Critical Condition Financial Challenges in Health Care Threaten Jobs, Access to Treatment

The financial challenges to hospitals and other health care organizations have been well-documented for many years: a significant gap between the cost of treatment and what Medicaid and other payers actually reimburse; rising costs of medicine, technology, and cutting-edge procedures; ‘free’ emergency care that has strained hospital ERs and budgets. The list goes on.

But when the region’s leading health system is simultaneously building a $259 million expansion and announcing layoffs at the same time, something different is happening.

“We’ve had to take a hard look at our operating costs, and we think we need to reduce our base of operating costs in order to continue to meet our financial objectives,” said Chuck McLean-Shinaman, chief financial officer at Baystate Medical Center in Springfield, one of several area hospitals to announce staff cutbacks in the wake of recently announced state Medicaid cuts; the impact on Baystate alone could be close to $20 million. “We feel we need to hit certain operating performance targets in order to be able to generate the resources we need to invest in programs, operations, and facilities.

“In light of the pressures of this economy, we have to readjust our cost base to make sure we’re still hitting those goals,” McLean-Shinaman continued. “Part of that is reassessing staffing levels, and we’ve recently removed about 170 full-time-equivalent positions.” Of those, 55 are non-clinical management and staff, and about 120 more are vacant positions that will not be refilled. “We deliberately in this process looked at our management ranks and especially avoided our direct patient-care staff.”

Meanwhile, Cooley Dickinson Hospital in Northampton is cutting 47 jobs and eliminating 29 positions by not filling vacancies, a tough decision made at a time when the hospital is facing a $2 million budget shortfall and $850,000 in losses directly related to the Medicaid cuts, President Craig Melin said.

Cooley is also reducing costs by eliminating an on-site shuttle service, reducing cafeteria hours, and postponing raises for non-union employees until January. Senior staff and hospital-based physicians have also opted out of salary increases in 2009. These moves come a year after CDH opened a new, $50 million surgical center.

Other hospitals have not yet reduced staff, but administrators at all area institutions are keeping a careful watch on the situation.

What’s happening, health care leaders say, is a ‘perfect storm’ of the industry’s traditional fiscal challenges as well as a slowing economy that not only has individuals delaying the kinds of elective procedures that make institutions money, but also has the state deeply slashing budgets across the board, including for health care.

“I think that, in some respect, the economic strains on society have potentially far-reaching effects,” he said. “If the economy continues its downward trend, we’re likely to have more companies out of business, more layoffs, and people losing their health insurance. That’s a far-reaching phenomenon,” Dr. Bruce Auerbach, president of the Mass. Medical Society, told The Healthcare News.

“In terms of the cuts government has implemented, the latest concerns for us as a medical society are the state continuing to move forward on its promised concessions on Medicaid reimbursements, expansion of coverage for the uninsured, and then reduction of services around alcohol and substance abuse, as well as some of the smoking-cessation programs that are normally earmarked.”

To Auerbach, those sorts of cuts make no sense, not only for public-health reasons, but from a fiscal standpoint as well. That’s because health care on all levels, from hospitals to health plans, has embraced a model of preventive medicine in recent years, understanding that keeping people healthy simply costs less than treating them when they’re ill. “We’ve moved toward prevention as a way to get our arms around health care costs,” he said.

One thing is certain: all stakeholders in the health care industry are trying to wrap their arms around a financial crisis that has put serious strains on facilities that, in many cases, were already fighting to stay in the black — a crisis that could well get worse before it gets any better.

Domino Effect

Indeed, the economic challenges right now seem only to be layering atop one another. For example, at the same time that hospitals are facing funding cuts and reimbursement shortfalls, the economic downturn has forced individuals to defer major procedures and elective treatments — the very services that are among the most lucrative for hospitals and tend to subsidize the free emergency care and unpaid medical bills that are both increasing as a result of the slow economy.

According to a survey by Citi Investment Research, overall inpatient hospital admissions were down by 2{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} to 3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} nationally in September compared with a year earlier. Gary Taylor, who conducted the research at 112 not-for-profit hospitals, said that, during the economic downturn, “the only way patients are going to tap the health care system is through the emergency room,” when they no can longer delay treatment.

The New York Times, in reporting on the survey, quotes Richard Gundling, an executive at the Healthcare Financial Management Assoc., as asserting that “hospitals have to balance the mix of patients in order to survive.” But a continued trend toward delaying treatment — which translates into less money for hospitals — could contribute to further layoffs, consolidating or closing facilities, and putting off needed construction project. In addition, the newspaper notes, credit market problems are affecting not-for-profit hospitals that rely on raising capital for new developments through the municipal bond market. These developments and others, some analysts say, are seriously threatening an industry long thought to be recession-proof.

“We are starting to see the impact of that trend,” McLean-Shinaman said. “Over the past quarter, we did begin to see a decrease. We’re still very full because we have such heavy emergency volume, but there has been a dropoff in many elective procedures.”

Other trends haven’t exactly helped hospitals, he said, including a move by Medicare over the past couple of years to tighten its reimbursement structure and move some cases that were previously categorized as inpatient to the outpatient category for payment purposes.

“What that means is, the patient still stays in the hospital, the patient still receives the same care and the same supplies, whether it’s an implant or a pacemaker, but now he qualifies for payment as an outpatient, which is substantially lower,” he explained. “That’s been evolving over the last year, and it’s really hitting us and other providers across the country.”

All these trends are taking shape, of course, in the midst of the hospital’s $259 ‘Hospital of the Future’ endeavor, a massive construction project scheduled to continue into 2012.

