Health care winds buffet Martha’s Vineyard Hospital

— File photo by Nelson Sigelman

Following nine straight years in the black, Martha’s Vineyard Hospital ended its most recent fiscal year in the red. The challenge moving forward, hospital leaders said, is to navigate the shifting economic and political currents that will continue to affect health care providers across the nation.

For the fiscal year (FY) just ended on March 31, 2012, the hospital had total revenue of $58,647,237 and total expenses of $59,239,092, which resulted in a loss of $591,855.

On the Windemere Nursing and Rehabilitation Center side of the ledger, the year ended on a more positive financial note. The hospital-owned nursing home, which follows a calendar year and closed its books on December 31, 2011, had revenue of $7,086,071 and expenses of $7,081,509, for a gain of $4,562.

Gifts helped boost the bottom line for both the hospital and Windemere. The hospital received $791,321 along with other income and ended the year with a bottom line of $102,532. Windemere received $50,628 in gifts that contributed to a figure for total operations of $55,190.

Costs increased

Tim Walsh, hospital chief executive officer, said a drop in patient volume and changes in the patient insurer payer mix are two of the forces that affected the hospital’s bottom line.

The hospital billed out approximately $113 million in FY 2012. The previous year it billed out $119. Tight personal budgets, increases in deductibles, and a mild winter flu season all contributed to the drop, Mr. Walsh said.

Even as patient volumes decreased, the hospital’s costs did not. Salaries and wages increased from $26,469,748 to $27,194,440; physician fees nearly doubled from $1,083,198 to $2,093,292, in part to cover vacancies with temporary physicians; and supplies and expenses increased from $14,993,611 to $16,013,111.

Mr. Walsh said some of the increase in salaries is attributable to the addition of physicians who joined the hospital mid-year prior to FY12, and cost of living increases. Overall salaries increased 2.7 percent.

Millions in not-so-free care

In the fiscal year that just ended, the hospital provided $6,179,096 in uncompensated care. That number represents a program of hospital-provided free care for people of a certain income level, and bad debt, bills totaling $2.5 million that patients simply did not pay. The bad debt could be an entire bill or a co-payment, but it all adds up.

“Free care went up a little,” Mr. Walsh said. “Bad debt went down a little.”

The number dropped slightly from FY 2011 when the hospital provided $6,556,311 in total uncompensated care.

By law, with some exceptions, all residents of Massachusetts must have health coverage that meets state standards. Mass Health covers the poorest residents. Private state-subsidized commercial products are available through the state’s Health Connector, the agency that administers the state insurance plan.

Asked why the insurance mandate has not affected the drain of uncompensated care more dramatically, Mr. Walsh said the hospital must provide care to everyone. “And not everybody has insurance,” he said. “They can make it available; it doesn’t mean you get it.”

It is an improvement over years ago. “The free care is down,” he said. “We were running close to $5 million at one point so it has put a dent in it.”

The emergency department followed by obstetrics accounted for much of the uncompensated care.

Juggling costs

In the hospital’s 2012 annual report, which will appear next week as an insert in The Times and the Gazette, Timothy Sweet, chairman of the hospital board, addressed some of the issues the hospital faces.

“Free care provided by all hospitals continues to rise in these difficult times, and many patients have been forced to put off needed medical treatments due to a loss of insurance or uncertainty about the future,” he wrote. “In addition, unexpected changes in reimbursements at the local, state and federal level, as well as from private insurers, contributed to make a challenging year even more so.”

For years, patients with good commercial insurance plans underwrote patients with poor, or no insurance plans. It was all part of an elaborate and complex system of cost shifting practiced in the health care industry. The system, under pressure from politicians, patients and various industry groups, is now beginning to unravel.

Mr. Walsh said the drop in patient volume is not as unsettling as the shift in payer mix, and the corresponding difference in hospital reimbursement. “The biggest concern I have is the shift in payer mix,” he said. “Even though there was a drop in gross revenue when you look at our big three — Blue Cross, Harvard and Tufts — my business is down ten percent this year.”

When the volume of patients with the best commercial insurance plans, those that provide the hospital with the highest reimbursement rates, drops, it has a major effect. “They and commercial insurance pay the best,” Mr. Walsh said. “Commercial insurance is down seven percent. And all these state products are up 43 percent.”

Essentially, he said, the state is disingenuous. It says it is cutting health care costs when in reality it tells hospitals that it will reimburse them less to deliver the same care.

“The good news for people who are struggling to pay the premiums is that the premiums are coming down,” Mr. Walsh said. “The bad news that they haven’t seen yet is that health care will probably change and it will be different. I am not saying it should not be, but you cannot cut the costs and say you want everything just like it was.”

Mr. Walsh said the challenge he has is to explain the dynamics to the community. He said the simple explanation is that costs are not fixed and he is getting paid less.

Because Martha’s Vineyard is designated a critical care access facility, it receives cost plus from Medicare. That is not true of Mass Health, which represented about 9 percent of the payer mix, or Medicaid and the various state products.

Mr. Walsh explained it this way: whereas a commercial insurance company such as Blue Cross may pay a negotiated rate of 70 cents on a one dollar charge, state products such as Mass Health reimburse the hospital 30 cents on the dollar.

It is a balancing act with slim profit margins. In 2010, the hospital billed $119 million and ended with a profit of $155,620. If 50 cents is the break-even point on the dollar charge, any attack on the 70-cent reimbursement changes the hospital’s already slim margin.

Policy makers tend to look at the macroeconomics of health care, Mr. Walsh said, not the microeconomics. For example he pointed to the effort to cut emergency room visits by imposing high deductibles and co-payments.

Mr. Walsh explained, “When you have an emergency room with one doctor, if you steer 20 percent of that business away from him, you have not saved anything.”

Ultimately it will come down to choices if these trends continue. “It costs a lot of money to run that ER and if you want it available someone’s got to pay for it,” he said.

In May, the hospital cut approximately $100,000 from the budget when it eliminated a program that supplied on-call English-speaking Portuguese medical interpreters. In its place, the hospital relies on the AT&T Language Line, a telephone-based service the hospital relied on before engaging Island-based interpreters, and continued to use alongside the interpreter service.

At some point, Mr. Walsh said all programs would need to get a close look.

Mr. Walsh said he has spent more than 40 years in the health care industry and he has seen how changes can affect a hospital and a community. “When change hits Martha’s Vineyard it has a profound impact on us faster than it does in other places,” he said.