Florence Nightingale as Economic Indicator?
Today’s Wall Street Journal puts an atypical spin on the economic weakness in the U.S. financial markets: an anemic economy means a boon for the nursing profession. The reports of new entrants to the nursing workforce, as well as reverse migrations from professionals who may have left the field in recent years, should be warmly received by hospitals that rely on qualified caregivers to staff their facilities as well as to the patients they will ultimately serve.
Some of the data the Journal uses to support its claims appears sound. According to the U.S. Department of Labor, the economy lost 20,000 jobs in April, but healthcare employment increased by 37,000 jobs and has shown a net gain of 365,000 positions in the last year. It should be noted, of course, that not all of those 37,000 jobs were nursing-related, so perhaps it would be more accurate to say that some of the “sound data” the Journal uses to support its argument is actually sound.
And it’s really on the level of argument where the analysis inaccurately diagnoses causes and symptoms.
The article begins with an apparently benign claim: “With house prices falling and the cost of gasoline and food rising, many nurses are going back to work, in some cases to make up for the income of a spouse who has lost a job.” The article later quotes Vanderbilt University academic Peter Buerhaus who notes: “In bust periods, unemployment is rising, which means there is a lot of pressure on married RNs to be working." Both of these assertions may be true of the nursing field. They are also generic descriptors of financial pressures that face countless U.S. households today, regardless of whether a wage earner works in the healthcare field at all. Might not the two sentiments above be more concisely summarized: in tough economic times, more families need two people to bring home the bacon? Or: if the sole breadwinner in a family loses his or her job and cannot find work, someone else needs to fill that void.
The more tenuous claim comes when the Journal posits that nursing is a type of reverse economic indicator. In recessionary-esque periods, the rolls of full-time nurses grew at an annual average rate of 3.5 percent. In rosier times, that growth rate averaged only 2.4 percent. These statistics, taken from Buerhaus’ analysis of the nursing workforce, are surely measurable. But is a 1.1 percent spread between champagne & caviar and bread & water really significant enough to declare nursing an economic indicator?
The article’s conclusion, to the detriment of the Journal’s argument, neatly answers that question. Its final paragraph reads: “But over the long term the nursing shortage is expected to continue and eventually worsen, as retiring baby boomers ramp up demand for care. In their book, Messrs. Buerhaus, Staiger and Auerbach use Census data to project that the nursing work force will plateau in 2015. By 2025, they estimate there will be a shortage of almost 500,000 nurses, representing a vacancy rate of 40% or higher.”
These forecasts are ominous. But they also exist in a vacuum outside of any reliable macroeconomic predictions for the U.S. economy writ large. In other words, the coming nursing shortage—and corollary employment growth rates—will unfold regardless of whether the U.S. economy heads north or south. Either that—or Buerhaus and friends’ calculations are false.
So is the new class of Florence Nightingales a useful economic indicator? Perhaps. But so then, too, is the new class of Flos. You remember Flo. All Polly Holliday twang and sass on the TV series Alice. Well kiss my grits.
Update on Healthcare Collections from the March for Success Conference
In mid-April, Michael Lamm and I headed to Las Vegas for ACA’s 2008 March for Success healthcare conference. It was nice to escape the dreary and cold Washington D.C. weather and replace it with the sunny skies and low humidity of beautiful Las Vegas.
What we really liked about this intimate and focused show (versus some of the larger healthcare conferences) is that instead of being herded around with masses of people, attendees had the opportunity to hold meaningful networking conversations and to attend educational sessions with relevant content. Kudos to the ACA for keeping this conference off the Vegas strip for the second year in a row to encourage conference participants to remain at the hotel for networking and sessions.
Michael Lamm’s Thoughts:
It was evident from my conversations that many healthcare agencies had experienced record liquidation results in Q1 compared to previous quarters despite the market volatility. However, those with hospital clients in hard-hit subprime-prone states like California, Florida, Ohio, and Michigan said that they were definitely seeing an impact on liquidation results.
Many attendees asked me if we expect M&A to continue to be active in the healthcare arena like we saw in 2007, and the answer is definitely, yes! We expect continued interest from private equity-backed medical collection agencies looking for add-on acquisitions, financial buyers looking for platforms, and strategic buyers looking to expand their services through meaningful acquisitions.
