March 12, 2010

Hospitals hope cost cuts keep ache of recession, debt at bay suffer ills caused of recession, increasing debt Pressed by recession and debt, hospitals beg, borrow and heal Recession, MaineCare delays force hospital spending cuts



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Gordon Chibroski

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Gordon Chibroski

Staff Writer

The recession and delayed state MaineCare payments are causing significant financial problems at hospitals across the state, with a third borrowing money to meet payroll and two-thirds considering budget cuts, according to a soon-to-be-published survey.

''This is an industry that is not recession-proof,'' said Al Swallow, associate vice president of finance at Maine Medical Center in Portland.

The depth of the problem is clear from responses to a survey to be released this week by the Maine Hospital Association, according to its president, Steven Michaud. The association received responses from chief financial officers at 37 of the state's 39 hospitals, and Michaud said the ''vast majority are taking some sort of austerity measure to rein in costs.''

More than half of the hospitals reported an increase in bad debt and ''charity care'' -- free care provided to patients who cannot pay. A third of the hospitals said free care was up more than 10 percent.

Health care experts say most of the bad debt results from patients who have lost their health insurance, or whose plans have extremely high deductibles that they cannot pay.

''I think, in general, we're on the verge of a major transformation in health care,'' said Judd Knox, president of York Hospital. ''Between the economic strife that we're all struggling with and the interest of the soon-to-be-administration to make changes to Medicare or health care in general, I think we are in for a ton of change.''

Knox said that in the past two weeks, the hospital has cut benefits for employees and some services for patients because of budget difficulties.

At Goodall Hospital in Sanford last week, 30 positions -- 14 of them vacant -- were eliminated after earlier belt-tightening measures such as hiring and pay freezes failed to close a budget gap. ''We are making very difficult mid-year budget cuts,'' said Goodall President Darlene Stromstad.

Goodall also is located in an economically troubled area -- Sanford, Maine's eighth-largest community, has the state's highest home foreclosure rate.

''Our community has been especially hard hit,'' Stromstad said. ''I think the economy here was getting worse earlier.''

Goodall and York are not alone. The MHA survey found that 28 of the 37 hospitals are considering budget cuts, with several reporting hiring or pay freezes and others delaying capital projects. Half reported decreases in patient volume.

At the same time, hospital investments and endowments on average have lost about 25 percent of their value. Collectively, the hospitals also are owed about $400 million in MaineCare funds, a debt that has built up for years. MaineCare, formerly known as Medicaid and Cub Care, provides health and dental insurance assistance to low-income Mainers.

Michaud said hospital cash-flow problems result primarily from delayed MaineCare payments. A recent agreement with the state calls for $340 million to be paid over the next two-year budget cycle.

''We're running out of time,'' Michaud said. ''It is not OK that they are years behind in paying us. It compounds the (recession-related) problems hugely.''

A spokesman for the governor noted that the agreement is the first to address the long-standing issue of back payments, which pre-dated the Baldacci administration. The state has paid more than $40 million in the past year, said David Farmer, Baldacci's deputy chief of staff.

Michaud also warned against cuts contained in the governor's proposed supplemental budget, which aims to close a $154 million budget gap.

If approved, the cuts could force hospitals to end non-core services, Michaud said. Farmer countered that if the budget had instead tightened MaineCare eligibility requirements to cut costs, more patients would need charity care.

''There's no question that if what we've been doing is investing in systems to improve quality and reduce medical errors, it's harder to do those things if you are trying to keep the doors open and keep from bleeding red ink,'' Michaud said.


York Hospital has already cut some noncore services.

In addition to a significant increase in patients who can't pay their bills, the 80-bed hospital has had a sharp drop-off in elective surgery and routine care, Knox said.

''We saw a tremendous pullback in demand for services in November,'' Knox said. ''I can't remember a swing as big as we felt down here from October to November. Then we saw an upswing in December, and that confuses me even more.''

Knox said he thinks the swings reflect consumer confidence.

''We're in extremely volatile times,'' he said.

York Hospital, which is using a line of credit to make payroll, has avoided layoffs so far. But it recently ended its defined-benefit retirement plan and reduced some workers' hours.

In the community, York Hospital has ended its participation in a school health program at Noble High School, closed a pharmacy service at Wells Regional Medical, ended its free transportation service and eliminated a senior outreach program.

At Southern Maine Medical Center in Biddeford, an increase in patient volume has been ''completely offset'' by a 25 percent rise in uncompensated care, according to spokeswoman Sue Hadiaris.

To make ends meet, the hospital cut expenses 5 percent: Senior managers took voluntary pay reductions, all employees lost two vacation days and a number of planned capital projects were suspended, Hadiaris said. They also mothballed a second magnetic resonance imaging machine.


Maine's experience is reflected nationally.

A national survey in November by the American Hospital Association found that more than 30 percent of hospitals reported a moderate to significant decline in patients seeking elective procedures, and 40 percent had an overall drop in admissions. For the third quarter of last year, unpaid bills were up 8 percent from the same period in 2007.

The report is based on a Hospital Association survey of 736 hospitals and information from DATABANK, a hospital tracking system used in 30 states.

At Maine Medical Center in Portland, bad debt has increased 20 percent, and the number of patients seeking charity care in the past year has risen 15 percent, according to Swallow, associate vice president of finance. The hospital's investments have lost from 20 percent to 30 percent of their value.

So far, the hospital has not taken any specific steps to curtail costs, and expects to be in the black when it reports its annual figures at the end of the month.

Patient volume is up slightly, but Swallow is concerned about the increasing number of patients who are unable to pay.

Central Maine Medical Center in Lewiston-Auburn also reports that admissions are up, as is the number of patients who can't pay their bills.

''Our bad debt went up 30 percent, and our charity care is up 34 percent since last year,'' Vice President Chuck Gill said. ''We're seeing people, but getting paid for it is another thing.''

The MaineCare reimbursement issue is a problem for the hospital, Gill said. About 20 percent of patients there are on MaineCare, he said. Currently, the hospital is owed $55 million, dating back to 2005: ''That's part of the problem.''

Goodall's Stromstad said they were lucky to have completed a multi-year expansion before the downturn. Outpatient centers in Waterboro and Kennebunk opened in the past 18 months.

''Without that growth, we would have seen a dramatic decrease in revenue,'' Stromstad said.

Health care consumers are struggling and are likely to continue to do so, observers said. Calls to a help line at Consumers for Affordable Health Care in Augusta were up 35 percent in 2008.

''Most of that, we think, is due to the economy,'' spokeswoman Cherilee Budrick said. ''People are struggling more than ever to pay their health care bills. We first noticed it when heating bills went up, and people were literally deciding between getting their drugs or staying warm.

''Now heating costs are down, but unemployment is up. We're not seeing a slowdown,'' Budrick said.

Staff Writer Noel K. Gallagher can be contacted at 791-6387 or at:

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