Already experiencing declining patient volumes, the Medicare cuts enacted by the Affordable Care Act and the refusal of some states’ governments to accept the billions of dollars intended to offset those losses have spelled program cuts, layoffs and closures at small hospitals across the country.
Signs of those troubles are evident locally, where one rural hospital sought the protection of a regional health care system to avoid bankruptcy and another, already owned by a large system, shut its doors.
Although the acquisition faced challenges during a lengthy process, Mountain States Health Alliance officers and Unicoi County Memorial Hospital administrators said the hospital’s purchase was likely a saving grace for the 48-bed facility.
Had UCMH remained an independent entity, it would have faced much greater difficulty in trying to accommodate the declines in reimbursements and declining patient volumes, Mountain States CEO Dennis Vonderfecht said. The hospital, he said, would have continued to face mounting losses year after year.
“So I think absent of joining the system, they would have been closed,” he said. “They would have gone into bankruptcy, I have no doubt about that.”
Unicoi County’s financially struggling hospital had to lean on public and private entities to stay afloat prior to its acquisition by MSHA. In May 2012, the Erwin Board of Mayor and Aldermen approved a measure to loan the community hospital $800,000.
As part of its acquisition proposal, MSHA extended a $2 million line of credit to UCMH, which had been fully drawn on within a year. MSHA subsequently provided an additional $1 million line of credit to UCMH, around $300,000 of which was drawn upon prior to the closing of the transaction in November. Marvin Eichorn, MSHA’s senior vice president and chief financial officer, said UCMH also previously sought a line of credit from a private bank.
“By the time you add all that up, you’re talking a $4 million to $5 million cash shortfall that had to be funded by a combination of the public in the case of the town of Erwin or in the case of private banks or, of course, private organizations like Mountain States,” Eichorn said.
In the case of UCMH, the buyers, sellers and patients hope being part of the larger health care system will provide the smaller, previously independent hospital with access to resources to help offset reimbursement and volume declines and spread those losses across the conglomerate.
Vonderfecht said it could put the weight of the system behind the smaller hospital and bring better rates from commercial payers during rate negotiations.
Aside from negotiating power, larger health care organizations also offer smaller hospitals absorbed into their systems access to marketing, planning and supply chains, the CEO said.
Now a member of the fold, Mountain States plans to purchase land in Unicoi County and build a new hospital, which Vonderfecht said should be opened in late 2017.
But as things are looking up for Unicoi County’s struggling hospital, a combination of losses were too much for Wellmont Health System to weather for Lee Regional Medical Center in rural Pennington Gap, Va.
The 70-bed hospital was closed in October by the health care provider, which cited a failure to reach an on-call agreement with doctors, plummeting patient volumes and decreasing reimbursement rates enacted by the ACA as reasons for the shuttering.
“It really was a perfect storm of a bunch of things happening at once,” Wellmont Chief Financial Officer Alice Pope said. “The facility didn’t have physicians, and we couldn’t recruit them to come work there, that was the primary driver.”
But the situation was worsened by the financial challenges of the hospital, where between 20 and 25 percent of the care went to uninsured patients, compared to the systemwide rate of 8 percent, Pope said.
“In the smaller, more rural, areas, devastation from the economic downturn is much worse,” she said.“The unemployment rate is much higher, and so is the uninsured population.”
Out of those 8 percent of services to uninsured patients, Wellmont collects nothing for about 2 percent, Pope said, equating to $64 to $70 million in services annually the system is never paid for.
That’s where the ACA’s Medicaid expansion proposal figures in, and why the health care providers in the states that have so far failed to expand coverage are struggling disproportionately.
The cost savings from Medicare included in the law were intended to pay for expanded coverage for millions of Americans within 138 percent of the federally determined poverty level.
The law said the federal government will pick up 100 percent of the cost through 2016 of insuring people newly eligible for Medicaid in states that expand their programs. It then phases down the federal match to 90 percent in 2020.
But a Supreme Court ruling gave states the option to refuse the federal dollars intended to pay for expansion, and half of them, including Tennessee and Virginia, have not yet increased coverage.
“Overall we didn’t think Medicaid expansion would completely eradicate the financial problems, but we certainly thought it would help,” Pope said. “In the rural areas, where there are different demographics, it could have really helped those hospitals.”
As time wore on, with millions in funding on the line and no coverage expansion in their two covered states, Mountain States and Wellmont, usually fierce competitors, joined forces to advocate accepting the offered funding to help offset the Medicare cuts.
“The residents of these states are still paying for this program, the money is still being collected like it was before, but they aren’t going to see any of the benefits,” Vonderfecht said. “We’re essentially paying for the states who have expanded their coverage to provide those benefits.”
Tennessee Gov. Bill Haslam called for the acceptance of a plan by the U.S. Department of Health to allow the state to use the federal dollars to purchase health insurance for the uninsured on the open market, but federal officials have yet to see any proposal from Tennessee to affect that program.
“I don’t know how you can have a serious offer on the table without having something in writing for them to respond instead of just throwing a few ideas out,” Vonderfecht said. “If I were on the federal government’s side, I’d question how sincere they are in really wanting to do something.”
He said he does hold hope for expansion in Virginia, where Gov.-elect Terry McAuliffe has spoken favorable of putting a plan in place, but Pope isn’t as optimistic.
“Does the election in Virginia give us hope?” she asked rhetorically. “Not really. He’s the executive, and he has expressed interest in it, but there’s a balance of power with the legislative branch, and it’s our impression that the state representatives are not supportive of expansion.”
For now, both administrators said their companies are in a stable financial position, and dismissed the possibility of future hospital closures.
But that doesn’t rule out service or personnel cuts down the road as the systems search for ways to stay in the black.
“It’s definitely a cause for concern, it makes us more mindful of our actions,” Pope said. “In this region we face a challenging demographic, and a challenging payer mix and we will likely continue to do so.”