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Preparing for Z-Codes as DEX Genetic Testing Registry Rolls Out to Commercial Health Plans

Palmetto GBA’s Chief Medical Officer will cover how clinical laboratories billing for genetic testing should prepare for Z-Codes at the upcoming Executive War College in New Orleans

After multiple delays, UnitedHealthcare (UHC) commercial plans will soon require clinical laboratories to use Z-Codes when submitting claims for certain molecular diagnostic tests. Several private insurers, including UHC, already require use of Z-Codes in their Medicare Advantage plans, but beginning June 1, UHC will be the first to mandate use of the codes in its commercial plans as well. Molecular, anatomic, and clinical pathologist Gabriel Bien-Willner, MD, PhD, who oversees the coding system and is Chief Medical Officer at Palmetto GBA, expects that other private payers will follow.

“A Z-Code is a random string of characters that’s used, like a barcode, to identify a specific service by a specific lab,” Bien-Willner explained in an interview with Dark Daily. By themselves, he said, the codes don’t have much value. Their utility comes from the DEX Diagnostics Exchange registry, “where the code defines a specific genetic test and everything associated with it: The lab that is performing the test. The test’s intended use. The analytes that are being measured.”

The registry also contains qualitative information, such as, “Is this a good test? Is it reasonable and necessary?” he said.

Bien-Willner will answer those questions and more at the upcoming annual Executive War College on Diagnostics, Clinical Laboratory, and Pathology Management in New Orleans on April 30-May 1. Lab professionals still have time to register and attend this important presentation.

Molecular, anatomic, and clinical pathologist Gabriel Bien-Willner, MD, PhD (above), Palmetto GBA’s Chief Medical Officer, will speak about Z-Codes and the MolDX program during several sessions at the upcoming Executive War College on Diagnostics, Clinical Laboratory, and Pathology Management taking place in New Orleans on April 30-May 1. Clinical laboratories involved in genetic testing will want to attend these critical sessions. (Photo copyright: Bien-Willner Physicians Association.)

Palmetto GBA Takes Control

Palmetto’s involvement with Z-Codes goes back to 2011, when the company established the MolDX program on behalf of the federal Centers for Medicare and Medicaid Services (CMS). The purpose was to handle processing of Medicare claims involving genetic tests. The coding system was originally developed by McKesson, and Palmetto adopted it as a more granular way to track use of the tests.

In 2017, McKesson merged its information technology business with Change Healthcare Holdings LLC to form Change Healthcare. Palmetto GBA acquired the Z-Codes and DEX registry from Change in 2020. Palmetto GBA had already been using the codes in MolDX and “we felt we needed better control of our own operations,” Bien-Willner explained.

In addition to administering MolDX, Palmetto is one of four regional Medicare contractors who require Z-Codes in claims for genetic tests. Collectively, the contractors handle Medicare claims submissions in 28 states.

Benefits of Z-Codes

Why require use of Z-Codes? Bien-Willner explained that the system addresses several fundamental issues with molecular diagnostic testing.

“Payers interact with labs through claims,” he said. “A claim will often have a CPT code [Current Procedural Technology code] that doesn’t really explain what was done or why.”

In addition, “molecular diagnostic testing is mostly done with laboratory developed tests (LDTs), not FDA-approved tests,” he said. “We don’t see LDTs as a problem, but there’s no standardization of the services. Two services could be described similarly, or with the same CPT codes. But they could have different intended uses with different levels of sophistication and different methodologies, quality, and content. So, how does the payer know what they’re paying for and whether it’s any good?”

When the CPT code is accompanied by a Z-Code, he said, “now we know exactly what test was done, who did it, who’s authorized to do it, what analytes are measured, and whether it meets coverage criteria under policy.”

The process to obtain a code begins when the lab registers for the DEX system, he explained. “Then they submit information about the test. They describe the intended use, the analytes that are being measured, and the methodologies. When they’ve submitted all the necessary information, we give the test a Z-Code.”

