New Jersey Rep. Bill Pascrell wants federal health regulators to investigate the nation’s largest for-profit hospital operator.

The Democrat sent a letter to HHS Secretary Xavier Becerra this week urging him to launch an inquiry into HCA Healthcare’s emergency department admissions and alleging misconduct.

Pascrell, who is also the chairman of the House Ways and Mean Committee’s subcommittee on oversight, alleged that HCA admissions from the emergency room are not always out of medical necessity.

He claimed HCA sets admissions targets and retaliates against clinicians if those targets are not met.

“Recent reports of systematic, unnecessary inpatient admissions intended to raise more profitable reimbursement rates, in addition to severe understaffing issues, raise disturbing questions about HCA’s corporate policies and practices,” Pascrell said in his letter.

HCA said similar allegations were raised previously by an investment group. The health system responded to those claims in March of last year and after a thorough review and “found nothing to suggest that ER or medical-staff physicians admit patients to our hospitals based upon anything other than their independent medical judgment,” according to a U.S. Securities and Exchange Commission filing.    

The health system said it is reviewing the Congressman’s letter and will respond to his requests for information, according to a statement provided to Healthcare Dive.

HCA reported a profit of about $7 billion in 2021, an increase from $3.8 billion the year prior, according to the health system’s annual filing with the SEC. Admissions for the Nashville-based system were up 4.8% in 2021 from the prior year when comparing the same facilities year over year, excluding those that were divested or acquired.

Dive Brief:

• Hospitals are likely to lose “billions of dollars” due to continued depressed margins and heightened labor costs, according to a report Thursday prepared for the American Hospital Association by Kaufman Hall.
• Even in the report’s optimistic model, more than half of all hospitals could end the year with negative margins, driven by an overall expected $135 billion increase in expenses this year and an $86 billion rise in labor costs alone.
• Hospitals are “sending up a distress flare about our ability to provide the care and services our communities need and depend on and the future of healthcare in this country,” said Michael Slubowski, president and CEO of Michigan-based Trinity Health, on a Thursday call with the AHA and Kaufman Hall.

Dive Insight:

Hospitals have faced continued depressed margins and steep financial losses this year as systems face significant labor shortages, increased expenses and sicker patients.

And, more than two years out from the onset of the COVID-19 pandemic, there looks to be no financial relief in sight for hospitals in 2022. The report’s most optimistic projections still has hospitals operating at margins 37% below pre-pandemic levels, with pessimistic projections falling to an overall margin decrease of 102%.

Labor expenses, driven by a record increase in physician and nursing burnout, are further squeezing hospitals. Slubowski reported that Trinity Health’s 92-hospital system had a never-before-seen healthcare worker shortage, with 3,900 vacant registered nurse positions at the system and a vacancy rate of 14% for its critical support staff.

Labor shortages are leading to delayed care at Trinity, including eight-hour emergency department waiting room times, patients scheduling specialty visits half-a-year in advance and significant backlogs in imaging and diagnostic services.

Some of the overall hospital labor expenses are due to a rise in contracted labor costs, which is likely to continue squeezing hospitals, but slow down over the rest of the year, according to the report. Contract labor prices are nearly 500% higher now compared to pre-pandemic levels.

Rural hospitals in particular are struggling this year, with the AHA reporting last week that rural hospitals faced a ”precarious” outlook due to rising expenses.

Peggy Abbott, CEO of Arkansas-based Ouachita County Medical Center, said on the call her rural system was “bleeding red” and struggling to survive.

The center was forced to close a rural health clinic that had been operating for 25 years in a small, impoverished community 20 miles away from the closest hospital due to financial losses, jeopardizing care access for vulnerable patients.

“When we see major system hospitals the posting losses that we are seeing year to date, that should sound the alarm among the powers that be,” Abbott said. “If something isn’t done to put a more equitable ratio between the operating cost of a hospital and the reimbursements that we receive, it could literally be the collapse of the healthcare system in America as we currently know it.”

Jack Lynch, president and CEO of Pennsylvania-based Main Line Health, called his system’s expenses and financial losses “unsustainable,” adding that the losses were exaggerated by “decades of underfunding” from the government and inadequate rate increases from commercial payers, especially due to inflation. 

