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KershawHealth could lose $32 million by 2018

Chairman: strategic moves needed to ‘keep our doors open’

Posted: July 2, 2013 5:34 p.m.
Updated: July 3, 2013 5:00 a.m.

$31,892,936.

That’s how much money KershawHealth could lose by 2018 if gross patient revenues stay flat and the state of South Carolina continues its stance of not expanding Medicaid. It’s a worst-case scenario KershawHealth administrators presented to the KershawHealth Board of Trustees during a morning finance-focus meeting June 27.

KershawHealth Vice President and COO/CFO Mike Bunch led up to the revelation by talking about several different factors, including but not limited to Medicare and Medicaid underpayments, a continued decrease in inpatient admissions and surgeries, and a payor mix trend that reflects a decrease in revenues from commercial insurers.

“We have a smaller in-patient market size. We then have a smaller piece of that pie,” Bunch said. “The punch line to this is that we do have a five-year projection that shows quite a bit of loss in revenue as a result of the state of South Carolina not participating in the Affordable Care Act and it looks like … about $32 million.”

That loss of revenue would then contribute to a $31.463 million decrease in net assets at the end of the same period, according to projections Bunch provided.

Those projections estimate that continued Medicaid cuts and reduced Medicaid disproportionate share hospital (DSH) payments would contribute nearly $11 million of the $32 million loss. New reductions -- federal government sequestration, another round of Medicaid DSH reductions and lower Medicare reimbursements would account for the other nearly $21 million of losses.

Things would be somewhat better if South Carolina changed course and expanded Medicaid. That expansion would contribute back more than $26 million, cutting the overall losses by 2018 to approximately $5.5 million.

Without Medicaid expansion, Fiscal Year 2018 would see nearly $9.2 million in losses alone.

Trustee Bobby Jones expressed alarm at the figures.

“If you go by these numbers … it seems like it’s going to be impossible -- you’ve got to do something to keep the doors open,” Jones said.

Bunch agreed it would be a challenge.

“I think that volumes, while there is a lot of discussion -- and rightfully so -- about quality, hospitals today are still predominantly, extremely sensitive to volume. That transition will be occurring more toward quality and value as opposed to volume over the next, five to seven to 10 years. It’s going to gain steam. But, as we sit here today: volume, volume, volume,” Bunch said.

Until other portions of healthcare reform kick in, government reimbursements are tied to procedures instead of outcomes. Meanwhile, as it has for much of the past two years, KershawHealth continues to report lower patient volumes. Fiscal Year to Date for 2013 as of May 31, admissions are off 10.4 percent compared to this time in FY 2012; total surgical cases are off 13.3 percent; and deliveries are down 30.8 percent.

With those facts in mind, those board members present -- Jones; Chairman Paul Napper; and trustees Don Witham and Scott Ziemke -- along with Bunch and KershawHealth President and CEO Donnie Weeks, focused on the possible impacts and what it might mean for the future of the healthcare organization.

“We’re looking at a $32 million loss from Medicaid and the Affordable Care Act in five years,” Napper said, after confirming with Bunch that KershawHealth’s overall budget is approximately $100 million. “If we do nothing, that would deplete our reserves. We’re going to do something, but that’s how serious this problem is, that we have got to make some strategic moves to ensure that we do keep our doors open.”

According to May’s financials, cash and investments totaled $37.3 million, with the number of days cash on hand reduced from 119 to 112 due to three pay periods that month.

Napper said he wanted to make sure the public realizes that KershawHealth is in “dire straits,” but is working to deal with these impacts.

“Some people look at our $37 million in reserve and think that’s extraordinary,” Napper said later in the meeting. “They don’t realize, it could take a $1 million to $2 million swing in a month. People need to know that we’re not ‘rat-holing’ and storing money; it’s that we can’t function at this level for much less than that.”

Ziemke agreed something needs to be done.

“Given what we’re looking at, we may not be able to keep the hospital configured as it is currently configured to keep it open, but we are charged with the responsibility to ensure that it is able to stay open,” Ziemke said.

Weeks noted that KershawHealth is the most commonly used “point of access” to healthcare for the people of Kershaw County.

“As we have this discussion, we can impact this with expense reductions, as we have been doing all along, and we’ll continue to do that, but the greatest impact -- the most significant impact -- does come from more services used by the people of Kershaw County at KershawHealth,” Weeks said. “The main driving factor for that is to have physicians -- the appropriate specialties and the appropriate number of those specialties that are able to provide the services to the people.”

Weeks said that need is tied back to the healthcare organization’s medical staff development plan, and that the board and administration should follow that “roadmap” for recruitment. He also said KershawHealth, within the laws and regulations it is bound by, should support existing medical staff to make their practices successful and grow through recruitment.

“So, it’s new positions, but it’s also working with the existing physicians to get the volume up. Fortunately, we’ve had a history of having a large portion of that … ‘pie,’ the market of people who use healthcare services who live in the county, but the pie is shrinking because fewer services are being used. Our portion of the pie … has been shrinking, too, in the last year or so,” Weeks said.

