In the health-care business, it’s always something.
The latest crisis for Louisiana hospitals is the recent cuts to the state’s Medicaid program, which pays for health care for the poor. Hospitals are just starting to deal with those cuts, and more are expected later this fiscal year.
But if this year is bad, next year could be catastrophic. That’s when the federal match for state Medicaid dollars is expected to drop from 80% to 63%—a change that could cost the state’s $6.5 billion Medicaid budget an estimated $472 million annually. No one knows how hospitals would be affected; Department of Health and Hospitals Secretary Alan Levine has told legislators those decisions still are months away. But it won’t be pretty, and some hospitals might have to close their doors permanently.
At issue is the Federal Medical Assistance Percentage, which determines how much money the federal government gives states for Medicaid. The rate is determined by a state’s per-capita income relative to the nation, on the theory that wealthier states don’t need as many federal Medicaid dollars. Louisiana’s per-capita income has grown post-Hurricane Katrina, while the state’s economy has suffered less than others during the national recession, leading to the lower reimbursement rate.
Levine, Gov. Bobby Jindal and the state’s congressional delegation are pushing for new rules that would prevent drastic reimbursement rate changes when a state has a disaster-driven income spike. John Matessino, president of the Louisiana Hospital Association, recently returned from a trip to Washington, D.C.
“We just don’t feel like our plight is gaining any traction,” Matessino says. He says Congress seems to have “Katrina fatigue,” a sense that Louisiana already has been helped enough. Aides for Sen. Mary Landrieu dispute that assessment, saying federal officials are well aware of the issue and have been working with the delegation for months to find a legislative solution. But it’s a complicated, expensive and highly technical process to change the formula, which has been used for decades. In any event, the formula likely won’t be changed before Louisiana begins writing its next budget.
“This is not a false alarm,” Levine says. “This is real. All bets are off when you are talking about that kind of reduction.”
James Cathey, CEO of North Oaks Health System, says he can’t speak for everyone in his industry. But he says hospitals already are running out of ways to deal with this year’s cuts, which makes further cuts a scary prospect.
“I think there will be some hospitals that close,” he says. “There definitely will be services eliminated and layoffs, and that’s going to be in almost every hospital.”
This year’s reductions, one effective in February and one in August, equate to more than $10 million in losses for Capital Region hospitals, LHA estimates. That might not sound like a huge number. But LHA says 57% of hospitals have an operating margin of less than 1%, and 43% are losing money. With margins like that, a cut of even a few percentage points can put a hospital in the red. Even a “nonprofit” hospital needs to turn a profit to keep up with rising costs.
“We fully expect there will be layoffs at some point between now and the end of the year for hospitals around the state,” Matessino says. If there’s another cut in the middle of this fiscal year, as many expect regardless of what happens with FMAP, small hospitals might have to merge with larger ones if they want to survive.
Officials say local hospitals aren’t laying off workers now, although many are trying to reduce staff through attrition. Programs that don’t make money could be eliminated. Even before the most recent cuts, the government wasn’t reimbursing providers for the full costs of treatments under Medicaid or Medicare, the federal program for seniors. Private payers subsidize the difference. That subsidy equates to about 20 cents out of every dollar that a business owner spends on health insurance, according to one estimate provided by LHA. Every time there’s a cut to either program, that “hidden health tax” becomes more expensive for everyone.
At Woman’s Hospital, Medicaid is the largest payer, representing about 40% of patient revenue.
“Any time we get anything less than an increase, it’s the equivalent of a cut,” because costs continue to rise, Woman’s CEO Teri Fontenot says. Woman’s put construction of its new campus at Airline Highway and Pecue Lane on hold because of high interest rates, but won’t restart the project until it has a little more stability from the Medicaid funding stream, she says.
Fontenot says she doesn’t expect to lay off any of the hospital’s 1,800 employees. “We think we staff pretty lean now,” she says. Woman’s eliminated merit bonuses in February, and the hospital is looking at adjusting benefits. Administrators also are eliminating services that aren’t considered part of the core mission, including a mental-health counseling center and home-health services outside of a 50-mile radius. Fontenot expects flat revenues this year, except for investment performance, which is down 25%.
Scott Wester, CEO of Our Lady of the Lake Regional Medical Center, says 15 years in the health-care industry have taught him to expect the unexpected. A Medicaid cut is just one more unbudgeted item with which to deal. But the $3.8 million hit he took this year represents less than 1% of the organization’s total revenue, so while the hospital may have to adjust some operational expenses, it has no plans yet to cut specific programs, he says.
The Baton Rouge General Medical Center absorbed about $4.1 million in the last round of Medicaid cuts, the most of any local hospital.
“Our bottom line this year for our budget was to hit a target of $3 million,” COO Edgardo Tenreiro says. “Our entire bottom line, if we were to operate the same way we did this year, would be entirely wiped out.”
The first area that takes a hit is capital investments like new technologies and improvements to the rooms, he says. Standardizing some of their pharmaceutical costs can help, although getting 500 doctors to agree on the same generic drug for any given treatment isn’t easy. Using contract labor during peak times can help the hospital avoid making permanent hires.
The state-budget shortfall is expected to grow over the next couple of years, which is a scary prospect for health care and education, usually the two biggest areas on the chopping block. Federal stimulus dollars that helped soften the blow this year won’t be available next time.
“If we think this year is bad, next year is going to be even worse,” says Baton Rouge General CEO and LHA board chairman Bill Holman. “If oil and gas prices don’t come back in a big way, we’re really going to get hit next year.”
Most private doctors also took a 10% cut in Medicaid reimbursements. Unlike hospitals, doctors don’t have to see Medicaid patients. If more decline to do so, a growing number of poor patients could end up in hospital emergency rooms, which could put even more stress on the system, as could a hurricane, or a spike in patients suffering from the H1N1 virus. The LHA survey says 56% of hospitals already are seeing an increase in emergency room visits by uninsured patients, and half have seen a decrease in elective surgeries, likely due to the weak economy.
Hospitals recently received some good news when they found out Medicare would not be cut this year, although reimbursements still won’t keep up with the rising cost of services and it remains to be seen how federal health reform will affect the program. The health-care reform debate, which even professionals can have trouble following, looms as perhaps the biggest X factor on the horizon. Matessino expects to see cuts to hospitals and health-care providers there as well.
“The next two years will be very historic, whatever happens,” he says. “I haven’t decided whether that’s historic good or historic bad.”
The state’s 212 hospitals represent about 95,352 direct jobs and $3.62 billion in wages, according to a 2006 report. A Louisiana Hospital Association-commissioned study says hospitals create about $27.4 billion in annual business activity, including $12.9 billion in direct expenses.
SURVEY SAYS…
Of the hospitals that responded to a recent Louisiana Hospital Association survey:
69% had seen a decrease in patient account collections
50% had seen a decrease in elective surgeries
56% had seen more emergency-room visits by uninsured patients
55% had frozen or reduced capital purchases
32% were considering doing so
32% had halted construction, equipment purchases and other projects
23% were considering doing so
40% reduced staff by eliminating vacant positions
31% were considering it
19% had reduced patient care services
4% were considering doing it
17% had reduced community benefit programs
17% were considering it
