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Health System Finances Are Sick: Navigant

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The finances of U.S. health systems have gotten a lot uglier two years in a row, according to a team of consultants at Navigant Consulting Inc.

(Related: Hospitals Face Gap in Collections From Insured Patients)

A health system is an organization, led by one or more hospitals, that includes other hospital-related entities, such as clinics, testing labs and physician groups.

Jeff Goldsmith and other consultants at Navigant — a Chicago-based consulting firm — assessed health system performance by looking at results for 104 U.S. health systems. Those systems include 47% of U.S. hospitals.

The health systems’ average operating profit margin, or the difference between their operating revenue and their operating expenses, fell 4.2% between 2014 and 2015; 3.1% between 2015 and 2016; and 2.6% between 2016 and 2017.

The health systems’ operating profit margin fell partly because operating revenue increased only 7% between 2015 and 2016, and just 5.5% between 2016 and 2017, according to the consultants.

Operating profits fell partly because the federal government has been holding down reimbursement rates for Medicare, the consultants say.

The consultants also cite three other drivers that could be wholly or partly related to commercial health insurance:

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1. Health systems have had a hard time making money on health plan contracts that are supposed to reward them for improving population health and holding down the cost of care.

2. Patients are using core hospital services, such as inpatient hospital care, less often.

3. Health systems are having more trouble with getting the patients to pay what the patients themselves owe, especially in the states that have failed to participate in the Affordable Care Act Medicaid expansion program.

The consultants say health systems have to work harder to reduce excess care capacity and be tougher with health plans when estimating how likely the plan enrollees will be to pay co-payments, deductibles and coinsurance amounts.

A copy of the analysis is available here.

— Read HP Vies With Xerox for N.Y. Medicaid Contracton ThinkAdvisor.

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