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Medicaid cuts could cost KershawHealth $2.246 million

Posted: April 29, 2011 4:46 p.m.
Updated: May 2, 2011 5:00 a.m.

$2,246,000. It’s a big number. It reflects KershawHealth’s estimated annualized loss of revenue from South Carolina should an 8 percent reduction in Medicaid reimbursements be approved by the state legislature.

That’s on top of a 3 percent reduction in such reimbursements that went into effect April 1.

“This (first cut) will have a negative impact on our revenue of approximately $312,000 for the rest of this fiscal year and $625,000 on an annualized basis,” KershawHealth Vice President and COO Mike Bunch told members of the KershawHealth Board of Trustees during their meeting Monday.

Bunch said the additional 8 percent cut would produce another annualized negative impact of $1.621 million, bringing the projected losses to the $2.246 million total.

Trustee George Corbin, who is chair of the board’s finance committee, directed the board to look at the healthcare system’s contractuals -- in this case KershawHealth’s Medicare and Medicaid contracts. The hospital does not receive full reimbursement for services rendered to Medicare and Medicaid patients. Corbin said as of March, contractuals made up 66.9 percent of gross revenues. KershawHealth President and CEO Donnie Weeks later explained that KershawHealth writes off that amount.

“The difference is what we collect (33.1 percent),” Weeks said in a telephone interview Wednesday.

“The Medicaid cuts will drive that percentage up,” Corbin said. “We really have to work hard on cost containment.”

During Monday’s meeting, Weeks said the 8 percent Medicaid cut “looks like reality.”

“There’s just so much state money, and it only goes so far,” Weeks said. “There are still some unanswered questions. It’s important for you as trustees, and the public, to understand the major impact on us and other hospitals, and even on private physicians. We’re going to be forced to live within those cuts.”

To better understand the Medicaid cuts on private physicians, Weeks turned to Trustee Dr. Tallulah Holmstrom of Sentinel Health Partners. He asked her what percentage of their clients are Medicaid or Medicare patients.

“It varies by specialty,” Holmstrom said. “It’s more than 5 percent, with some divisions more than 10 percent. Some of our providers will see a major impact.”

Holmstrom said that some, but not necessarily all, of Sentinel’s physicians could choose to limit the number of government benefit patients they see to help blunt the impact of the Medicaid cuts.

In contrast to Sentinel, Weeks said at least 20 percent of KershawHealth’s patients use Medicare or Medicaid.

The Medicaid cuts are only one piece of a larger financial picture KershawHealth is facing.

Bunch reported that while March’s surgical volumes improved, they did not offset a six-month period that is 11 percent below what it had been for the same period the year before.

“Surgeries continue to be down on a year-to-date basis as compared to (the) prior year for ENT (ear, nose, throat), orthopedics and general surgery,” Bunch said. “We remain concerned about lower surgical volumes and significant Medicaid cuts. As a result, and as reported last month, our senior leadership team is working on initiatives that will help offset these concerns.”

What those initiatives are has not yet been divulged, but they will have to offset yet another concern: bad debt write-offs. Bunch said KershawHealth had to write off $359,000 in bad debt just for EMS accounts in March. On top of that, KershawHealth is having to writing off a large debt from a Medicare contractor that has gone bankrupt.

According to Bunch, who quoted from a recent newspaper article, Guardian Healthcare, a Medicare managed care plan based in Greenville, recently filed for bankruptcy with $27 million in unpaid claims for already-provided services.

“KershawHealth has $754,143 of unpaid gross charges claims. Of that figure, we estimated that we should have been paid $211,000, with the balance already reserved as Medicare contractuals,” said Bunch. “As a result of this bankruptcy filing, KershawHealth has written off, as bad debt, the full $754,143, with the net impact to the income statement of $211,000.”

Bunch said his research shows that Guardian’s bankruptcy case would likely take two years to complete. He said KershawHealth has filed the necessary paperwork to file a claim. Claims must be filed by the end of the calendar year, and Bunch said KershawHealth would have to wait until then to see how much, if any, of what is owed will be paid.

“Thought not known at this time, the anticipated dollars that will be recovered is likely to be a small percentage of our claims. The bottom line is that this bankruptcy negatively impacted our March operating income by $211,000,” Bunch said.

While discussing March’s financials, Bunch noted that while total operating expenses -- excluding depreciation and interest -- was 3 percent under budget.

“Compared to (the) prior year, expenses increased 2 percent, due to new physician salaries, patient supplies and other expenses,” Bunch said, reading from a handout that indicated the “other expenses” included a pediatric hospitalist, contracted ER professional fees, maintenance contracts and other purchased services.”

Holmstrom picked up on the inclusion of the pediatric hospitalist, noting Bunch had done so for the second month in a row concerning an increase in operating expenses.

“How many other hospitals have a pediatric hospitalist,” she asked.

Weeks said KershawHealth is not the first to have such a position, but that it is not a common one, either.

Holmstrom asked that numbers on pediatric hospitalists be provided by the board’s next meeting. Weeks said the position was “well-vetted” and that a true look at the program should look at pediatrics in the hospital in its entirety.

“I’m not saying it wasn’t vetted,” Holmstrom said, “but it’s contributed to higher expenses for the second month.”

“We didn’t have it last year; it didn’t exist before,” Weeks explained. “Our healthcare system is different. We do things that don’t necessarily help us break even in order to serve the community.”

Bunch added, “If you’re looking at this year to last year -- it (pediatric hospitalist) wasn’t in last year.”

Weeks went on to say that he does not see a major reconfiguration of KershawHealth’s services as the hospital goes forward to meet these financial challenges.

“It’s important for you as trustees to know we’re carefully scrutinizing these things,” Weeks said.

“Not only are we looking at that, but we’re looking at all services,” said board chairman Jody Brazell. “Sometimes I scratch my head, too; sometimes what we do doesn’t make sense from a financial standpoint.”

Weeks reminded the board that KershawHealth was created for charitable purposes.

“So that everyone who needs healthcare can obtain it -- that’s the only reason we’re here,” said Weeks. “But, we also need to be able to support that mission, and I’m pleased to be able to say we don’t use tax dollars from the people.”

Bunch explained that before the pediatric hospitalist position was created, pediatric physicians affiliated with the hospital would conduct rounds.

“Now, we have someone on-site 12 hours every Monday through Friday and four hours on Saturday,” Bunch said.

Holmstrom asked if that really represented an expansion of services. Weeks noted that some pediatric patients are admitted to KershawHealth by physicians who don’t participate in hospital rounds.

“I’m not questioning if it’s the correct model,” Holmstrom said, “but it’s crunch time.”

“While I think we’re taking just one of a whole array of services, I think these questions regarding the pediatric hospitalist are appropriate questions. We will get some answers,” Weeks said.

In other business, Weeks reported that a neurologist will be joining KershawHealth who will live and work in Camden this summer. He also said new general hospitalist will be replacing one who recently left.

The KershawHealth Board of Trustees meets at 6:30 p.m. on the fourth Monday of each month at the KershawHealth Community Outreach and Wellness Center on Battleship Road. All meetings are open to the public.

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