Not-for-profit hospitals and health systems are slowly recovering from their worst year financially in 2022.
But that nascent financial recovery is now under threat if federal lawmakers don't act to extend the Acute Hospital Care at Home program as well as certain features of telehealth policy, according to a new report from Fitch Ratings.
The Acute Hospital Care at Home (hospitals at home) and certain Medicare telehealth services were extended under the 2023 Consolidated Appropriations Act and will now expire Dec. 31, 2024, unless Congress acts to renew the programs.
"Hospitals have increasingly incorporated these services into their operations, which has helped to alleviate revenue and expense pressures. Hospital financials have shown signs of improvement, although challenges lurk with increased Medicare payers as the U.S. population ages, shifts from inpatient to outpatient services, and achieving sustainable levels of cash flow given high costs and fixed revenues," Fitch analysts wrote.
Hospital-at-home programs got a big boost in 2020 when the Centers for Medicare & Medicaid Services (CMS) launched the Acute Hospital Care at Home Waiver during the COVID-19 pandemic.
The CMS allowed certain Medicare-certified hospitals to treat patients with inpatient-level care at home using Section 1135 waivers of the Social Security Act. The CMS waived specific hospital conditions of participation that require 24-hour onsite nursing for patients.
Home-based services for lower-acuity patients help hospitals address critical capacity issues by freeing up hospital beds for the sickest patients without increasing health system costs, proponents of the programs say.
Hospital length of stay increased during the pandemic, as staffing challenges in post-acute care settings, particularly at skilled nursing facilities (SNFs), limited hospitals’ ability to discharge patients, Fitch analysts wrote.
Employment at SNFs remains below pre-pandemic levels, Fitch said in a September report, and the program has helped hospitals reduce length of stay by allowing certain lower-acuity patients to recover at home.
Hospital-at-home patient quality indicators and patient and caregiver satisfaction data have been positive for the program, according to a study conducted by the CMS. However, the agency acknowledged that home hospital programs don’t have bulletproof arguments in respect to quality and costs as compared to a brick-and-mortal inpatient stay due to limited data.
Fitch analysts also point out that telehealth has become a standard part of healthcare and hospital operations. "The key provision that will expire in December allows Medicare patients to receive broad telehealth services at home. Telehealth reduces hospital costs and provides critical, additional revenue by increasing patient volumes and broadening access, especially in rural areas, where physician coverage is limited," Fitch analysts wrote.
Not-for-profit hospitals and health systems continue to face labor challenges. Labor costs, which have abated from pandemic peaks, remain elevated, and not-for-profit hospitals have limited flexibility to raise rates, Fitch noted.
These high labor costs contribute to ongoing operating margin pressure. "The overall median operating margin improved to 0.4% in 2023 from 0.2% in 2022, but we expect ongoing stresses will keep margins compressed relative to pre-pandemic levels of 2%-3%, even as volumes remain strong," Fitch analysts wrote.
It's expected that hospital Medicare volumes will increase over time, absent service line and catchment area expansion, as the baby boom generation ages. "In addition, given the strong patient volumes, capacity constraints are re-emerging, with the need for capital spending and a corresponding increase in debt issuance," Fitch wrote.
As of Nov. 6, 373 hospitals across 139 systems in 39 states have been approved to participate in the Acute Hospital Care at Home program. Before the waiver, 20 of these programs existed across the U.S.
Healthcare heavyweights like the American Medical Association and the American Telemedicine Association joined major health systems such as Geisinger and Mass General Brigham along with tech-enabled companies to pen a letter to congressional leaders calling for at least a five-year extension to the CMS waiver.
“Without an extension, Medicare beneficiaries will lose access to Hospital-at-Home programs that have been demonstrated to provide excellent clinical outcomes and lower the costs of care,” the groups wrote in the letter released back in March. The American Academy of Home Care Medicine, Moving Health Home, Best Buy Health, DispatchHealth and Biofourmis were among the organizations that signed the letter.
Demographic trends will drive demand for these services, experts say. As the population ages—the percentage of the global population aged 65 and above is expected to rise from 10% in 2022 to 16% in 2050—at-home care will be crucial to meet healthcare demand and help older seniors age in place.
Hospital-at-home programs grew rapidly in the past three years despite the uncertainty of future Medicare reimbursement for the services, the groups noted in the March letter.
“The waiver must be extended to enable hospitals and health systems nationwide to continue building out the logistics, supply chain, and workforce for Hospital-at-Home (HaH) and to encourage multiple payers outside the Medicare program, including Medicaid programs, to enter the HaH market,” the groups wrote.
Many proponents would like to see the CMS and Congress make the waiver permanent, but a five-year extension would provide more certainty as regulators and lawmakers continue to evaluate the outcomes.