Michael Klozotsky’s Thoughts:
In this presidential election year, voters’ concerns about rising healthcare costs and the need for healthcare reform have garnered considerable attention. The reality, however, is that any material effects of reform efforts in Washington will take years to be felt by consumers, healthcare providers, or accounts receivable management companies—if the occur at all. In addition, the hypothesis that individual states would act more quickly than the federal government to adopt universal coverage legislation has been largely stymied by generally deteriorating economic conditions that have pushed healthcare coverage reform to the back burner.
That said, for healthcare collection agencies, debt buyers, and collection law firms, especially those that serve clients in more than one state, the complex array of state laws related to medical debt can be daunting, For example:
In Connecticut: patients with medical debt must be assessed for charity care eligibility. And healthcare creditors and their agency partners may not collect more than the cost of services from uninsured consumers.
In California: Medical debts cannot be reported to credit bureaus until a 150 day waiting period has expired. No interest may be charged on low income or uninsured patients’ healthcare debt.
In Illinois: Legal action to recover medical debts is prohibited. (The same restriction holds in CA and CT.)
In Arkansas: the statute of limitations for collecting medical debt is two years from the date of services rendered or the most recent payment from the patient, whichever is later.
The key takeaway from these few examples is the importance of paying careful attention to legislative changes across the country that will affect how creditors and service providers collect delinquent medical receivables.
Finally, while acknowledging the challenge of attracting healthcare finance professionals to a conference sponsored by an collection industry association, events like ACA’s March for Success would benefit from greater participation by healthcare creditors. Mid-sized gatherings are the perfect venue for meaningful dialogue between hospital and physician personnel responsible for receivables management and the companies in the ARM industry that support them. Deliberate efforts to expand the pool of attendees among healthcare industry representatives would serve all parties involved.
We would welcome any insight from other constituents of the healthcare collection industry on how they are fairing in the market and what opportunities they are seeing as they navigate through this volatile economy.
Michael Lamm manages M&A transactions and Valuations for Kaulkin Ginsberg’s Strategic Advisory Group. Michael can be reached at 240-499-3808 or at mlamm@kaulkin.com.
Michael Klozotsky conducts custom research projects and writes publications focusing on the healthcare sector of the accounts receivable management industry for Kaulkin Media. Contact Michael at 240-499-3836 or mklozotsky@kaulkin.com.
Healthcare Finance: A “Hypocritic” Oath
Please excuse my absence from the ARM blog-scape; I was out of the office last week while attending a conference in Las Vegas. But I wanted to revisit several recent healthcare finance stories that kept nagging at me even in the Nevada desert.
On April 4, The Wall Street Journal ran a major story on escalating profits at nonprofit hospitals. InsideARM’s Cynthia Wilson also covered the developments from a receivables management perspective.
Some key statistics emerge from both articles that American consumers are likely to find astounding.
--More than 1500 U.S. nonprofit hospitals (77 percent) currently make a profit; only 61 percent of for-profit hospitals can say the same.
--Northwestern Memorial Hospital in Chicago has spent in excess of $1 billion dollars in the last decade to rebuild its facilities. Some of those expenditures include marble lobbies, flat-screen TVs, and a 10,000 square foot rooftop garden. Two years ago, Northwestern Memorial’s former CEO received a $16.4 million payout.
--In fiscal year 2006, the University of Pittsburgh Medical Center spent $10 million on advertising, $1 million in the New York Times alone. UPMC’s CEO received more than $36,000 in 2006 for a car allowance, travel for his spouse, and personal advisory services.
--Beaumont Hospitals in Michigan paid almost $11,000 in country club fees for the president of its foundation in 2007.
--Sacred Heart Hospital in Chicago, a small for-profit in an economically disadvantaged neighborhood takes in 62 percent of its revenues from Medicaid. Northwestern Memorial, five and a half miles away, must rely on Medicaid for only six percent of its revenues.
Did I say “astounding?” To 47 million uninsured U.S. citizens, and to countless others struggling to make ends meet in the face of rising healthcare costs, “reprehensible” is perhaps more accurate.
