Why Are Hospitals Losing Millions?

Dawn Pascale

Why Are Hospitals Losing Millions?

While the utilization of healthcare by patients is very high in the United States, hospitals are losing millions of dollars a year. Some of the nation’s largest hospitals are experiencing record declines in their operating revenues. Large healthcare organizations such as Partners HealthCare, based in New England, lost $108 million in 2017, and the Cleveland Clinic saw a 71 percent decline in income. So, why, with such high patient volume and demand, are hospitals still losing money?

Vanishing Income: The Top 4 Reasons Hospitals Are Losing Money

1. Highly Expensive Medical Equipment

Elite medical equipment can be a vital asset in the practice of medicine, but it comes at a cost. In 2016, hospitals spent $93 billion per year on medical equipment lifecycle costs (MELC), which includes all related activities such as purchase, service, and disposition of the equipment. It is estimated that hospitals are missing savings as high as 12–16 percent of their MELC costs due to the lack of both internal resources and specialized expertise.

2. Reduced Reimbursements and Uncompensated Care

While American health systems are treating more patients, in many cases they are getting paid less per patient than ever before. In Massachusetts, hospital systems saw the government limit the annual growth in healthcare spending to 3.6 percent in 2017. Moreover, in 2018 the growth rate is projected to drop to 3.1 percent.

Another hit to many hospital budgets comes in the form of uncompensated care. Uncompensated care are services that have been used by patients, but the cost of this care will never be repaid. For example, Advocate Health Care, an Illinois-based network saw its uncollectable accounts increase more than 22 percent in 2016, to $269.5 million or about 5 percent of its overall revenue. Much of this uncompensated care can be attributed to high deductible health plans which put more financial responsibility on patients who find themselves simply unable to foot the bill.

3. “Rock Star” Specialists Performing Complex Procedures

Many hospitals and health systems are recognized for their world-renowned physicians who perform complex procedures. While this prestige can be helpful for marketing and fundraising efforts, it does not come cheap. Not only do these physician “rock stars” command high salaries, but their complex procedures can also have very diminishing value.

4. Electronic Health Records (EHRs)

EHRs can be both a blessing and a curse. EHRs can improve patient care and safety, but they can also put a significant dent in hospital budgets. For example, MD Anderson, a leading comprehensive cancer center, attributed a 77 percent drop in adjusted income due to EHRs. This loss was caused by “a decrease in patient revenues as a result of the implementation of the new Epic Electronic Health Record system.”

Moving Forward

Hospitals are losing millions every year while treating large volumes of patients. These lost dollars are a result of many factors, including expensive medical equipment and “rock star” physicians. Going forward, hospitals will continue to struggle as these factors are projected only to worsen. For hospitals and health systems, winning the battle against this loss of revenue will be a constant, and organizations should not only plan for this situation, but also develop strategies to “cure” these ills.

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