Escalating healthcare costs have been problematic in the U.S. for a long time. A range of proposals have been presented in an effort to undertake the issue, including single-payer healthcare and more free market solutions with a goal of boosting competition. RAND Corporation recently analyzed hospital costs and what could be done to limit them. They found that regulating hospital prices by setting (or capping) what private health plans pay could cut hospital spending by $61.9 billion to $236.6 billion per year. However, researchers found that this method has the most political resistance.
The Study
Using nationwide data from the federal Hospital Cost Report Information System, RAND’s study compared three policy options to determine which one would have the most influence on cutting costs:
Regulating hospital prices
Improving price transparency
Increasing competition among hospitals
The study found that although improving price transparency and increasing competition among hospitals could reduce costs, neither option would have as dramatic an outcome as price regulation. They estimate that price transparency could reduce costs by $8.7 billion and increasing competition—depending on the size of the change and market price sensitivity—could reduce spending by $6.2 billion annually.
Policy Challenges
All three policy options present challenges and are heavily reliant on several factors:
Price transparency: Success would vary in patient-driven scenarios (patients utilizing the information to research lower process) and employer-driven scenarios (employers establishing health plans that guide patients toward lower-cost hospitals).
Price regulation: Researchers tested this by switching average commercial plan costs to an amount similar to Medicare costs for a given hospital. Despite evidence of significant cost-saving potentials, researchers found major barriers to price regulations, including hospital closures, erosion of quality, and discouraging political hurdles.
Competition: Because current hospital markets are so concentrated, policymakers would need to thoroughly restructure hospital markets over and above what the study modeled for prices to reach competitive levels.
Political Pushback and Moving Forward
As reported by the Centers for Medicare and Medical Services, U.S. healthcare costs amounted to $3.8 trillion in 2019. Hospital spending accounted for the majority of that at 31% and increased to $1.2 trillion later that year. Although the study shows price regulation would have the most direct effect on reducing hospital spending, researchers pointed out that this approach routinely encounters the most political pushback, and the hospital community has decisively lobbied against price regulation, especially at prices comparable to Medicare. Moving forward, policymakers will need to consider the possible impact of various policies on hospital earnings and the quality of care as they examine alternatives for slashing hospital prices. They will also need to consider the political and administrative workability of all options.
The Coronavirus Aid, Relief, and Economic Security (CARES) Act Provider Relief Fund was initially established to provide funding to healthcare service providers impacted by the COVID-19 pandemic. While the financial support has provided much-needed relief, the programs introduced some additional rules and reporting requirements for healthcare providers. On October 22, 2020, the Department of Health and Human Services (HHS) updated its guidance on how providers should report their Provider Relief Fund (PRF) payments that have been allocated for expenses and lost revenues as a result of the pandemic. Below is an overview of what you need to know.
Key Clarifications to Instructions
Addressing some of the ambiguity present in the previous September 19 update, two key clarifications were set forth.
Method of accounting: The HHS has clarified that PRF payments should be reported using the provider’s normal method of accounting (cash or accrual basis).
Lost revenue definition: In a twist from prior instructions, which defined lost revenue as a negative change in year-over-year net patient care operating income, recipients may now apply PRF payments up to the amount of the differences between their 2019 and 2020 actual patient care revenue.
If recipients do not use PRF funds in full by the end of the 2020 calendar year, they will have a further six-month period in which to utilize leftover amounts for expenses attributable to the pandemic but not repaid by other sources, or to apply toward lost revenues in an amount not greater than the difference between 2019 and 2021 actual revenue.
PRF Reporting Requirements
The deadlines from here on out are as follows:
January 21, 2021: HHS portal opens for PRF reporting
February 15, 2021: Reporting deadline for all providers on use of funds, assuming all proceeds were accounted for in 2020
July 31, 2021: Final reporting deadline for providers who did not fully spend PRF funds before December 31, 2020
September 30, 2021: Due date for the single audit or program-specific audit reports for a December 31 year-end or the earlier of 60 days from the date of the issuance of the audit report
PRF recipients can start submitting PRF reports documenting how funds were spent or attributed beginning January 15, 2021. The level of reporting requirements differs by the amount received as follows:
Entities that received less than $10,000 in total from the PRF do not have to file a report
Entities that received more than $10,000 but less than $500,000 must submit a simplified report with only these broad expense categories: general administrative expenses and other healthcare-related expenses.
Entities that received more than $500,000 in PRF must submit a detailed report described below.
Entities that received over $750,000 in PRF may also be subject to an audit per federal regulations.
Audit Requirements
If an entity received more than $750,000 in PRF, they may be subject to an audit per federal regulations. Audits are required for entities (non-profit and commercial as it relates to PRF per HHS guidelines) that spent over $750,000 from federal grant funds in a reporting period. Note the difference between receiving $750,000 and spending $750,000. Some funds could have been received in cash but not yet spent.
Let MKR CPAs & Advisors help
Our trusted advisors are equipped with the expertise to help you unravel the complexities of these reporting requirements. If you need assistance, contact an MKR advisor today to get the conversation started.