Then, the test undergoes a technical assessment. Bien-Willner described this as a risk-based process where complex tests, such as those employing next-generation sequencing or gene expression profiling, get more scrutiny than less-complex methodologies such as a polymerase chain reaction (PCR) test.

The assessment could be as simple as a spreadsheet that asks the lab which cancer types were tested in validation, he said. On the other end of the scale, “we might want to see the entire validation summary documentation,” he said.

Commercial Potential

Bien-Willner joined the Palmetto GBA in 2018 primarily to direct the MolDX program. But he soon saw the potential use of Z-Codes and the DEX registry for commercial plans. “It became instantly obvious that this is a problem for all payers, not just Medicare,” he said.

Over time, he said, “we’ve refined these processes to make them more reproducible, scalable, and efficient. Now commercial plans can license the DEX system, which Z-Codes are a part of, to better automate claims processing or pre-authorizations.”

In 2021, the company began offering the coding system for Medicare Advantage plans, with UHC the first to come aboard. “It was much easier to roll this out for Medicare Advantage, because those programs have to follow the same policies that Medicare does,” he explained.

As for UHC’s commercial plans, the insurer originally planned to require Z-Codes in claims beginning Aug. 1, 2023, then pushed that back to Oct. 1, according to Dark Daily’s sister publication The Dark Report.

Then it was pushed back again to April 1 of this year, and now to June 1.

“The implementation will be in a stepwise fashion,” Bien-Willner advised. “It’s difficult to take an entirely different approach to claims processing. There are something like 10 switches that have to be turned on for everything to work, and it’s going to be one switch at a time.”

For Palmetto GBA, the commercial plans represent “a whole different line of business that I think will have a huge impact in this industry,” he said. “They have the same issues that Medicare has. But for Medicare, we had to create automated solutions up front because it’s more of a pay and chase model,” where the claim is paid and CMS later goes after errors or fraudulent claims.

“Commercial plans in general just thought they could manually solve this issue on a claim-by-claim basis,” he said. “That worked well when there was just a handful of genetic tests. Now there are tens of thousands of tests and it’s impossible to keep up.

They instituted programs to try to control these things, but I don’t believe they work very well.”

Bien-Willner is scheduled to speak about Palmetto GBA’s MolDX program, Z-Codes, and related topics during three sessions at the upcoming 29th annual Executive War College conference. Clinical laboratory and pathology group managers would be wise to attend his presentations. Visit here (or paste this URL into your browser: https://www.executivewarcollege.com/registration) to learn more and to secure your seat in New Orleans.

—Stephen Beale

Related Information:

Palmetto Issuing ‘Z-Codes’ to Track Molecular Dx Utilization, Gather Data CPT Codes Can’t Provide

McKesson and Change Healthcare Complete the Creation of New Healthcare Information Technology Company

UnitedHealthcare Commercial: Reimbursement Policy Update Bulletin: January 2024

UnitedHealthcare’s Z-Code Requirement for Genetic Testing Claims Impacts Laboratories and Payers

UHC Delays April 1st Z-Code Commercial Implementation to June 1, 2024

UHC Will Delay Enforcement of Z-Codes for Genetic Test Claims

New Federal Rules on Sepsis Treatment Could Cost Hospitals Millions of Dollars in Medicare Reimbursements

Some hospital organizations are pushing back, stating that the new regulations are ‘too rigid’ and interfere with doctors’ treatment of patients

In August, the Biden administration finalized provisions for hospitals to meet specific treatment metrics for all patients with suspected sepsis. Hospitals that fail to meet these requirements risk the potential loss of millions of dollars in Medicare reimbursements annually. This new federal rule did not go over well with some in the hospital industry.

Sepsis kills about 350,000 people every year. One in three people who contract the deadly blood infection in hospitals die, according to the Centers for Disease Control and Prevention (CDC). Thus, the federal government has once again implemented a final rule that requires hospitals, clinical laboratories, and medical providers to take immediate actions to diagnose and treat sepsis patients.