Non-labor expenses are also expected to rise, with supply costs expected to rise $11 billion this year, primarily due to inflation. Drug prices are also expected to rise by $1 billion, according to the report.

While the price of groceries, energy and other goods and services have surged alongside record-high inflation this year, the healthcare sector has been mostly immune to immediate price increases. That immunity is starting to wane, industry experts say.

Overall U.S. consumer prices climbed 8.5% in July from a year prior as the consumer price index hit a four-decade high, but medical care expenses increased just 4.8% in the same period, according to a tracker from the Kaiser Family Foundation and Peterson Center. 

That’s due to the unique way the industry operates, as hospitals and doctors provide care then get reimbursed from insurers. Payers set rates prospectively, meaning it will take years for high inflation to be fully reflected in healthcare costs.

Still, that expected lag already is strapping providers financially with heightened expenses they’re not yet able to recoup.

Providers are the first part of the industry to face the impacts of inflation as they spend more on supplies, equipment and labor. 

Labor expenses have been a recurring obstacle throughout the pandemic as burned-out staff have quit their jobs to take higher-paying traveling roles or retire, spurring widespread recruitment and retention issues.

“Whether you’re a private practice or hospital group, you’re competing with each other for employees,” said Scott Hines, chief quality officer at Crystal Run Health, a physician-owned multispecialty group with 17 practice sites located in New York’s lower Hudson Valley.

Despite boosting salaries, shortages of MRI and ultrasound technicians caused Hines’ group to shut down imaging services at certain sites for days at a time over the summer, he said.

“Then you add on to that the cost of everything from test tubes to medications to office supplies are all going up,” he said.

On a recent weekend the group was forced to shut an urgent care site because of a lack of staff.

Payer, provider contracts

Once providers are more adequately reimbursed, payers will attempt to pass cost increases onto employers and consumers, potentially making medical coverage more expensive, according to industry observers.

“But that is really the big question — how much of that cost can get transferred on, and how quickly can that happen,” said Eric Jordahl, managing director at healthcare management and consulting firm Kaufman Hall. 

Because payers set rates prospectively, it can take years for renegotiated contracts to more fully reflect inflation costs in healthcare. In addition, because providers set multiyear contracts, they aren’t able to quickly change the rate that insurers pay them back.

Contracts between providers and commercial payers typically last three years, meaning it will take about that time for all existing contracts to be renegotiated, according to Aneesh Krishna, a partner at consulting firm Mckinsey.

Commercial payers historically agree to 2% to 3% rate increases, though jumps between 4% and 5% could happen in new contracts, Krishna said.

While contracts expire and payers slowly adjust rates, insurers will attempt to pass some of those cost increases on to employers and consumers and they’ve already started to do so, Krishna added.

However, some hospitals already are struggling to negotiate higher contract rates with insurers.

Mike Slubowski, COO and president of Trinity Health, an 88-hospital nonprofit system spanning 25 states, said on a call Sept. 15 with the American Hospital Association that payers aren’t factoring inflation and labor shortage costs into contracts. 

“We’re a large system and we’re getting 2% to 3%,” Slubowski said. “And some of those contracts have been locked in for a few years and they won’t reopen them.”

Dive Brief:

• About 63% of physicians surveyed experienced at least one manifestation of burnout in 2021, shooting up from 38% in 2020 and representing the highest amount in a decade of recurring survey findings, according to an article published this week in Mayo Clinic Proceedings.
• Mean scores for emotional exhaustion and depersonalization were higher in 2021 while satisfaction with work-life balance dropped. Meanwhile, depression scores were relatively stable, “suggesting the increase in physician distress in this interval was primarily due to increased work-related distress,” the authors wrote.
• The findings suggest that women have been more affected by burnout during COVID-19, the authors said, also noting the results come against a backdrop of other stressors like gun violence, economic concerns and child care hurdles.

Dive Insight:

Provider burnout was rampant before the COVID-19 pandemic, but multiple studies have shown the crisis is exacerbating the issues as physicians and nurses have had to face increased risk of harassment and violence on the job as well as staffing shortages.

In a May advisory addressing burnout, U.S. Surgeon General Vivek Murthy wrote, “Today, when I visit a hospital, clinic, or health department and ask staff how they’re doing, many tell me they feel exhausted, helpless, and heartbroken.”

