Americans are rising again after a slowdown and even a decrease during the COVID-19 pandemic. The report, based on 2021 healthcare claims data projected to 2023, reveals that the cost for a hypothetical American family of four covered by an average employer-sponsored preferred provider organization (PPO) plan is now $31,065. The average cost per person reached $7,221. The MMI, which has been estimating annual healthcare costs for a hypothetical family since 2005, highlights the continuous upward trend in healthcare costs for families and similar households. This year, such costs increased by 5.6 percent, and the annual increase since 2021 has been 4.8 percent This represents a return to the pre-pandemic status quo and a resumption of the persistent climb in family healthcare costs. The report notes that this year’s MMI is substantially affected by inflation, as general inflation in the United States reached its highest levels in about four decades, though it appears that may be behind us. Since medical inflation typically responds to general inflation with a lag of six to twelve months, high inflation levels are expected to further boost healthcare costs. Several macroeconomic factors contribute to the current rise in healthcare costs, including a strong labor market leading to increased churn in the employer-sponsored market and ongoing healthcare supply chain issues. Provider labor shortages have also driven up expenses for hospitals and practices. Efforts to increase healthcare price transparency could potentially help reduce costs for Americans. The report suggests that organizations equipped with provider-specific reimbursement rates and standard healthcare charges could leverage the data to bring down healthcare costs. Empowering plan participants with actionable price and quality information would enable them to make informed decisions about their care and possibly lead to better outcomes at lower costs. Be that as it may, the report cautions that achieving lower healthcare costs through price transparency will take time, no matter how hard the government agencies push. While the use of standard pricing data is in its early stages, it will require payers and providers to determine the most practical ways to utilize the data for price negotiations. Moreover, the vast amount of healthcare pricing data, due to federal requirements like the 2021 hospital price transparency rule, presents challenges in interpreting and utilizing the information effectively. Looking ahead, healthcare costs for families and individuals may experience downward pressure because of healthcare price transparency. Hospitals and payers are now required to publish their negotiated reimbursement rates, which has the potential to drive systemic change in market dynamics, particularly for employers who can leverage the data to reduce costs. RCM industry participants that can help in leveraging data or reducing costs will be the long-term winners.   

According to a June 9 report by The New York Times, Allina Health, a healthcare system based in Minneapolis, has reversed its policy of denying care to certain patients with medical debt. The CEO of Allina Health, Lisa Shannon, described this change as a “thoughtful pause” while the health system reviews the policy. Previously, Allina Health confirmed that it would deny nonemergency services to patients who had at least $1,500 of unpaid debt on three separate occasions. However, this practice is not exclusive to Allina Health. The Lown Institute has stated that 55 hospitals allow the denial of nonemergency care for patients with medical debt, and 22 hospitals said that while the practice is permitted, it is not currently being implemented. Minnesota Attorney General Keith Ellison has urged affected patients to reach out if they have been impacted by Allina Health’s policies. He emphasized that Allina Health, like all hospitals in Minnesota, is obligated under the Hospital Agreement to avoid aggressive billing practices and provide charity care to patients who need and qualify for it. This is the exact type of press hospital/revenue cycle providers wish to avoid, but sadly, it reflects the current state of the healthcare environment today.  

According to Kaufman Hall’s “National Flash Hospital Report,” hospital finances showed signs of stabilization in May. The median year-to-date operating margin index increased to 0.3 percent, up from 0.1 percent in the previous months of April and March. Although this indicates a slight improvement, operating margins remain significantly below historical norms. Labor costs saw some downward pressure and were lower compared to May 2022 – though they still remain a considerable expense for hospitals. Revenue from outpatient care continued to grow at a higher rate in contrast to revenue from inpatient care, which led to more complexity around the revenue cycle and getting paid. While hospitals may no longer be experiencing the surge in demand for inpatient services that followed the pandemic, patients are showing increased comfort with receiving care in hospital settings. This suggests a shift toward a “new normal,” where margins slowly increase but may not reach pre-pandemic levels without reevaluating how and where care is delivered. These findings highlight the ongoing challenges and changes faced by hospitals, as they navigate the evolving healthcare landscape and seek to optimize their financial performance. In a true sign of rebound, hospital and health systems M&A rebounded to pre-pandemic levels in Q2 2023 

Deals to Highlight: 

Advanced Hospice Management (AHM) acquired Healthcare Management & Billing Service (HCMBS) 

TA Associates acquired Alpha II  

Aspirion acquired Firm RCM  

Med Metrix acquired Tritech Healthcare Management  

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