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Losing Money, Some Arkansas Hospitals Face Closure

4 min read

As Arkansas hospitals continue to struggle financially some are in danger of closing, according to Bo Ryall, president and CEO of the Arkansas Hospital Association. But there might be some temporary financial relief. 

The Arkansas Department of Human Services has proposed using $60 million of the state’s American Rescue Plan Act money for hospitals that are “in immediate jeopardy of closing,” Ryall told Arkansas Business last week. 

He said the money infusion would help. “And hopefully we will not see any closures, but … a lot of hospitals are having problems.” The hospitals’ financial health isn’t expected to improve if government and commercial health insurance companies don’t increase their reimbursements for services, he said. 

Hospitals responding to an AHA survey conducted in June and July reported an average margin decrease of 3.5 percentage points between the first quarter of 2019 and the first quarter of this year. And 52% of the hospitals that responded were operating at a loss, Ryall said. 

AHA received 42 responses representing 54 facilities of all hospital types, sizes and regions in the state. 

“A few facilities known to be at very high financial risk did not respond, and so our results may be on the conservative side, under-representing the magnitude of the current situation,” Melanie E. Thomasson, AHA’s vice president of data and financial policy, said in an email to Arkansas Business.

Hospitals and health systems nationwide are also struggling. They saw drops in outpatient revenue. There were increases in inpatient lengths of stay from June to July 2022, leading to a drop in financial performance after months of improvement, according to an Aug. 29 news release from Kaufman Hall of Chicago, which advises health care and higher education organizations and collects data from more than 900 American hospitals.

The report said that outpatient volumes fell in July. But the average length of stay rose 2% from June 2022 and 3.4% from July 2021, a sign that hospitals are treating sicker patients, the release said. 

“July was a disappointing month for hospitals and put 2022 on pace to be the worst financial year hospitals have experienced in a long time,” Erik Swanson, a senior vice president of data and analytics with Kaufman Hall, said in the news release. “Over the past few years, hospitals and health systems have been able to offset some financial hardship with federal support, but those funding sources have dried up, and hospitals’ bottom lines remain in the red.”

Another financial burden on hospitals is linked to the money they borrowed at the beginning of COVID through the Centers for Medicare & Medicaid Services’ Accelerated & Advance Payments Program. “Those advanced payments are now due,” he said. CMS is recouping the money through a hospital’s regular Medicare payments. 

Still, the smaller hospitals seem to be faring a little better financially, he said, although “they’re not well-off by any means.”

The independent, mid-size hospitals that aren’t part of a large system are “really struggling right now,” he said.

Money that hospitals received from government stimulus funds has been spent. “The advance payments are a burden, and they really don’t have the reserves as some of the big systems have to make it through these hard times,” Ryall said.

Over the last several years, hospitals have combed through their expenses searching for ways to reduce costs.

Hospitals’ biggest expense is labor, the cost of which has risen during the pandemic because of increased costs for travel nurses and higher salaries for other health care workers.

To reduce expenses hospitals could cut services or staff fewer hospital beds, he said. “So it’s really concerning that we’re having to go through this right now.” 

Ryall said that hospitals will need payment reforms with Medicare on the federal level and Medicaid on the state level and that commercial insurance contracts have to be renegotiated. 

The American Hospital Association said that hospitals experienced a 8.5% margin loss on Medicare services in 2020, and projects that margin will fall to negative 9% this year. Combined underpayments from Medicare and Medicaid to hospitals were $100 billion in 2020, up from $76 billion in 2019, the AHA said on its website. 

“It can’t just be one payer,” Ryall said. “It has to be Medicare, Medicaid and commercial insurance have to look at their payment structures and help hospitals move forward.”

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