Hospital Executives Contemplate the Future Envisioned by the NC Senate
Senate budget writers make deep cuts to hospital reimbursements for providing Medicaid services, something hospital executives argue could hurt their ability to provide care.
By Rose Hoban
Dozens of hospital executives and employees roamed the hallways of the legislature Tuesday in an attempt to convince budget writers – in particular, those in the Senate – that they really can’t take more cuts from the state.
But many came away pessimistic about whether their message would be heard.
The budgets presented by the House and the Senate are far apart on how the state will reimburse for services provided to Medicaid recipients. Senate budget writers raise the assessment on hospitals to 28.5 percent of what they get reimbursed for providing Medicaid services. The Senate also imposes a single base rate statewide for inpatient services, which hospital officials say would be a cut for many of them.
Both chambers reduce Medicaid reimbursement across the board by 3 percent.
“There’s a perception in the General Assembly that hospitals are cash cows,” said Dick Brvenik, CEO of Carteret County General Hospital. “We don’t mind contributing to the assessment if it’s going to support other hospitals. But if it’s going to other things – going to the general fund and teacher salaries – that’s not right.”
Cuts upon cuts
Once a powerful lobby that got its own way at the legislature, in recent years hospitals have seen their state reimbursements dwindle, along with their clout with lawmakers.
Last year, the Medicaid assessment grew considerably, from a fixed rate that was first put in place in 2011 to a percentage. The assessment, in effect, requires hospitals to pay back to the state a significant chunk of what they get paid in return for being able to bill for Medicaid patients.
On top of the increased Medicaid assessments, the 2013 budget cut the reimbursement the state pays for outpatient services to only 70 percent of what hospitals bill for.
All these cuts have translated into lost jobs and frozen salaries for many hospital employees around the state.
“A couple of years ago, we lost 119 employees and 20 percent of our benefits,” said Jonathan Harrington, the nuclear medicine manager at Cape Fear Valley Medical Center in Cumberland County. Those cuts to benefits included the loss of 20 percent of all vacation time, no cost-of-living increases and no merit increases for employees.
“The employees of the health system took a big hit in order to keep the hospital afloat. We all dug in heels deep, and we took one for the team,” Harrington said.
Other hospital executives had similar tales to tell: Halifax Regional Medical Center CEO Will Mahone told of letting go about 80 full-time employees last year; CaroMont Health CEO Doug Luckett downsized his administrative positions by 30 percent.
“We’ve been telling our legislators that we’re a good example of how efficient you can be and still provide quality care,” Mahone said. He spoke proudly of the joint center at his facility, which received some of the highest-quality grades from federal regulators and the lowest number of joint surgery complications of any hospital in the state between 2009 and 2012.
“We save lives without fountains in our lobby and we don’t have a lot of luxury in our construction,” he said. “We can provide world-class quality in a community hospital.”
Floating the expenses
Several executives worried, however, about how the continued cuts might be starting to undermine the care that their facilities are able to provide.
“One thing that hospitals are always asked to do is float the loan,” CaroMont’s Luckett said. “We provide services at the time of need, hoping that we get paid for them later. It’s been the way we’ve done business for years.”
But Luckett said that now about 60 percent of his payers are governmental: Medicaid, which is paid through the state, and Medicare, which is paid directly by the federal government.
His 200-bed hospital does about $500 million in revenue each year, but has an operating margin of only about 2.5 percent, or about $13 million.
“Last year’s 3 percent [Medicaid] cut was about $400,000 to us; the cut to outpatient Medicaid was about almost a million,” he said, noting that this year’s additional 3 percent cut will mean another $400,000 in lost margin.
“We’re in the black this year, but if that Senate budget goes through this year as the predominant budget …” he paused. “We’re going to have to change care in a way that will be groundbreaking for us.”
Some hospitals are not doing as well. Halifax Regional’s Mahone said his facility has a payer mix of 55 percent Medicare, 20 percent Medicaid and 12 percent uninsured. So far this year, the hospital is in the red. He said some federal information technology stimulus funds may put them over the line into the black by the end of the year.
“We have some reserves,” Mahone said. “We’re anticipating that our bottom line will be .47 percent positive.”
But he argued that the cuts he has had to make have hurt the local economy in a county that struggles already with low incomes and poor health. According to the University of Wisconsin’s annual county health grades, Halifax County ranks 96th in the state in health status.
“We just did, through UNC, an economic assessment, and our organization is $157 million to our local economy each year. But now it’s 10 percent less, and there are 80 fewer jobs,” Mahone said.
What Halifax, CaroMont, Cape Fear and Carteret all have in common is that they’re well ranked for quality, they’re working on becoming more efficient and they’ve all received shared-savings bonuses from the federal Centers for Medicare and Medicaid Services for reducing unnecessary readmissions to their hospitals.
“We were rewarded by CMS for doing all the right things to reduce readmissions, but that means that inpatient revenue dropped significantly,” said Carteret board member John Davis. “The shared-savings money we got from Medicare didn’t cover the costs of us doing all the right things.”
“I am not supportive of the Senate budget,” said CaroMont’s Luckett. “I believe it may be trying to win on tax decreases for the general populace at the expense of starting to erode the health care infrastructure.”
Luckett met with Senate health and human services budget writer Ralph Hise (R-Spruce Pine) several months ago for coffee to talk about his operation. He said Hise was receptive then; but this week he was unavailable.
The executives all spoke of feeling like their efforts at improvement were overlooked by their legislators, and of how during a busy budgeting week there was little opportunity to sit down with them. Many said they were only able to meet with members of the House of Representatives, which produced a budget last week that is easier on hospital bottom lines. Senators, on the other hand, were scarce.
“The question I didn’t get to ask was what’s going to happen to the budget when we have this Medicaid reduction, because we still have to operate,” said Frank Campbell, patient transportation director at Cape Fear. “We have to purchase equipment; we need all those things to provide quality care.
“So when we have these additional assessments, which is about 30 percent of Medicaid, who’s going to make that up?”
Halifax Regional’s Mahone said he understood the desire of Senate budget writers to get costs under control. He said he had the same goal for his organization.
But with so much in the health care world changing, he said he had one message for lawmakers: “I’m asking for the time to transition.”