“From a financial-planning perspective, Baystate has always been very deliberate and disciplined, so as we look ahead, we’ll determine how much in resources we need to provide the services to the population, and we plan our operations at a level to be able to generate the funds that we need to be able to reinvest in programs, technology, and facilities,” he said.

That said, he argued that the Hospital of the Future isn’t an expansion project as much as a needed replacement effort, and it will go forward largely as planned.

“We firmly believe that this project is necessary, and that the project will take place,” he told The Healthcare News. We’re double-checking our assumptions and plans right now in light of current events and seeing if there’s anything we should modify, but we are still going ahead.”

‘The Safety Valve’

The most pressing local example of financial distress in health care might be Providence Behavioral Health Hospital in Holyoke, which is part of the Sisters of Providence Health System, and is the state’s largest provider of behavioral-health services outside metro Boston.

Due to severe gaps between the cost of care and reimbursements from Medicaid and other payers, it’s also in a chronic state of underfunding — so much that the state has poured $19.5 million into Providence over the past five years alone from the Essential Community Provider Trust Fund. There’s a general recognition that the hospital’s chronic shortfalls are not a matter of not filling beds; Providence’s services are typically full or near capacity.

“Clearly there’s a recognition by the local legislative delegation and by the Patrick administration of the vital role Providence plays in Western Mass. as a provider of behavioral health services,” said state Rep. Daniel Keenan, D-Agawam. That’s reassuring to the hospital’s leaders, but words aren’t money, and Providence has not yet received its annual influx of emergency funding this year, although administrators expect to.

They had better, said Mark Fulco, vice president for strategy and marketing for the health system.

“We remain the safety valve, the provider that has stayed loyal to patients who need these types of services,” he told The Healthcare News. “The state essentially got out of the behavioral health business in this area, and we have shouldered that burden, not only for ourselves but also for other hospitals.”

If Providence didn’t exist, he argued, many of the 1,000 or so patients who use the facility every day would find themselves at other area hospitals, whose emergency departments and other services are already strained, and where similar care would, in many cases, be more expensive.

“As much as we appreciate the good job Dan does advocating for us in getting these funds, you’ll find that our local competitors advocate for us almost as hard,” echoed Dr. Les Smith, chief medical officer at Providence. “They’re well aware of these issues, and they have no desire to take on the burden of these very difficult-to-manage patients, so they want us to continue with our mission. There’s always a certain amount of competitiveness for funds, but even in the midst of competition, they will say, ‘don’t forget about Providence,’ because if we weren’t here, this would fall to their bottom lines immediately.”

Keenan said the state is working toward some kind of structural, rate-based solution that would keep Providence funded and avoid the annual questions about its long-term viability — and largely eliminate the need for those emergency funds.

As in other examples of fiscal stress in health care, the current financial challenges have a dual impact. Economically, closing Providence would be a major job loss for the region. But there’s also the matter of the thousands of patients who use services at the hospital, including the region’s only inpatient elderly psychiatric and inpatient child psychology programs.

Smith cited research suggesting that the number of behavioral health-related incarcerations tends to increase proportionately to the closing of behavioral health hospital beds in any given region of the country. “These folks end of somewhere, and often that’s in the criminal-justice system. Our prison system is delivering much of the care that used to be delivered by state-funded facilities. It’s not right, it’s not fair, and it’s not something this country should be proud of.”

“It’s very much a silent problem. These are by their very nature things that people don’t talk about much,” Fulco said. “But if the same situation were happening with open-heart surgery, or perhaps a neonatal intensive-care unit, where reimbursements were at a similar level compared to the costs, there would be a public outcry and a lot of attention paid to it.”

Hope and Despair

Auerbach noted some good news amid the bad: the Patrick cuts will preserve the planned expanded coverage of the health care insurance reform law. Yet, MassHealth Indemnity, which pays primary care physicians, specialists, and all other providers who bill on a fee schedule, will be reduced by 3.3{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5}. For Medicaid managed care, the budget is reduced by a similar percentage. Worse, these cuts also result in the loss of federal matching dollars, meaning a savings of $150 million to the state will require about a $300 million reduction in payments to providers.

In a recent interview with WBZ Radio, Auerbach noted that said cuts to community health centers, which help fill a need in providing primary care services, “would only worsen any of the problems out there, whether it’s long waits for appointments and delays in preventive care and care for patients with chronic disease. The cuts are only going to accentuate any existing problems that were there before the cuts.”

Hit particularly hard is the Department of Public Health, with cuts totaling more than $28 million, including a 12{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} cut to universal immunization programs, a 4.1{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} cut to smoking-cessation programs, an 8.8{06cf2b9696b159f874511d23dbc893eb1ac83014175ed30550cfff22781411e5} cut to disease-prevention programs, and significant decreases in funding for substance-abuse treatment and behavioral health services, which, as Auerbach and others have noted, will directly strain already-overcrowded emergency rooms across Massachusetts.

Smith said decisions that impact institutions like Providence on multiple fronts — specifically, funding cuts combined with payers pushing for shortened lengths of stay — forces some tough decisions on whether to lose money on a difficult patient or push him back into the community. Providence’s mission compels it to choose the former, he said, which is why it relies so heavily on emergency funding. “We’re victims of this environment on multiple levels, and it’s frightening,” he said.

As for the area’s largest hospital, “our number-one priority is to make sure we’re good stewards of our resources so that Baystate will always be in the community,” McLean-Shinaman said. “We’re very positive about our future and our financial viability. We’re not going out of business.”

Right now, as economic gloom deepens over the U.S. and the region’s hospitals and other health care providers brace for additional hits, that’s small comfort indeed.