To be sure, the impact of these statistics is magnified when divorced from the particular contexts from which they emerged. But that fact is probably of little consolation to those weighed down by medical bills. Scottish philosopher David Hume once said: “To hate, to love, to think, to feel, to see; all this is nothing but to perceive.” In a year of economic strife, with healthcare reform at the forefront of many consumers’ minds, perception is all that matters.
And in an election year, a lot of those consumers will also be voters in November. According to recent FEC filings, Senator Hillary Clinton may have a healthcare perception problem of her own.
At the end of March, Politico reported that Senator Clinton owed insurance companies nearly $300,000 in unpaid health premiums for her campaign staff. Bills totaling $213,000 were more than 60 days past due to Aetna alone. Healthcare is among the foremost pillars of Senator Clinton’s presidential campaign.
Disparity frequently exists between perception and reality. But I would wager more hard cash than I’ve got in my pockets right now that a majority of Americans could find better “health-related uses” for $11,000 than greens fees at an exclusive Michigan golf club. And I’ll “take the over” that when the typical healthcare consumer doesn’t pay her insurance premiums for two months running, her coverage will be terminated. And the phone that rings at 3 A.M. (well, not literally 3 A.M… because that would violate the FDCPA) will be from a collection agency.
Tenet Healthcare: Bad Debt Pacesetter?
On Wednesday, insideARM’s Cynthia Wilson filed a story on Tenet Healthcare’s good news about bad debt. The story, “Tenet Bucks Bad-debt Trend,” reported that the Texas-based hospital system’s 2007 bad debt as a percentage of revenue was just 12.7 percent, the lowest reported amount in the for-profit hospital sector.
If the numbers are accurate, they certainly qualify as “bucking a trend.” But there’s a caveat in the article that says to me: Whoa, Nellie!
For comparison, Health Management Associates reported a bad debt encumbrance at its hospitals in 2007 that was nearly 11 percent higher than Tenet’s figures. And Tenet’s self-pay collection rate was 13 percent last year, three percent higher than the for-profit sector’s average.
The supposed drivers of Tenet’s rosy numbers are practices that have long been touted by those invested in improving hospitals’ revenue cycle management strategies: centralizing internal collections, pre-registering patients, and getting self-pay patients to reach into their pockets (however deep or shallow) at the point of sale.
What’s the best thing about “upfront money” for hospitals, most of which struggle to collect self-pay accounts? In an industry where self-pay too often means no-pay, upfront money’s greatest attribute is that… it’s money.
While all of these factors may have contributed to Tenet’s success, the hospital operator also excelled in another category: charity care allocations and uninsured discounts.
Whoa, Nellie. The Fitch report that compiles data for the for-profit hospital sector explicitly noted that the agency will be keeping its ear to the door for signs that Tenet’s “[charity care] policies are too aggressive.”
There are lessons to be learned here. Diligent and innovative collection practices (internally or in partnership with a third party agency) are integral to improving hospitals’ bottom lines. At the same time, there are many ways to make the ordinary seem extraordinary (isn’t that the gist of Tuna Helper?), even in healthcare finance.
And horses make effective, dual-purpose metaphors for parsing trends and aberrations surrounding healthcare bad debt.
My Field Trip to the Emergency Room
One week ago this morning, I was on my way to the Emergency Department at a local Maryland hospital—thankfully not in the back of an ambulance and fortunately with insurance card in hand. This was not a matter of life and death, but the ED was the correct choice and during my week-long “sabbatical” from the office, my thoughts kept returning to an article I had read sometime ago in The New York Times.
The article centered on improvements—both substantive and cosmetic—to New York City Emergency Departments. Want a “fast-track” to separate the ill from the really, really ill?—that’ll be north of $7.5 million. Want more space, more doctors, more beds?—at one hospital that tab approached $15 million. New York, like many big cities around the country, knows something about pandemonium and the ED. According to The Times, NYC EDs saw 3.6 million patients in 2005, up six percent since 2000. The list of drivers for the increase is commonplace: rising uninsured and immigrant populations, closures and consolidations at other hospitals’ EDs, and public funding shortfalls. These and other ED plights are perfunctorily laid out in the text of the article.
But what nagged me last week about the article wasn’t the litany of challenges facing EDs—it was the nature of several solutions noted in the text.
