Hospital braces for cuts

By MARK SAGE/Staff

In reality the cuts have already started, Johnston Memorial’s Chief Executive Officer Sean McMurray said. The hospital since last year has avoided adding staff whenever possible, managing costs through attrition. Those jobs not filled, McMurray points out, are jobs lost to the local economy.
More are on the way, McMurray warned.
As the state wrestles with a $4 billion hole in the budget, Medicaid reimbursement rates are on the chopping block, and though the government program covers only a relatively small group of people, its reach goes deep in terms of a hospital’s fiscal health, McMurray said.
Based on early budget projects, McMurray said JMH is bracing for a series of cuts that could see the state paying only half of what it costs hospitals to treat Medicaid patients. Stacey Ely, manager of community and government relations for Mountain States Health Alliance’s Virginia facilities, said expectations are that the state will slash reimbursement rates. Already hospitals lose money on Medicaid reimbursement. For every dollar it costs JMH to treat someone on an in-patient basis, McMurray said, the state pays just 74 cents. Ely said that could go down to 64 cents on the dollar next year and 50 cents on the dollar the following year.
Currently, the hospital absorbs around $1 million annually in reimbursement shortfalls. If the cuts go as deep as feared, JMH would be in line to lose an additional $2 million to $3 million, in part because a federal $1 for $1 match means that for every $1 the state saves, hospitals lose $2. Medicaid patients make up 9 to 10 percent of JMH’s total patient load, McMurray said.
The hospital’s chief sees further cuts coming out of the turmoil. Since labor – salaries and benefits – is the hospital’s biggest expense, those cuts could mean layoffs or more positions going unfilled.
The Virginia Hospital & Healthcare Association estimated that 3,363 health care jobs are at risk. McMurray, pointing to the ones that have already gone unfilled, called the figure slight and just the “tip of the iceberg.”
Typically, hospitals rely on private insurers to make up where Medicaid reimbursements fall short. The trouble now is that the same tough times threatening Medicaid payouts have cut into the number of people who carry insurance and the way those who do use health care.
“What we experience is people struggling to meet their co-pays and deductibles,” McMurray said.
Would-be patients are increasingly holding off on going to the doctor or hospital, he said.
Of the core services funded by the state, Medicaid is the only one that picks up a 100 percent match, McMurray said, and so is the best investment. Because of the $1 for $1 federal match, though, he said it’s also the one that hurts the most when cut since for every $1 the state saves, local hospitals lose $2.
Fiscal unfitness goes beyond the hospital’s walls. As one of the county’s largest employers, JMH is a big part of the economic engine, McMurray, providing good-paying jobs and spinning off other industries. At a time when governments are working to stimulate the economy, McMurray said it’s counterintuitive to cripple it by 17 percent, the share accounted for by health care industries.
According to the VHHA, for every dollar the state saves cutting Medicaid costs, the larger economy loses $4.25. The organization predicts that outside the health care field, 2,657 jobs losses might be blamed on the cuts.
Aside from the jobs and taxes provided by hospitals and associated businesses, Ely said the coming trouble raises questions for economic development officials. It’s hard to get industries interested in locating to counties missing a hospital. Sound farfetched? McMurray doesn’t think so. Several years ago, a budget crunch led some hospitals in the region to do away with obstetrics departments. This time around, he said he wouldn’t be surprised to hear of some hospitals shutting their doors somewhere in the state.
Even in a rebound, hard times likely will be long, McMurray said, pointing out that unemployment is still high, tax revenue is still low and state budgets are notoriously slow at pulling out of recessions.
Before leaving office, former Gov. Tim Kaine proposed a budget requiring $2 billion in cuts – not deep enough for Gov. Bob McDonnell, who is now facing a $4 billion hole. Laurens Sartoris, president of the Virginia Hospital & Healthcare Association, said Kaine’s budget proposal planned to reimburse hospitals 68 cents for every $1 of services provided the first year and 64 cents for every $1 in the second year. But the figures are based on already outdated news, Sartoris said. The Kaine plan came in a budget that halved a $4 billion deficit by repealing the car tax. Delegates have already killed that plan, Sartoris said, and McDonnell has vowed there will be no new taxes, adding another $2 billion in cuts overall. If it isn’t patched, Sheila Gray of the VHHA said, hospitals statewide could lose $1.5 billion in in-patient Medicaid payments. Sartoris said in-patient reimbursement figures are used because they are the easiest to calculate, the best understood and the most illustrative of what’s happening with Medicaid.
The answer, McMurray said, is growing the economy and bringing in more tax revenue, but that’s easier said than done.
Mountain States plans to make the Abingdon hospital a hub for the smaller affiliated hospitals in nearby areas, McMurray said. In addition, the new hospital off U.S. Highway 11 will house a diagnostic cardiac cath lab, which may produce some revenue that could ease cuts. However, McMurray said there is no magical formula to growing revenue, nor is it cheap. At the very least, finding new money requires costly investments such as physician recruitment investment, he said.