The effort has elicited pushback from several healthcare organizations that say the measure is “too rigid” and “does not allow clinicians flexibility to determine how recommendations should apply to their specific patients,” according to Becker’s Hospital Review.

The quality measures are known as the Severe Sepsis/Septic Shock Early Management Bundle (SEP-1). The regulation compels doctors and clinical laboratories to:

  • Perform blood tests within a specific period of time to look for biomarkers in patients that may indicate sepsis, and to
  • Administer antibiotics within three hours after a possible case is identified.

It also mandates that certain other tests are performed, and intravenous fluids administered, to prevent blood pressure from dipping to dangerously low levels. 

“These are core things that everyone should do every time they see a septic patient,” said Steven Simpson, MD, Professor of medicine at the University of Kansas told Fierce Healthcare. Simpson is also the chairman of the Sepsis Alliance, an advocacy group that works to battle sepsis. 

Simpson believes there is enough evidence to prove that the SEP-1 guidelines result in improved patient care and outcomes and should be enforced.

“It is quite clear that this works better than what was present before, which was nothing,” he said. “If the current sepsis mortality rate could be cut by even 5%, we could save a lot of lives. Before, even if you were reporting 0% compliance, you didn’t lose your money. Now you actually have to do it,” Simpson noted.

Chanu Rhee, MD

“We are encouraged by the increased attention to sepsis and support CMS’ creation of a sepsis mortality measure that will encourage hospitals to pay more attention to the full breadth of sepsis care,” Chanu Rhee, MD (above), Infectious Disease/Critical Care Physician and Associate Hospital Epidemiologist at Brigham and Women’s Hospital told Healthcare Finance. The new rule, however, requires doctors and medical laboratories to conduct tests and administer antibiotic treatment sooner than many healthcare providers deem wise. (Photo copyright: Brigham and Women’s Hospital.)

Healthcare Organizations Pushback against Final Rule

The recent final rule builds on previous federal efforts to combat sepsis. In 2015, the Centers for Medicare and Medicaid Services (CMS) first began attempting to reduce sepsis deaths with the implementation of SEP-1. That final rule updated the Medicare payment policies and rates under the Inpatient Prospective Payment System (IPPS) and Long-Term Care Hospitals Prospective Payment System (LTCH PPS).

Even then the rule elicited a response from the American Hospital Association (AHA), the Infectious Disease Society of America (IDSA), American College of Emergency Physicians (ACEP), the Society of Critical Care Medicine (SCCM), and the Society of Hospital Medicine (SHM). The organizations were concerned that the measure “encourages the overuse of broad-spectrum antibiotics,” according to a letter the AHA sent to then Acting Administrator of CMS Andrew Slavitt.

“By encouraging the use of broad spectrum antibiotics when more targeted ones will suffice, this measure promotes the overuse of the antibiotics that are our last line of defense against drug-resistant bacteria,” the AHA’s letter states.

In its recent coverage of the healthcare organizations’ pushback to CMS’ final rule, Healthcare Finance News explained, “The SEP-1 measure requires clinicians to provide a bundle of care to all patients with possible sepsis within three hours of recognition. … But the SEP-1 measure doesn’t take into account that many serious conditions present in a similar fashion to sepsis … Pushing clinicians to treat all these patients as if they have sepsis … leads to overuse of broad-spectrum antibiotics, which can be harmful to patients who are not infected, those who are infected with viruses rather than bacteria, and those who could safely be treated with narrower-spectrum antibiotics.”

CMS’ latest rule follows the same evolutionary path as previous federal guidelines. In August 2007, CMS announced that Medicare would no longer pay for additional costs associated with preventable errors, including situations known as Never Events. These are “adverse events that are serious, largely preventable, and of concern to both the public and healthcare providers for the purpose of public accountability,” according to the Leapfrog Group.

In 2014, the CDC suggested that all US hospitals have an antibiotic stewardship program (ASP) to measure and improve how antibiotics are prescribed by clinicians and utilized by patients.