The advisory called on healthcare employers and the broader community to ensure providers have access to mental health care without punitive policies, reduce administrative burden and protect worker safety through adequate personal protective equipment and steps to reduce workplace violence.

The Biden administration has used funds from the American Rescue Plan to address provider burnout and has pledged grant funding for health systems to tackle the problem.

Burnout can push providers to leave the profession or retire early, and has multiple other complications for health systems and clinics.

The study’s authors said burnout affects “quality of care, medical errors, reductions in clinical work effort, turnover, departure from practice, and healthcare costs,” adding the findings “have potentially critical implications for the US healthcare delivery system.”

Name: Warner Thomas

Previous title: Chief executive officer and president, Ochsner Health

New title: Chief executive officer and president, Sutter Health

Effective Dec. 1, Thomas will take the helm of Sacramento, California-based Sutter Health, becoming the system’s first external CEO in more than 40 years, according to a press release.

Thomas joins Sutter from Louisiana-based Ochsner Health, where he led the system’s 40 hospitals and more than 300 urgent care and health centers for a decade.

He was Ochsner’s first non-physician CEO and was responsible for launching the system’s think tank and health incubator, InnovationOchsner, which focuses on analytics and digital health.

Thomas’ appointment comes as non-profits across the country report poor financial performance as labor costs rise and patient volumes remain depressed. Sutter Health posted a $457 million net loss in its second quarter this year compared to a $636 million net gain a year ago. Last month, Fitch Ratings downgraded its non-profit financial outlook to “deteriorating.”

Prior to his role at Ochsner, Thomas was president of Foundation Medical Partners.

He will succeed James Conforti, Sutter Health’s chief operating officer, who has served as the system’s interim CEO since January.

Advocate Aurora and Atrium Health’s merger plans hit a road block on Tuesday, threatening to delay the creation of a $27 billion health system, which would make it one of the nation’s largest nonprofit systems.

Illinois state health regulators will reconsider Advocate-Atrium’s application after initially voting against the application that sought a change in ownership, a step in the regulatory process needed to complete the deal.

Members of the Illinois Health Facilities and Services Review Board voted 3-2 against the application on Tuesday in suburban Chicago. One member abstained.

However, later in the meeting, the board allowed a motion to reconsider, deferring the application to be considered at a later date.

“They felt like they didn’t have what they needed to make an informed decision,” John Kniery, administrator for the board told Healthcare Dive after Tuesday’s meeting.

Advocate Aurora Health said it was surprised by the decision to delay.

State law requires the board to approve exemption applications that are deemed complete, Advocate said in a statement. “Our application was deemed complete last month, thus, we were surprised by today’s delay and will work with the Review Board to address their questions.”

In the state of Illinois, certain healthcare projects require a permit or exemption to proceed, according to the Illinois Health Facilities and Services Review Board.

Advocate and Atrium were seeking an exemption, which is required for closures, a discontinuation of services or a change in ownership.

The Advocate-Atrium deal required the parties to obtain an exemption because the deal constitutes a change in control, Kniery told Healthcare Dive. The staff report on the deal explains that it is “considered a change of 50% or more of the voting members” of the board.  

The board change triggered the need for the exemption application.

Advocate has said that the deal with Atrium will not result in “any change of ownership as assets will remain within each respective organization and state.”

Kniery maintained it “clearly was a change of control being proposed.” This is causing the confusion for board members, Kniery said, who added that neither the board nor staff have seen the agreement between Advocate and Atrium.

“First, it has been clear that there will be no change in assets. However, yes, it is fair to say some of the questions the board is seeking is around the change in control … what does control look like,” Kniery said.

Advocate and Atrium are proposing to create a new corporate entity, Advocate Health Inc.

The two systems will then delegate “certain operational functions” to the new entity through a joint operating agreement. The new entity will not be considered a parent company and ownership of existing facilities will remain with the current corporate entities, according to the staff report. The staff reports notes that the board has not received a copy of the joint operating agreement.

The new entity, Advocate Health Inc. will have 20 board members, with 10 designated by each system.

The transaction is expected to be complete by Sept. 30, according to the staff report. However, it’s unclear when the board will reconsider the application.

“Obviously, we don’t want to hold it up any more than it has to be,” Kniery said.

In Illinois, Advocate Aurora owns and operates 10 healthcare facilities, nine hospitals and one ambulatory surgery center.