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As Prices Rise, Hospitals Suffer At Old Pay Rate

4 min read

Through the first five months of this year, Conway Regional Medical Center has a $2.4 million loss. And its financial health is expected to worsen if government and commercial health insurance companies don’t increase their reimbursements for services.

“Everything has gone up exponentially, and we have no ability to increase the rates to reflect the increased costs,” said Matt Troup, president and chief executive officer of Conway Regional Health System, which has about a 180-bed hospital.

Troup said he is in talks with payers to increase their reimbursement rates to the health system.

Typically, Conway Regional hasn’t negotiated contracts with payers on an annual basis. “Contracts get updated every now and then, but by and large our contracts, and the payment structure for each of those contracts, really hasn’t changed much in the last several years,” Troup said. “But we’ve never had this much of a fundamental ground shift in costs. And so we’re … early in getting payers to recognize this and to increase their payment rates.”

Arkansas Blue Cross & Blue Shield, the largest health insurer in Arkansas, said it realizes its hospitals have been facing rising costs.

Over the last several months, ABCBS has been visiting with providers and the customers it serves about how the ongoing pandemic and inflation have affected their businesses, said Max Greenwood, the Little Rock health insurer’s vice president for government and media affairs.

Some providers have told ABCBS that the use of their services has also dropped significantly during the past several months, adding to the strain on their bottom line, she said. But ABCBS claims data does not show a reduction in use among its customers, she said.

“At this time, we are continuing talking with hospitals and providers but are also mindful of the importance to our customers of healthcare affordability and competitive pricing,” she said via email. “We hope those discussions will lead to a result that will benefit the entire healthcare system.”

But Troup said the current reimbursement structure isn’t sustainable.

“We’re dealing with a long-term, fundamental change in the cost of health care,” he said. “And so the only way that’s going to be fixed is if all payers, commercial and governmental, reassess what they’re paying hospitals to reflect a significant increase in costs.”

Troup said he doesn’t forecast the hospital’s expenses falling to pre-pandemic levels. “And yet, payers, by and large, are still paying based upon that pre-pandemic model,” he said.

Without an increase in reimbursement rates, Conway Regional will lose money “which is going to ultimately impact our ability to reinvest in capital and other things in the long term, if we don’t address it in the near term.”

Troup said the hospital’s loss through the first five months of this year would have been about $10 million if it hadn’t received $7.6 million in government funds.

And Conway Regional isn’t alone in its financial struggles. CHI St. Vincent CEO Chad Aduddell described similar challenges in a May 23 Arkansas Business story. Nationwide, hospitals’ “margins are cumulatively negative. While some metrics have normalized, hospitals continue to perform below pre-pandemic levels, and there is an uncertain outlook for the rest of the year,” according to a June report from Kaufman Hall of Chicago, which advises health care and higher education organizations and collects data from more than 900 U.S. hospitals.

It also said that total expenses continued to climb in May, rising 1.1% from April and 10.7% from May 2021. Inflation and labor shortages contributed to total costs rising 10.4% from Jan. 1 through May 31, the report said.

Troup said that at Conway Regional the average hourly rate for nurses is up more than 20% from pre-pandemic levels.

“Add to that, we now pay a lot more in incentives to get nurses to work shifts because they’re harder and harder to fill,” he said.

The nurse vacancy rate has gone from just under 7% before the pandemic to 13.1% last week. And the average time to fill a job has gone from about 50 days to 130 days.

Troup said that at this time Conway Regional isn’t considering layoffs.

“We will watch that closely,” he said. “We may be in that situation if things don’t improve by year-end, but it’s something that we’re doing everything we can to avoid.”

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