Research Does Not Show Federal Sepsis Programs Work

In a paper published in the Journal of the American Medical Association (JAMA) titled, “The Importance of Shifting Sepsis Quality Measures from Processes to Outcomes,” Chanu Rhee, MD, Infectious Disease/Critical Care Physician and Associate Hospital Epidemiologist at Brigham and Women’s Hospital and Associate Professor of Population Medicine at Harvard Medical School, stressed his concerns about the new regulations.

He points to analysis which showed that though use of broad-spectrum antibiotics increased after the original 2015 SEP-1 regulations were introduced, there has been little change to patient outcomes.  

“Unfortunately, we do not have good evidence that implementation of the sepsis policy has led to an improvement in sepsis mortality rates,” Rhee told Fierce Healthcare.

Rhee believes that the latest regulations are a step in the right direction, but that more needs to be done for sepsis care. “Retiring past measures and refining future ones will help stimulate new innovations in diagnosis and treatment and ultimately improve outcomes for the many patients affected by sepsis,” he told Healthcare Finance.

Sepsis is very difficult to diagnose quickly and accurately. Delaying treatment could result in serious consequences. But clinical laboratory blood tests for blood infections can take up to three days to produce a result. During that time, a patient could be receiving the wrong antibiotic for the infection, which could lead to worse problems.

The new federal regulation is designed to ensure that patients receive the best care possible when dealing with sepsis and to lower mortality rates in those patients. It remains to be seen if it will have the desired effect.  

Jillia Schlingman

Related Information:

Feds Hope to Cut Sepsis Deaths by Hitching Medicare Payments to Treatment Stats

Healthcare Associations Push Back on CMS’ Sepsis Rule, Advocate Tweaks

Value-Based Purchasing (VBP) and SEP-1: What You Should Know

NIGMS: Sepsis Fact Sheet

CDC: What is Sepsis?

CDC: Core Elements of Antibiotic Stewardship

The Importance of Shifting Sepsis Quality Measures from Processes to Outcomes

Association Between Implementation of the Severe Sepsis and Septic Shock Early Management Bundle Performance Measure and Outcomes in Patients with Suspected Sepsis in US Hospitals

Infectious Diseases Society of America Position Paper: Recommended Revisions to the National Severe Sepsis and Septic Shock Early Management Bundle (SEP-1) Sepsis Quality Measure

CMS to Improve Quality of Care during Hospital Inpatient Stays – 2014

Federal Government Bans Elizabeth Holmes from Participating in Government Health Programs for 90 Years

Theranos founder and former CEO continues down the path she began by defrauding her investors and lying to clinical laboratory leaders about her technology’s capabilities

In the latest from the Elizabeth Holmes/Theranos scandal, the federal government has banned Holmes from participating in government health programs for 90 years, according to a statement from the US Department of Health and Human Services (HHS) Office of the Inspector General (OIG). Many clinical laboratory leaders may find this a fitting next chapter in her story.

As a result of the ban, Holmes is “barred from receiving payments from federal health programs for services or products, which significantly restricts her ability to work in the healthcare sector,” ARS Technica reported.

So, Holmes, who is 39-years old, is basically banned for life. This is in addition to her 11-year prison sentence which was paired with $452,047,200 in restitution.

“The exclusion was announced by Inspector General Christi Grimm of the Department of Health and Human Services’ Office of Inspector General,” ARS Technica noted, adding that HHS-OIG also “excluded former Theranos President Ramesh “Sunny” Balwani from federal health programs for 90 years.” This is on top of the almost 13-year-long prison sentence he is serving for fraud.

“The Health and Human Services Department can exclude anyone convicted of certain felonies from Medicare, Medicaid, and Pentagon health programs,” STAT reported.  

Inspector General Christi Grimm

“Accurate and dependable diagnostic testing technology is imperative to our public health infrastructure,” said Inspector General Christi Grimm (above) in an HHS-OIG statement. “As technology evolves, so do our efforts to safeguard the health and safety of patients, and HHS-OIG will continue to use its exclusion authority to protect the public from bad actors.” Observant clinical laboratory leaders will recognize this as yet another episode in the Elizabeth Holmes/Theranos fraud saga they’ve been following for years. (Photo copyright: HHS-OIG.)

