Takeaway: NFP Hospitals are notoriously inefficient because they could be. Labor unrest like in MN is sure to continue for middle market providers

Editor's Note: Hedgeye Health Policy analyst Emily Evans explores Health Policy in a post-Covid world. For more research and analysis, click to learn more about Health Policy Unplugged.

The Battle Between Insurers and Providers Rages - 2022 09 14 12 44 27

In the post-COVID health care world, tough decisions must be made. It is an industry that has known little deprivation since the 1980s when CMS shifted from reimbursing on a cost plus basis to a prospective payment system. The headwinds are not equally distributed, however. 

In the name of indigent care, non-profit hospitals have benefited from several external revenue sources that often result in poor incentives. For example, the 340B program encourages infusion drug utilization. Non-profit hospitals generally pay no property or income taxes in all lawyers of tax jurisdiction in which they operate. Their cost of capital is reduced by their access to municipal bond markets.

Non-profit - or as former Lifepoint CEO, Bill Carpenter used to say, "non-tax paying" - often operate with out the cost controls that have made HCA and THC successful. The Census Bureau's Quarterly Services Survey released last week continues to illustrate this disparity. 

Expenses per inpatient day for tax-exempt hospitals are a little more than twice that of taxable. 

In this new world order where elevated wage levels appear likely to hang around for a good while, the battle between insurers and providers, rages. Historically providers win that war but when they don't, it is the local and regional market participants that suffer the most.

No surprise, then, that the Minnesota nurses strike affects a group of middling size providers like Essentia Health and Allina. To accommodate reimbursement from commercial payers and the lag in government payment updates, labor costs must be reduced or moderated. 

It is these operators who will bear the brunt of higher labor costs. Market share is not compelling enough for insurers to pay up and reforming the cost structure will take time. 

Tax-exempt hospital account for the majority of patient care in the U.S., about 82% of all discharges. 

The Battle Between Insurers and Providers Rages - 2022.09.13 Chart of the Day