Written by Don Ratzlaff Tuesday, 04 December 2012 17:48
The chief executive officers of the two critical access hospitals in Marion County see the possible 2 percent across-the-board sequestration cut in Medicare spending starting Jan. 1 as a financial hit, but not a knockout punch.
The cut could still be negated by Congress, but Washington’s recent track record for gridlock doesn’t leave local administrators hopeful.
“We saw this coming so we budgeted the decrease into our budget,” said Jeremy Armstrong, CEO at St. Luke Hospital and Living Center, where the cut would reduce revenue by $56,000 for the year.
“If we don’t hit budget—if our volumes don’t stay like we expect—we could potentially down the road have to make some changes,” he added. “But right now, if we hit the budget and volumes that we’re expecting, we should be OK.”
At Hillsboro Community Hospital, the 2 percent cut would mean a revenue reduction of about $67,000, according to CEO Marion Regier.
That loss in itself wouldn’t be devastating, she said. But if other Medicare cuts come to pass—such as the elimination of full reimbursement for unpaid patient debt ($30,000 per year) and a reduction in the percentage of reimbursement for allowable costs to treat Medicare patients ($38,000)—the impact would be keenly felt.
“All those cuts, if they were to come into play, would be about $132,000 per year, which is significant,” Regier said. “We ended last fiscal year with a gain. This would basically eliminate that.
“It puts you pretty much at break-even, and there goes your cash for expansion, capital purchases and that kind of thing.”
Critical access hospitals are reimbursed for bad debt—in other words, the portion that Medicare does not pay and that patients can’t or will not pay.
Armstrong said even though the percentage of bad debt at St. Luke is relatively low, the percentage has been increasing in recent years.
“People just aren’t able to pay their bills,” he said. “Right now we’re running around 2 or 3 percent. Traditionally, it’s been lower than that. Compared to other facilties, it’s still pretty low.”
Another factor in St. Luke’s favor is that it is completing its first year of operation with a newly renovated and expanded facility. The upgrade has generated some economic benefits.
“We’ve done well overall financially—we did beat budget last year,” he said. “This year we started off strong, volume-wise, as well. That’s the kind of the measure that we’re using—what kind of demand are we seeing for the service we’re offering.
“The real benefits, though, are what our patients see whenever they come here but we don’t necessarily always get paid for— more efficiency within the organization and better satisfaction from the patients who are coming here.”
Options on the table
In the face of likely reductions, the two local hospitals will need to find adjustments in their operations.
For St. Luke, which benefits from a taxing district, raising the mill levy is not an option, according to Armstrong.
“Increasing the mill levy is something we have really avoided at all cost for the last seven years—for good reason,” he said. “It just doesn’t do anything good for our local economy whenever you’re raising taxes.”
Armstrong said the mill levy actually has been reduced in recent years.
“We try to keep the (tax) dollars coming into us at relatively the same number as in the previous years,” he said. “As valuations go up, we try to decrease (the mill levy) in a proportional fashion.”
Hillsboro Community, meanwhile, is one of a dozen hospitals owned by HMC/CAH Consolidated, a Kansas City-based for-profit company that “desires to become a leading consolidator of critical access hospitals,” according to its website.
To counter revenue reductions, Regier predicted critical access hospitals may be forced to rethink the makeup of their patient pool and rely less on Medicare patients.
Medicare is the federal health insurance program for persons age 65 and older.
“What has to happen to compensate for those Medicare cuts is to increase your share of patients who are commercially insured,” she said.
“We’ve increased that already with the addition of Dr. (Shauna) Kern. Our rural health clinic has brought in new patients who are commercially insured, so the mix has changed a little bit.”
Both CEOs said a reduction in staff cuts is not a feasible option.
“We’ve already done a lot of that here,” Regier said. “We can’t cut any more staff. We’re down about as lean as we can be with still being able to provide the quality of care that we do.”
Armstrong said cutting staff or services is unacceptable.
“We know those are things our community and our patients count on,” he said. “Anytime you look at counting jobs, it’s just a snowball effect. Marion has seen its share of challenges in businesses closing. The last thing we want to start to do is lay off people.”
Both Armstrong and Regier look to the future of rural hospitals with some trepidation.
“Obviously I’m concerned,” Regier said. “The health-care system as it stands today can’t sustain itself. There are too many entitlement programs for our national budget to support. Something has to give somewhere.
“As to who will be cut and who won’t, it’s hard telling. Every group is lobbying with the legislators.”
“I have some concerns,” Armstrong admitted. “Uncertainty is probably the biggest one. I like to think that if we know what the plan is going forward, we’ll certainly do our best to provide care for our patients.
“But there are so many unwritten regulations and so many gridlock things going on in Washington nowadays that it creates uncertainty for us.
“So we’re going to continue doing what we’re doing now for as long as we can until the reimbursements create a situation where you have to go back and reevaluate it.”
Some rural hospitals may face a harder reality.
“There are going to be some that may not make it,” Regier said. “It’s going to be tougher. People are going to have to do more with less.”