Why the Ban?

“The Office of Inspector General (OIG) for the Department of Health and Human Services (HHS) cited Holmes’ 2022 conviction for fraud and conspiracy to commit wire fraud as the reason for her ban,” The Hill reported.

“False statements related to the reliability of these medical products can endanger the health of patients and sow distrust in our healthcare system,” Grimm stated in the HHS-OIG statement, which noted, “The statutory minimum for an exclusion based on convictions like Holmes’ is five years.

“When certain aggravating factors are present, a longer period of exclusion is justified,” the statement continued. “The length of Holmes’ exclusion is based on the application of several aggravating factors, including the length of time the acts were committed, incarceration, and the amount of restitution ordered to be paid.”

Rise and Fall of Elizabeth Holmes

Readers of Dark Daily’s e-briefs covering the Holmes/Theranos fraud saga will recall details on Holmes’ journey from mega success to her current state of incarceration for defrauding her investors.

In November 2022, she was handed an 11-year prison sentence for not disclosing that Theranos’ innovative blood testing technology, Edison, was producing flawed and false results. Theranos had “raised hundreds of millions of dollars, named prominent former US officials to its board, and explored a partnership with the US military to use its tests on the battlefield,” STAT reported.

To get Holmes physically into prison was a journey unto itself. At one point, evidence showed her as a potential flight risk. “In the same court filings, prosecutors said Holmes and her partner, William Evans, bought one-way tickets to Mexico in December 2021, a fact confirmed by her lawyers,” Dark Daily’s sister publication The Dark Report revealed in “Elizabeth Holmes’ Appeal Questions Competence of CLIA Lab Director.”

Drama around her move into prison continued. “The former CEO’s attorneys are making last-minute legal moves to delay her prison sentence while she appeals her guilty verdict,” Dark Daily reported.

At the same time, Holmes appeared to be on a mission to revamp her public image.

“On May 7, The New York Times profiled Holmes in a massive, 5,000-word story that attempted to portray her as a flawed businessperson who now prefers a simpler life with her partner and two young children,” Dark Daily reported in “Former Theranos CEO Elizabeth Holmes Fights Prison Sentence While Claiming She Was ‘Not Being Authentic’ with Public Image.”

In the Times piece, Holmes talked about her plans to continue to pursue a life in healthcare. “In the story, Holmes contended that she still thinks about contributing to the clinical laboratory field. Holmes told The Times that she still works on healthcare-related inventions and will continue to do so if she reports to prison,” The Dark Report covered in “Elizabeth Holmes Still Wants ‘To Contribute’ in Healthcare.”

In the meantime, her legal fees continued to mount beyond her ability to pay. “Holmes’ prior cadre of lawyers quit after she could not compensate them, The Times reported,” The Dark Report noted. “One pre-sentencing report by the government put her legal fees at more than $30 million,” according to The New York Times.

Apparently, this closes the latest chapter in the never-ending saga of Elizabeth Holmes’ fall from grace and ultimate conviction for defrauding her investors and lying to healthcare executives, pathologists, and clinical laboratory leaders.

—Kristin Althea O’Connor

Related Information:

HHS-OIG Issues Notice of Exclusion to Founder and CEO of Theranos, Inc.

Feds Bar Theranos Founder Elizabeth Holmes from Government Health Programs

Elizabeth Holmes Barred From Federal Health Programs For 90 Years

Elizabeth Holmes Banned from Federal Health Programs for 90 Years

Elizabeth Holmes Still Wants ‘To Contribute’ in Healthcare

Former Theranos CEO Elizabeth Holmes Fights Prison Sentence While Claiming She Was ‘Not Being Authentic’ with Public Image

Elizabeth Holmes’ Appeal Questions Competence of CLIA Lab Director

Dark Report Summary on Elizabeth Holmes

California Doles Out $300 Million in No-Interest Loans to Save its Financially Struggling Hospitals

State’s new program helps ensure local communities have access to a community hospital and its physicians and clinical laboratories

Like phoenixes rising from ashes, a number of bankrupt and shuttered California hospitals have new life due in part to a state-run program offering the healthcare providers interest-free loans. The medical staff in these hospitals—including the clinical laboratories—will be happy to learn that their local communities refused to let their preferred healthcare providers shut down and disappear.

