MV Hospital squeaks into the budget black

MV Hospital squeaks into the budget black

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For a new hospital that looks pretty rich, the profit at the end of the fiscal year on March 31 was pretty thin. This week Martha’s Vineyard Hospital chief executive officer Tim Walsh said cost-cutting measures cannot be avoided and will include the elimination of a hospital operated daycare program and one or two layoffs.

The hospital ended its fiscal year on March 31 with a gain of just $66,260, on operating revenues of $50,449,079.

That was $849,587 short of 2010 budget projections.

The chief drag on receipts was an increase in free care provided to patients under the state’s Mass Health program and bad debt — bills that patients simply did not pay.

“If my bad debt stayed the same as last year I would have done better than budget,” Mr. Walsh said.

In the fiscal year that just ended, the hospital provided $3,377,543 in free care, or $620,625 more than expected.

Bad debt accounted for $2,881,069, or $931,069 more than budgeted

Mr. Walsh attributed the increases to the depressed economy in 2009. Much of that care was provided in the emergency room, he said.

Gifts of $750,000, investment income of $98,508 and a rise in the value of investments that had previously plummeted, raised the total gain for 2010 to $3,935,734, according to a statement of operations furnished by the hospital to The Times, at the newspaper’s request.

Bottom line, discounting the paper profit on investments or unrealized gain, the hospital made about $1 million on operating revenues and gifts this fiscal year.

The news was not so good on Nantucket, where the Nantucket Cottage Hospital ended its fiscal year with a $4 million deficit on a budget of about $36 million. In January the hospital laid off 16 employees.

Both island hospitals are affiliates of the Massachusetts General Hospital (MGH) and members of Partners HealthCare, a nonprofit founded in 1994 by MGH and Brigham and Women’s Hospital. In addition, the group now includes Newton-Wellesley Hospital, North Shore Medical Center, Faulkner Hospital, McLean Hospital, and Spaulding Rehabilitation Hospital.

Cuts in the offing

In a telephone interview Tuesday, Mr. Walsh, the hospital’s former chief financial officer, provided a detailed explanation of the budget numbers. He said that while the hospital is financially healthy, the budget numbers make it clear that the hospital must take measures to remain financially healthy within a shifting health care industry.

Mr. Walsh said the hospital has been operating its own daycare program in a rented space in a building on Ryan’s Way in Oak Bluffs. That will end on August 31.

Mr. Walsh estimated it costs the hospital approximately $100,000 annually to staff and operate a program that 14 employees now use. He said the employees are exploring continuing the operation as a private business.

“We are trying to work with them on that,” Mr. Walsh said.

That could include some type of tuition subsidy for employees’ children, he said.

Care for all

The Martha’s Vineyard Hospital must treat everyone who requests medical care. But not all patients pay their bills.

In some cases, patients who meet income guidelines qualify for so-called free care, under the Massachusetts “Health Safety Net” program.

Annually, hospitals and state taxpayers contribute to the state’s “free care pool,” a reserve from which payments are made to hospitals to help underwrite, but not completely offset, the costs of free care.

Money is provided based on a state formula. In 2010, Martha’s Vineyard Hospital paid $395,000 into the free care pool. It received $1,132,000. The hospital covered the additional $3.3 million cost of care it provided to patients covered under the Health Safety Net program.

Patients must be prequalified to benefit from the free care program. Depending on income and family size, all medical care or a portion of care is covered.

Bad debt is uncomplicated. Patients come into the hospital and receive care, and then do not pay the bill. It all adds up.

The hospital provided $4,129,732 in uncompensated care in the 2009 fiscal year that ended on March 31, 2009. This year that number was $6,258,612.

“I think it is a sign of the times,” Mr. Walsh said. “Remember, this was during the financial crunch.”

The number might have been higher but for Commonwealth Care, the subsidized state health insurance plan enacted to provide universal access to insurance coverage for all Massachusetts citizens.

Mr. Walsh said it is very difficult to insulate the hospital against nonpayment. By law the hospital must provide treatment to everyone who walks into the emergency room.

Mr. Walsh said the state’s insurance program continues to help and has his support. There was some slippage last year, but he expects it will continue to provide for people who need insurance.

“It is by and large a very successful program,” Mr. Walsh said. “Once it happened I said it worked better than I thought it would, and I still say that.”

Revenues explained

In 2010, inpatient gross billing was $20,472,214 and outpatient gross billing was $93,188,547 for a total of $113,660,760, a healthy number some $8.1 million over budget.

In part, the increase reflects the addition of two formerly private practice physicians, the addition of orthopedic surgeon Willie Cater to the staff and a significant increase in rehabilitative services and radiology billings.

But total billings do not translate into money in the pocket. Everyone who walks in the door generates a bill but does not necessarily generate revenue in the Byzantine world of hospital billing and insurance payments.

Under the heading of contractual allowances, call them negotiated or imposed discounts, the total was $61,873,022, a figure more than $8 million above what was expected. That figure represents the difference between what the hospital charged and what it received in insurance payments under various contractual agreements.

For example, Mr. Walsh said Medicaid pays about 30 cents on the dollar. The difference is reflected in the figure for contractual allowances. Commercial insurance payers pay between 50 cents and 80 cents on the dollar, depending on the contractual agreement between the hospital and insurer.

One bright spot is the hospital’s designation as a critical access hospital. Under that designation, Medicare pays in full for the cost of services to its insured population.

For example, if Medicare patients accounted for 30 percent of surgical services Medicare would pay the hospital 101 percent of its cost for that department’s services to Medicare patients, a figure that allows for a slight profit.

Net patient service revenue was $48,410,196, or $673,759 less than expected. Mr. Walsh said the difference was the increase in free care.

Although the state’s mandatory insurance plan helped provide an insurance net for some people, Mr. Walsh said the economic meltdown sent more people into the pool of those who qualified for free care under state guidelines.

Total operating revenue was $50,449,079, or $673,029 less than projected in the budget and up from the previous year’s $47,890,000

Costs dissected

The largest costs are salaries and wages. That number was $25,294,201, or $322,261 over budget. Employee benefits accounted for $6,026,862. Contract labor cost the hospital $466,950.

Mr. Walsh said the biggest cost associated with the new hospital building is the expense associated with the depreciation of the building, a number that reflects the cost of the building over its estimated life. That number is $1,348,294 and is added to the expense column.

Although there will be some overlap, the salary for a new maintenance supervisor would be offset by the departure of project manager Cornelius Bulman in the future, he said.

He said maintenance expenses would not rise significantly. “We did buy a lot of new equipment for the new building and that will make it a lot easier to maintain it,” he said.