He said, however, that there are opportunities to be had with a “critical mass” of population in Kershaw County that can help KershawHealth to be “very vibrant, as long as they come here for the services.”

Napper said one of the things he believes the board must do is to define KershawHealth’s core services. He said the board’s strategic planning committee, headed by Witham, is now meeting twice a month to help determine the direction KershawHealth must go.

“But I don’t think we can continue to offer everything that we’ve offered in the past,” Napper said. “Maybe we can, but it doesn’t look good going for the next five years. But there’s services we’ve got to offer if we’re going to keep our doors open.”

Weeks agreed, saying many hospitals across the country are having to redefine their healthcare systems and what they do in terms of delivering services.

Also during the finance-focus meeting, Bunch provided a breakdown of how KershawHealth is paid by Medicare for inpatient hospital stays. He said there are 25 to 30 “boxes” worth of data points, all of which can impinge on a base rate of roughly $5,300 for the current fiscal year. The different data points determine the patients’ “intensity” -- how much care they need. Some patients’ visits will actually create situations where KershawHealth is paid less than the $5,300; in other cases, more. Sometimes, much more.

“To say it’s complex would be an understatement,” Bunch said.

He said whether KershawHealth receives more than the base rate is based on coding, the system by which medical diagnoses and procedures are documented. Proper documentation, he said, is key.

One of the many factors is a wage index. Bunch said the Centers for Medicare & Medicaid Services (CMS) has a schedule for every hospital in the country and that they are all different. Where KershawHealth falls on that wage index could change how much of a reimbursement it receives, he said.

“So, there’s all kinds of ‘ifs’ and ‘thens’ in here. Keep in mind CMS may change any of these boxes. So when we talk about Medicare and Medicare cuts and Medicare reimbursements and so forth -- when we talk about the pressures on reimbursement, those pressures can exert themselves through any of these boxes,” Bunch said. “It’s such a complex formula that we have to really monitor as many of these boxes that we can help impact locally as we can.”

Bunch also went over the May financials, which showed an operating loss of $873,000 and a $1.3 million decrease in net assets. Most of the losses are due to the continued erosion in volumes. Bunch also noted that charity and bad debts were significant for the month at $472,000 above budget.

Later in the meeting, Witham noted that bad debt and charity has moved from a total of $23 million in Fiscal Year 2008 to a projection of $38 million for FY 2013 and wondered how that compared with other non-profit healthcare systems.

Bunch said KershawHealth is “right there” with its peers in this part of the country.

“That amount’s just staggering,” Witham said. “I don’t know how you cope with it.”

“It’s really a benefit to the people of Kershaw County that we have not had property taxes that have been levied to offset part of that,” Weeks responded. “Some hospitals have that. We’ve been pleased that we’ve been able to operate without having to have that.”

Ziemke added that KershawHealth has also been able to operate the county’s EMS program without raising property taxes and while still being able to support charity care.

“It’s quite an accomplishment, but it’s quite a burden,” Ziemke said.

Also, during the May financial discussion, Bunch confirmed that the main campus emergency department is the No. 1 point of entry into KershawHealth with approximately 28,000 visits per year. Elgin Urgent Care visits are catching up at more than 20,000 per year.

“That’s why it’s so important that we deliver good services in the emergency room,” Napper said, “because if they’re there for a cut, a cough or something and go home and they have good services there, they’re going to come back to us. So, we really need to focus on that and I’ve heard nothing but great comments about the Elgin facility … that could be a really big portion of people coming back to our facilities for more services.”

The June 27 meeting also included a discussion of possible changes to EMS charges, following requests from both Kershaw County Council and trustees to look into situations involving existing fees and cancelled ambulance calls. Weeks said he and Napper studied the situation and determined that even doubling service fees would only rake in a small additional amount of money per month, but could actually add to KershawHealth’s bad debt figures.

As for cancelled calls, Weeks said he and Napper realized there could be a myriad of reasons why an ambulance might be called to a scene and then dismissed without even treating a patient. One example was calls to a Little League baseball game where a child is hit, but is determined to be OK before the ambulance arrives. Another involved someone seeing a neighbor fall and calling 911, but by the time the ambulance arrives, the “victim” says they are fine. In these cases, and others, there is no medical code that can lead to billing a charge.

Therefore, Weeks said neither he nor Napper are recommending any changes to EMS charges.

“On the surface, it looks totally black and white. These are scenarios we just can’t get involved in. After we looked in to it, there were totally viable reasons we don’t do that,” Napper said. “That’s stuff the public’s got to know. We’re not out here saying, ‘Don’t pay us. Debt doesn’t worry us.’ It does worry us, but on some of these cases, legally, we just can’t get the money. It’s just one of those unfortunate things that we have to eat.”

The board also met briefly in executive session to go over the possibility of joining a different purchasing group than the one in which it currently participates. Due to not having a quorum, no vote was taken but trustees indicated they wanted administrators to move forward.

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