Medicaid cuts take a scalpel to hospitals’ bottom line

How might the quarter-billion dollars in Medicaid cuts in the New Hampshire House of Representatives’ budget affect individual hospitals?
Let’s count the ways.• Concord Hospital hopes to become more efficient, make less of a surplus and pass costs on to private insurers.• LRGHealthcare is wondering how long it can continue to provide maternity care to Belknap County.• Elliot Hospital in Manchester is looking at reducing subsidies to its community health centers.• And Upper Connecticut Valley Hospital might have shut its doors.Of course no hospital really knows how much of the House cuts would actually become law or how badly they would be hit by those that do. And many are not able – or willing – to say what might have to go or to be changed to respond to the cuts.”We are not there yet,” said Rick Adams, a spokesman for Dartmouth Hitchcock Medical Center in Lebanon, echoing many of the hospitals contacted for this article.Adams, however, does think that the Medicaid cuts would result in another $40 million cutback adding to a $60 million Medicaid loss.”It’s unsustainable,” said Adams. “Now we might be losing $100 million.”Most of the Medicaid cuts would come from the Disproportionate Share Hospital, or DSH, eliminating more than $111 million in 2012 and $120 million in 2013. Those figures are actually doubled because the state would lose the federal Medicaid match. Add on some other potential cuts and the bottom line is about a $250 million a year.Savings ‘buckets’The DSH payments reimburse hospitals for paying the Medicaid Enhancement Tax. Without the reimbursement, “it’s a new tax for us,” said Michael Green, CEO of Concord Hospital.To make up for the difference, Green sees the money coming out of “three buckets,” but how much from each he won’t know until further down the road.The first and most desirable bucket would be increasing the hospital’s efficiency to recoup as much as $3 millionSecondly, the hospital might simply cut its profit margin.Most of the state hospitals are nonprofit, but, said Green, “we need a surplus for new programs to continue our ability to expand to meet the needs of the community.”That surplus, however, may only be shaved from 3 percent to 2 percent, he said.But the third bucket would involve shifting costs to private insurers.Green said, while the hospitals have the ability to shift the cost, the question is whether that shift is desirable.”It’s very business unfriendly,” he said.Groups like the Business and Industry Association of New Hampshire agree.Jim Roach, president of the BIA, testified against the House budget in the Senate on April 21. A quarter of private insurance premiums already subsidize the under-reimbursement from public payers and charity care.”Cost-shifting inevitably leads to higher business expenses,” Roach maintained.Concord Hospital’s Green was emphatic the hospital was not going to cut services to the poor.”We are not going to be distracted from our charitable purpose and our financial assistance program,” he said.Changes in service?Other hospitals, however, are not so sure.For Elliot Hospital, these questions might come to a head sooner than later.Unlike most hospitals, its budget deliberations coincide with the state’s, which won’t be hammered out until June.Elliot Hospital can’t wait that long, but is hoping to hold out until the Senate weighs in.”Hopefully by that time we’ll have a narrower band,” said Rick Elwell, chief financial officer for Elliot Hospital.He estimates a $17 million hit under the worst-case scenario, turning a potential surplus into a multi-million dollar loss.Unlike Concord Hospital, Elliot Hospital also has another local hospital to compete with – Catholic Medical Center, which has a lower income demographic.”We need to look at the service we provide,” Elwell said.For instance, the hospital gave direct cash subsidies to local community health centers. That might have to be reduced, along with possible staff reductions and a tighter focus on margin programs instead of mission-driven ones.LRGHealthcare – which runs both Lakes Region General Hospital in Laconia and Franklin Regional Hospital – also really can’t talk about reducing surpluses.Last year, the two facilities lost $2.3 million, said Henry Lipman, LRGH’s chief financial officer. The House reductions could add as much as another $9 million onto that.Productivity gains would only shave off 2 percent or 3 percent a year.Yes, there will be some cost-shifting, but the cuts will also put “pressure on our services,” said Lipman.One thing that LRGH is looking at is obstetric care, which has already been eliminated by many hospitals in the North Country.Medicaid pays $2,200 for a normal delivery, whereas the actual cost is as much as $8,000. Multiply the difference by about 500 deliveries a year, and that would account for the LRGH’s loss last year.”If we give up obstetrics, there will be no hospital in Belknap County to deliver babies,” said Lipman, emphasizing service cuts were only hypothetical. “It’s very difficult to make that kind of choice in good conscience, but we have to make some very difficult choices because that kind of reduction is not absorbable.”Psychiatric care is also on the radar for possible reductions.LRGH’s hospitals already cut back the service to support just seniors, and that, too, might be reduced further or eliminated.Small rural “critical access” hospitals will be spared from the cuts by being exempted from the DSH hit, but there are other cuts that could affect them such as the suspension or elimination of Medicaid-related catastrophic and cost-settlement payments for events and reimbursements for durable medical equipment, totaling about $9.5 million in 2012 and $5.7 million for 2013.Valley Regional Hospital in Claremont is bracing for reductions in the community mental health system resulting in more people “landing in our emergency room. We don’t have a staff of psychiatrists to deal with that,” said CEO Claire Bowin.Instead, the patients would be treated by primary care physicians, which nearly like sending someone with an appendicitis to a dentist.”It just doesn’t make any sense,” said Bowin.Fighting for survivalBowin, like Green, is certain that services won’t be cut.Already the hospital has eliminated X-ray and mammography services at its health center in Newport, but there is no talk about eliminating the center itself, and the hospital is on financially solid ground.Not so for the Upper Connecticut Valley Hospital in Colebrook, the state’s smallest and perhaps most vulnerable hospital.It, too, would be spared the DSH cuts, but the hospital is so dependent on Medicaid and Medicare payments – about two-thirds of its budget is from public funding – that “there is no one to cost-shift to,” said Meg Cleary, interim chief executive.The hospital has been losing about a $1 million a year, and the only way it has survived is because it received a special supplement of $1.5 million last year.There is nothing further to cut, she said. “We are struggling to survive.””We are this little outpost in the beautiful beautiful North Country,” said Cleary. “People want to know, when they go snow mobiling that there are health resources nearby.”This tiny hospital – with its dozen doctors and 16 beds – served 500 people last year.Cleary added: “Now our very survival is at stake.”Bob Sanders can be reached at bsanders@nhbr.com.