California’s Distressed Hospital Loan Program, operated by the state’s Department of Health Care Access and Information (HCAI) and the California Health Facilities Financing Authority, is making awards of nearly $300 million in no-interest loans to 17 healthcare providers, an HCAI news release announced.

“The program, established through Assembly Bill 112, offers interest-free, working capital loans to nonprofit and publicly operated financially-distressed hospitals, including facilities that belong to integrated healthcare systems with less than three separately licensed hospital facilities,” according to the news release.

This clearly demonstrates that even as both physicians and patient are increasingly comfortable with telehealth consultations—and having their healthcare conditions managed in ambulatory settings—the concept of the community hospital as an essential medical resource continues to motivate local governments and citizens to invest money in money-losing hospitals.

Elizabeth Landsberg

“Today we have provided much needed assistance to community hospitals across the state that desperately need financial help to provide the care their communities need,” said HCAI Director Elizabeth Landsberg (above). “I’m grateful to the legislature for spearheading this effort to help make sure these vital healthcare institutions are fiscally stable so they can continue to provide quality, affordable healthcare for all Californians.” Thanks to these loans, clinical laboratories in these hospitals will continue to perform critical testing for their communities. (Photo copyright: Gilbert Perez/HCAI.)

Providers Get Support with Conditions

Among the 17 healthcare providers receiving loans is Madera Community Hospital, a 106-bed hospital that served a rural area in California’s Central Valley. Madera, which closed in December and filed for Chapter 11 bankruptcy earlier this year, is one of 17 “troubled hospitals” in California getting a “lifeline,” KFF Health News reported.

Madera will receive a $2 million bridge loan earmarked toward operational costs. It is also eligible for a $50 million loan once Adventist Health, Madera’s intended new administrator, offers up a “comprehensive hospital turnaround plan,” HCAI noted.

“California hospitals face many financial challenges, and for independent rural hospitals, these challenges can sometimes be almost insurmountable,” said Kerry Heinrich, JD, President and CEO of Adventist Health, in a blog post leading up to the state’s announcement of loan awards. “If Madera succeeds in getting the financial resources it needs, Adventist Health will provide Madera Community Hospital with the expertise of a large healthcare system, helping to secure a sustainable future for healthcare in Madera County.”

It’s interesting to note that potential “operators” are watching to see if the hospital or State of California can arrange tens of millions of dollars in loans or other financing before they agree to come in and manage the hospital. 

The Distressed Hospital Loan Program aims to provide “loans (repayable over six years) to not-for-profit hospitals and public hospitals, as defined, in significant financial distress or to governmental entities representing a closed hospital to prevent the closure or facilitate the reopening of a closed hospital,” according to California Assembly Bill 112.

“The hospitals approved for this program have shown a detailed plan for financial recovery, and these funds will help them keep the doors open so they can keep serving their communities,” Fiona Ma, CPA, California State Treasurer, told Cal Matters.

Also receiving financial support is Beverly Hospital, a 202-bed Montebello, California, provider set to be purchased by Adventist Health White Memorial of Los Angeles, Cal Matters reported.

Beverly Hospital received a $5 million bridge loan to use toward operation costs while it is “purchased out of bankruptcy,” HCAI said in the news release.

Another hospital getting a “lifeline” is Hazel Hawkins Memorial in Hollister, California. The 25-bed level IV trauma center will receive a $10 million loan.

Other Ailing Hospitals Getting Interest-free Loans

According to HCAI, the other 14 hospitals receiving loans include:

What Led California’s Hospitals to Financial Hardship? 

