Hospitals get revenue boost from meaningful use money

However, a debt rating agency says the gains will be short-lived and that some hospitals may have to merge to afford health information technology.

By — Posted Aug. 29, 2012

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More than $4 billion has been paid out to hospitals by the Centers for Medicare & Medicaid Services in meaningful use incentive money, money that Fitch Ratings warns hospital bondholders will mask “otherwise anemic revenue growth” for the next four or five years.

The incentive payments are providing hospitals with an additional source of funding, but the funds will only partially offset the significant investments made for health IT and will run out eventually, according to an Aug. 6 memo from Fitch, a debt rating agency. Incentive payments to hospitals are based on a complicated formula, with qualifying hospitals earning a base of $2 million.

Fitch published a report in May looking at capital expenditure trends among nonprofit hospitals and found that 45% of hospitals planned to increase capital spending. They indicated health IT as a top priority. Although hospitals can expect some gains in quality, efficiency and costs from the use of health IT, according to Fitch, other factors are contributing to a decline in revenue that may make paying for those investments hard to do.

Because of many hospitals’ inability to increase profits, “only hospitals that are already financially strong with be able to afford the high-cost investment in EHR technology,” Fitch said in its Aug. 6 statement.

Fitch isn’t the only ratings agency concerned about hospitals’ finances. Moody’s Investors Service published a report in July that found the downgraded debt for nonprofit hospitals ($2.8 billion) exceeded the upgraded debt ($2.1 billion). There were 12 downgrades and nine upgrades in the second quarter of 2012, according to Moody’s.

“The increased proportion of downgrades [was] driven by the continued slow economic recovery, increasing pressure on state budgets, and a large and growing federal deficit,” Carrie Sheffield, associate analyst with Moody’s, said in a statement. “The deficit problem may lead to reductions in Medicare and Medicaid, which translates into weak volumes and revenue declines for hospitals.”

In its reports, Moody’s questions whether hospitals will be able to keep up hiring physicians and acquiring practices.

Capital expenditures are often altered when profitability is down, according to Fitch’s May report. But financially challenged hospitals may look to consolidation as a way of finding partners to help them invest in health IT, physician alignment and the expansion of outpatient care, according to Fitch’s May report.

A Feb. 28 report released by Irving Levin Associates said 86 hospital merger or acquisition deals took place in 2011, the highest number in a decade. Data released by the firm in July showed the money spent on medical practice mergers and acquisitions also was up in the second quarter of 2012 compared with the same period in 2011. The report noted that hospitals are interested in buying practices to control referral sources as well as quality and reductions in readmission rates.

No known report has looked at the net gains for physician practices that qualify for meaningful use incentives. Physicians who meet all required objectives could receive as much as $44,000 over five years from Medicare or $63,750 over six years from Medicaid. As of June, more than $1 billion had been paid out to more than 55,000 physicians.

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