According to Dr. Peter Semczuk, vice president for clinical services at Montefiore Medical Center, “We want to become the Ritz-Carlton of emergency rooms.” At Montefiore that means graham cracker snacks and on-call art therapists for children. At Lennox Hill hospital, “putting yourself in the patient’s shoes” means individual flat screen televisions and personal telephones in the ED.
Was my medication clouding my perspective, or was something amiss here? EDs play a complex role in a hospital’s financial machinery, often serving as sites of both profit (insured patients who are ultimately admitted to the hospital) and loss (the uninsured).
But as I reflected on my own ED experience last week, I couldn’t help but think that renovation is one thing, utter reinvention (Yes, sir; we at General Hospital realize you are having a heart attack, but we wanted to remind you of the complimentary cocktails and snacks in the ED lobby at 6PM… and provided you live that long, a full line up of just-released movies will begin showing on that plasma screen above your head at 9PM.) is quite another.
While touches of luxury may entice some paying (insured) patients to choose one ED over another (at some hospitals in some cities), I couldn’t help but recall what I saw in the waiting room at my local ED: people coughing, people resting their heads in their hands, more coughing, people in a hurry, one woman—literally—writhing in pain on the floor. And me: also feeling a sense of urgency, also in pain.
Should I seek comfort in the prospect of a mint-topped pillow deep in the bowels of the ED? Is that a crash cart I see before me? Why no—it’s a mini bar. Perhaps I should stop typing “ED,” so that Emergency Department is not mistaken for Entertainment Division.
Insurers Move to Defer Retroactive Cancellation of Policies
The Wall Street Journal recently reported that several big insurers in California are considering plans to modify or eliminate the practice of retroactively cancelling some policyholders’ coverage once they begin treatment, often for costly procedures. The practice of voiding coverage, called rescission, had been employed by insurers when patients failed to disclose pre-existing conditions or had falsified application information. Insurance companies claimed that the practice helped to control the costs of coverage for all consumers.
But under pressure from advocacy group Consumers Union and industry association America’s Health Insurance Plans, several companies—Health Net and Blue Cross of California among them—have suspended rescissions at least until they can establish binding third-party review processes for intended policy cancellations. Health Net was recently slapped with a $9.4 million judgment against it for cancelling a patient’s coverage while she underwent treatment for breast cancer.
In addition to the monetary impact, the negative publicity generated by similar court rulings has increased the risk that state governments will act aggressively to regulate insurers’ cancellation practices.
As I see it, there are at least two contradictory implications for the ARM industry that may result from changes—voluntary or otherwise—to insurers’ rescission practices. The first, however unpleasant, is that fewer rescissions are likely to decrease the number of delinquent medical accounts. Additionally, that reduction will occur in a patient demographic—those with health insurance—that is better situated than self-pay populations to meet its financial obligations, even in a collections stream.
The second (and more benign) effect may be a general increase in the cost of healthcare coverage introduced by insurance companies to mitigate losses from patient policies that historically might have been voided. If that happens, insured consumers will face increased economic pressure that may lead to more medical account delinquencies.
Healthcare collection agencies: do you see changes to retroactive cancellation policies impacting your business?
Welcome to Inside Healthcare Receivables
Today I am pleased to announce the launch of Kaulkin Media’s Inside Healthcare Receivables, a monthly newsletter focused on significant issues at the intersection of the healthcare and ARM industries.
For some of you who are familiar with Kaulkin Media’s other newsletters like The ARM Insider—a daily information source that has become a kind of gold standard for ARM industry news—or Inside Collections & Debt—a monthly newsletter that highlights important collection agency topics—Inside Healthcare Receivables will bring you the same level of recent news and analysis in a concise and easily digestible form. And best of all, it’s FREE, like all of insideARM’s newsletters.
For those of you who do not receive another Kaulkin Media newsletter (and I would hypothesize that this group might include those of you who work day in and day out doing the business of healthcare), Inside Healthcare Receivables provides an efficient way for you to access Kaulkin Media’s healthcare offerings: top news stories from the last month, high-level analysis of issues and trends that affect the industry, and even this blog featuring my own take on matters of the moment.
This month’s edition of Inside Healthcare Receivables features several news stories detailing recent healthcare policy developments on the state level, and an in-depth article on the impact of recent changes to the Internal Revenue Code on hospitals’ accounting practices (as illustrated by the schoolyard tussle underway between the Service Employees International Union and Boston’s Beth Israel Deaconess Medical Center).