According to Cal Matters, hospitals in California are “distressed” due to rising labor costs and inadequate reimbursement from Medicare, Medi-Cal, and commercial insurance.

In addition, the COVID-19 pandemic had a “staggering” impact on California hospitals’ financial health, Kaufman Hall reported in its April “California Hospital Financial Impact Report.”

The consulting firm’s report also found:

  • One in five California hospitals is at risk of closure due to “an unsustainable combination of negative margins, decreasing cash positions, and increasing debt.”
  • Hospital expenses in 2022 were $23.4 billion over pre-pandemic levels, outpacing revenue increases.
  • Operating income in 2022 was $8.5 billion less than in 2019.

Will Consumer Demand Affect California’s Success?

California’s commitment to its financially struggling hospitals comes amid national trends suggesting physicians and patients—especially younger healthcare consumers—are becoming increasingly comfortable with remote healthcare monitoring and receiving primary care in non-traditional environments, such as retail pharmacies and clinics.

In “Survey Indicates Zoomers and Millennials Are Ready for Pharmacies to Play a Bigger Role in Their Primary Care,” Dark Daily reported how demand for low cost, convenient access to doctors and drugs is driving transformation to decentralized medical care, and how retail pharmacy chains are seeing opportunity in offering primary care services.

Will younger Californian’s demand for low-cost, convenient healthcare render the state’s attempt to rehabilitee its failing hospitals moot? Time will tell. The ongoing financial woes of California hospitals will be watched by hospital-based clinical lab managers and pathologists in other states. That’s because California has a reputation for being first in the nation in attempts to address problems or regulate activity.

Regardless, it’s clear that—at this moment—the state is willing to invest in hospitals with a history of deteriorating financial performance as a way of ensuring access to healthcare for all of its citizens.   

Donna Marie Pocius

Related Information:

California Offers Lifeline to 17 Troubled Hospitals

California Announces $300 Million in Financial Support for Community Hospitals Across the State

Assembly Bill 112

Adventist Health to Manage Madera Community Hospital

California Bails Out Distressed Hospitals, Offers Interest-Free Loans to 17 Troubled Providers

San Benito Health Care District Receives Letter of Intent

California Hospital Financial Impact Report

Survey Indicates Zoomers and Millennials Are Ready for Pharmacies to Play a Bigger Role in Their Primary Care

Kaufman Hall Report Says Hospitals Saw Less Inpatients and Outpatients during Summer as Bad Debt and Charity Care Rose

As a result, health system-based clinical laboratories likely saw a decline in test orders as well a decrease in outreach revenue

Bad financial news continues in the hospital industry. According to an August 2023 National Hospital Flash Report from consulting firm Kaufman Hall, hospitals’ financial performance deteriorated in July, partly due to declines in inpatient and outpatient volumes and rising bad debt and charity care.

The implication from these findings is that hospital-based clinical laboratories saw a drop in test volume and any lab revenue associated with inpatient testing.

In an analysis of data from more than 1,300 hospitals, Kaufman Hall noted a dip in hospitals’ median calendar year-to-date operating margin from 1.4% in June down to 1.3% in July. The data also showed “a greater pullback in volume on the outpatient side, which may be attributed to patients choosing not to pursue elective procedures during the summer,” a Kaufman Hall news release stated.

Kaufman Hall’s National Hospital Flash Report by Erik Swanson, Senior Vice President, Data and Analytics, and Brian Pisarsky, Senior Vice President, Strategic and Financial Planning, is an analysis of actual and budget data—sampled from Syntellis Performance Solutions—which is representative of hospitals of various sizes and areas in the US.

“It’s clear that today’s challenging financial environment is here to stay, and hospital leaders must be proactive in seeking out opportunities to refine their operations and remain competitive,” said Erik Swanson, Senior Vice President, Data and Analytics, Kaufman Hall, in a news release. Clinical laboratory leaders would be wise to follow the same advice. (Photo copyright: Kaufman Hall.)

