Hospital payments have been substantially affected by the Change Healthcare cyberattack, report finds

Newly published data reflect the extent of the payment loss experienced by hospitals and health systems during the first month or so after the Change Healthcare cyberattack.

A report (registration required) published in mid-May by Strata finds that gaps in expected revenue ranged from 16.5% to 17.9% per hospital for Q1. The insights were culled from a database of more than 1,600 hospitals.

The shortfall was 17.1% for the smallest hospitals, including 20.4% in March. Those hospitals — defined as having annual operating expenses of less than $500 million — may struggle to make up for a short-term deficit.

Larger hospitals — those with $2.5 billion or more in operating expense — also took a bigger-than-average hit, at 17.9% for the quarter and 21.1% in March.

Strata conducted the analysis of Medicare and commercial payments by examining a six-month period, comparing Q1 2024 with the final quarter of 2023. The analysis incorporated adjustments to account for typical claims-processing delays in February and March.

In response to the crisis, UnitedHealth Group, parent company of Change Healthcare, has made loans available to providers through Optum’s Temporary Funding Assistance Program. The company says providers do not have to finish repaying the loans until 45 business days after determining for themselves that their cash flow is back to normal.

CMS offered Medicare advances based on a 30-day average of payments made to providers from August through October 2023. Required repayments were set to kick in immediately, meaning Medicare would not pay the provider’s claims until full recoupment had been made.

If there is a remaining balance after 90 days, Medicare will issue a demand for that amount. Interest will start to accrue after 30 more days. The 90-day mark will arrive in mid-June for most recipients.

Better news in the big picture

While cash flow remains a concern, overall financials for hospitals are on solid footing when compared with the middle and later phases of the COVID-19 public health emergency, Strata reported.

Year-to-date (YTD) median operating margin ticked up to 4.7% in March, compared with 0.0% YTD in March 2023. But the improvement may have plateaued: The median change in operating margin was lower by 0.1 percentage points year-over-year (YOY) and fell by 0.3 points from February to March.

The median change in EBITDA margin was 0.4 percentage points lower YOY and 0.5 points lower than in February.

There also was significant variation by region over the past year, as seen in a YOY median increase of 1.5 percentage points in operating margin for hospitals in the South, compared with a 2.9-point decrease for those in the Great Plains.

Nationally, gross revenue, inpatient revenue and outpatient revenue all have increased YOY for 11 consecutive months.

Expenses may be moderating

The trend on the expense side partly reverted to that seen in 2022, with labor costs increasing more quickly YOY (3.5%) than non-labor expenses (2%) for the first time in 18 months. That may foreshadow relief in supply and drug costs, both of which had been accelerating more sharply, the report posits.

The American Hospital Association (AHA) in early May released a report that highlighted the continuing cost and margin pressures on the sector. As inflation increased by 12.4% between 2021 and 2023, the report notes, Medicare payment for inpatient care rose by only 5.2%.

The report, which was issued with an eye toward persuading policymakers to take steps to support the sector, also cites Strata data showing days cash on hand dropped by 28.3% between early 2022 and June 2023.

“Ongoing reimbursement challenges, made worse by crises like the recent Change Healthcare cyberattack, and increased operating costs create an unsustainable financial environment,” the AHA wrote.