I trust that you will enjoy the inaugural issue of Inside Healthcare Receivables. Once you’ve read it, I invite you to return here to tell me what you think.
To subscribe to Inside Healthcare Receivables, please manage your subscriptions in the insideARM.com Member Center. Please note that you must be registered and logged in to insideARM.com to manage your subscriptions.
The Poverty Syndrome
Hospitals know them as the sizable and growing self-pay population. Many well heeled Americans refer to them as deadbeats, hangers-on, or freeloaders. Some collection agencies see them as a potential source of revenue. “They” might be identified as uninsured Americans, but that is largely a symptom of an underlying affliction.
They are America’s poor.
According to Dr. Otis Brawly, Chief Medical Officer for the American Cancer Society, in today’s Atlanta Journal-Constitution, “Insurance versus non-insurance is a great marker for people who are socially deprived or poor.”
The findings of a major ACS study released today show that cancer patients with private insurance are much less likely to be diagnosed with late-stage cancers than those who lack insurance. The broad study of 3.5 million patients with 12 common types of cancer also found that many of those advanced-stage diseases could have been discovered by appropriate early screening methods.
The notion that insured patients statistically seek care earlier, have access to more care, and ultimately live longer than uninsured patients is perhaps not earth shattering. But it highlights a false dichotomy in the rhetoric that surrounds the U.S. healthcare crisis.
Uninsured Americans, many of whom are poor—or the American poor, many of whom are uninsured—not only lack insurance. In most instances they lack basic heath information, reliable and convenient modes of transportation, and jobs that afford them the benefit of leave time to visit a doctor’s office. Circumstances like these that impede adequate medical care are conditions of poverty often ignored in an “insured v. uninsured” assessment of healthcare in America. Thus, Dr. Brawly notes, “While giving people insurance would improve things, it will not improve everything.”
If that weren’t enough, findings recently presented at the American Association for the Advancement of Science found that “many children growing up in very poor families with low social status experience unhealthy levels of stress hormones, which impair their neural development.” In short: poverty affects biology. The result is that the poor stay poor.
Now reinsert the corollary absence of health insurance for this population and the grim cycles repeat themselves.
In this election year, Americans are talking about things that matter to them. The economy and healthcare are high on voters’ lists of priorities, and politicians have been quick to fall in step with their supporters’ concerns.
But eloquent proposals for universal health coverage and quick tax rebates aren’t going to solve poverty in America. The question is—can will we ever solve “the economy” and “healthcare” without first addressing poverty
Tips to Strengthen Hospital-Collection Agency Partnerships
Last week I attended the 2008 MEGA Healthcare Conference in my home state of Wisconsin. The event, presented in part by AAHAM and HFMA, drew nearly 500 healthcare professionals and numerous industry vendors and service providers.
Fellow native Wisconsinite Tom Gavinski, Vice President of the Healthcare Division at I.C. System, a Minnesota-based agency with more than 20,000 healthcare clients nationwide, conducted a seminar on how hospitals can make the most of their business alliances with collection agencies. Tom has kindly agreed to share some of his readily actionable insights in a slightly condensed form here.
After you read his analysis, please feel free to post comments in this forum or respond directly to Tom.
Are Healthcare Collections Recession-proof?
A recent survey of debt buyers and contingency agencies by Milestone Advisors suggests that healthcare collections have been negligibly impacted by the broader U.S. credit crisis. As reported by ACA International, the Milestone survey revealed that three-quarters of ARM companies specializing in healthcare surveyed described “no impact” on the liquidation rates of medical accounts. Recent conversations that Kaulkin Ginsberg has had with collectors echo some of this sentiment, but neither Milestone nor ACA has made data available to substantiate the claims.
If the experience of the surveyed companies can be extrapolated to the entire healthcare segment of the ARM industry, are medical collections somehow immune to the credit crunch affecting so many American consumers? And even if this is the case to date—how long will this apparent exemption last?
If you are a healthcare creditor working with a collection agency, have you seen similar results over the past six months? Agency owners and debt buyers in the healthcare space: do you think strong liquidation rates on medical paper are sustainable in 2008? Post a comment and let me know your thoughts.