Expenses Declined, Bad Debt and Charity Care Rose

Here are other national data Kaufman Hall reported for July 2023 as compared to June 2023:

  • Adjusted discharges per calendar day dropped 7%.
  • Operating room minutes per calendar day declined 13%.
  • Emergency department visits per calendar day fell 1%.
  • Bad debt and charity care as a percentage of hospitals’ gross operating revenue was up 7%.
  • Purchased service expense per adjusted discharge was down 3%.
  • Labor expense per adjusted discharge also fell 3%.

Even though expenses slightly declined during July, patient volume decreases “pulled down” the margins, Healthcare Innovation reported, which called the report “a gloomy one.”

Also, the uptick in bad debt and charity care while volumes decreased created a “difficult situation for hospitals,” Medical Economics observed. 

Here are the report’s “key takeaways,” according to Kaufman Hall:

  • All volume indicators were down, but operating margins were still better than 2022.
  • Outpatient volume decreased more than inpatient, possibly due to patients choosing not to have elective procedures during the summer.
  • The decline in expenses was “not enough to offset revenue losses,” and inflation will continue to take its toll on labor expenses.
  • Medicaid has been “disenrolling” members in 30 states during June and July, and bad debt and charity care have increased.  

The report also called out need for improvement in providers’ discharge of patients to skilled nursing facilities. “Hospitals that prioritize care transitions to skilled nursing facilities are performing better than institutions [that] do not,” Swanson said in the news release.

“Identifying steps that can ensure a smooth transition, such as obtaining pre-authorizations and planning discharge early, will help organizations reduce expenses and improve patients’ experience,” he continued.

For Hospitals, 2023 Not as Bad as 2022

MedCity News pointed out that though July’s operating margin index decline followed four months of growth, hospitals are still way ahead of 2022 performance when median operating margins were -0.98% in July 2022.

Still, it appears hospitals are struggling to secure financial footing after 2022, an overall bad financial year for the hospital industry.

In “Tough Times Ahead for Hospitals and Their Labs,” Dark Daily’s sister publication The Dark Report referenced a Fall 2022 Current State of Hospital Finances Report, prepared by Kaufman Hall for the American Hospital Association. The report noted that “under an optimistic scenario, hospitals would lose $53 billion in revenue [in 2022]. The loss would primarily come from a $27 billion decline in outpatient revenue and $17 billion for inpatient as well as $9 billion in emergency department revenue.”

More recently, a 2023 Becker’s Hospital CFO Report compiled a list of 81 hospitals that had cut jobs since the start of the year in response to “financial and operational challenges.”

Included was Tufts Medicine in Burlington, Massachusetts. In August, the hospital “eliminated hundreds of jobs” in an outsourcing of lab outreach services to Labcorp. The Becker’s report noted that “[Tufts] said it will work with Labcorp to have the majority of affected employees transition to a similar position with Labcorp.”

Tips for Clinical Lab Financial Viability

Medical laboratory leaders need to help ensure financial health of their labs as well as quality and efficiency of services. Advice from Kaufman Hall may be applicable.

The report writers advised providers to secure payer authorizations before a “patient comes in the door.” For clinical labs, this is comparable to the need to secure insurance company authorizations for expensive genetic tests before samples are taken and tests performed.

Another tip from Kaufman Hall is to “collect and use data to inform process improvement” and “make change.”  Along those lines, medical laboratories could leverage patient data to guide launch of new services, entry to markets, workflow improvement, and costs reduction.

—Donna Marie Pocius

Related Information:

National Hospital Flash Report: August 2023

Patient Volume and Revenue Decline in July, Challenging Hospitals’ Performance

Kaufman Hall: Hospital Margins Dented by Falling Patient Volume

Hospital Finances Decline in July

Hospitals’ Operating Margins Fell in July after Four Months of Growth

Clinical Laboratory Trends: Tough Times Ahead for Hospitals and Their Labs81 Hospitals, Health Systems Cutting Jobs

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