The Georgia Scroll
April 1998

Notes from National

Stock Market Poses Opportunities, Pitfalls, Challenges for Healthcare

October’s roller coaster stock market served up good news and bad news for healthcare financial managers. On October 27 the Dow Jones industrial average fell 554.26 points or 7.2 percent only to rebound more than 330 points the following day. The good news is that the underlying strength of the economy and the stock market correction are suppressing interest rates, so that record-low bond financing is available. Richard J. Henley, executive vice president and treasurer, Vassar Brothers Hospital, Poughkeepsie, NY, said he was able to fetch a long-term coupon rate of 5.375 percent on new tax-exempt bonds. The bad news is that the volatility of the market is causing treasurers to worry about the value of their portfolios in the long run and about the accumulation of unrealized gains and losses in the short run. Henley, who is HFMA National Treasurer, said FASB No. 124 ("Accounting for Certain Investments Held by Not-for Profit Organizations"), which requires him to post unrealized gains and losses, creates a seesaw effect on his financial statements. Henley’s advice is to choose a long-term strategy, ignore short-term volatility, and "keep a steady course".

"The managed care industry is another story," said Henley, referring to Oxford Health Plans’ decline in price of more than 62 percent. "The managed care industry’s payout has been high, and market pressures preclude raising prices," he said. According to Managed Care Week (November 3, 1997 p.1), even thought the average HMO stock was still up 11 percent for the year, many managed care companies will be temporarily blocked from access to new capital and forced to improve internal operations, especially management information systems.

AICPA Issues Guidelines on Year 2000 Costs

Guidelines for addressing accounting, disclosure, and auditor responsibility when reviewing how an entity addresses the year 2000 issue have been released by the American Institute of Certified Public Accountants (AICPA). Auditors will need to determine the company’s potential for material misstatements that could result from the lack of year 2000 update and the cost of the updating process itself. In 1996, the Financial Accounting Standards Board issued a rule allowing companies immediate write-offs for the cost of such computer changes. While the AICPA’s actions focus on accounting and finance activities, healthcare providers are reminded that liabilities may be attached to a variety of other products that are also affected by the year 2000 problem. These liabilities may be recognized in financial disclosures the entity makes over the next few years.

Payment For Retired Federal Workers’ Care is Limited to Medicare DRGs

HCFA can terminate a hospital’s Medicare agreement if the hospital knowingly fails to accept the Medicare rate as payment in full for inpatient services provided to retired federal workers who are enrolled in the Federal Employees Health Benefit Program (FEHBP) but who do not have Medicare Part A coverage, according to rules published in the October 29 Federal Register. The number of such beneficiaries has dwindled since January 1983, when federal workers began contributing to medicare withholding taxes. Prior to that date they were not eligible for Medicare benefits on the basis of their federal employment. Typically, hospitals and other providers rely on the payers who have contracted with the federal government under the FEHBP to process and screen claims for these beneficiaries at the Medicare DRG rates.

Capital Sources Still Strong for Long-Term Care and Senior Living Industries

Lenders and investors continue to view long-term care and senior living projects as an attractive option, according to a survey by the National Investment Conference for the Senior Living and Long Term Care Industries (NIC) and Valuation Counselors. Active lenders and investors responding to the survey reported that total debt and equity capital placed to date in these industries is $10 billion or more, with as much as $5 billion t $8 billion coming on stream each year. Financing terms now are as favorable or more than in 1996, with a current interest rate more favorable than in previous years, according to the survey. Also, lenders have expressed willingness to provide financing for facilities with more service and personal care components. Approximately 42 percent said the attractiveness of an assisted living project increased if it included a small number of skilled/intermediate nursing beds or a separate Alzheimer’s wing. The 1997 Lender and Investor Survey is available for $75 by calling the NIC at (410) 267-0504.

Better Performing Practices Maximize Physicians’ Time

Best practice physician offices maximize the practice’s most critical resource — the physician’s time, concludes a report released by the Medical Group Management Association. After analyzing data submitted by 353 multispecialty groups, MGMA researchers identified 16 "better performing practices". In these practices, total physician cost is greater than the median value of all multispecialty practices, and operating cost per nonsurgical procedure inside the practices’ facilities is less than the median value for all multispecialty practices.

Demographics such as payer mix, number of physicians, or managed care percentage, don’t drive the differences in better practices as much as better processes, noted David Gans, MGMA Survey Operations Director. Instead, better performing practices tend to have better information systems, strong physician/administrator teams, functioning strategic plans, and emphasis on cost control and on quality care.

Diabetes At Highest Levels Ever In The U.S.

More Americans than ever before are suffering from diabetes, with the number of new cases averaging 798,000 each year, the HHS Centers for Disease Control (CDC) and Prevention reports. In 1997, 15.7 million people-nearly 6 percent of the U.S. population – had diabetes. Minority populations suffer disproportionately from the disease, especially African-Americans and American Indians. Prevalence of diabetes among African-Americans rose 33 percent from 1980 to 1994, compared with 11 percent for white Americans. Among Americans aged 65 and older, 6.3 million persons (18.4 percent of this age group) have diabetes; among those aged 20 and older, 15.6 million (8.2 percent of all Americans 20 and over) have the disease. Of the 15.7 million people with diabetes, 10.3 million are diagnosed and 5.4 million are undiagnosed, CDC estimates.

Diabetes is the seventh leading cause of death in the United States, and costs more than $92 billion in medical expenses, disability, and lost wages each year, according to the estimate by the American Diabetes Association. Federal diabetes initiatives include new Medicare coverage for self-management services, expanded research on type 1 diabetes, and an Indian health initiative. The report appeared in the October 30 edition of CDC’s Morbidity and Mortality Weekly Report.

Concern About Managed Care May Lead To Regulation

Managed care enrollees are more worried than those with traditional fee-for-service plans that cost consciousness will outweigh the need for medical care, according to a national survey just released by the Kaiser Family Foundation and Harvard University. That concern may fuel the current legislative momentum to pass federal regulation of the industry. About half of those surveyed (52 percent) said government should protect consumers of managed care, while only 40 percent said such intervention is not worth the increased cost. While most insured Americans rated their own plan as grade "B" or better, a majority is still concerned about key aspects of managed care. A majority (59 percent) also said managed care plans have made it harder for people who are sick to see medical specialists. Half (51 percent) said managed care has decreased the quality of care for people who are sick. Preventive care, however, is one area where managed care is viewed favorably: 46 percent said managed care has made it easier to get services such as immunizations, health screenings, and physical exams.

Vladeck Warns of HCFA Problems

Former HCFA Administrator Bruce Vladeck is quoted in Medicine and Health as saying that HCFA is headed for a "meltdown" if Congress does not increase funding to address the considerable increase in the agency’s responsibilities generated by the Balanced Budget Act. HCFA staff have told HFMA and several congressional committees that while new funds have become available for fraud and abuse activities, there has been no additional funding for the new and ongoing processes required of the agency and its carriers and fiscal intermediaries. Congress has increased its need to develop an integrated data system to support the budget act requirements.

Back to April 1998 Scroll Index

Last modified: June 22, 2001