Budget news mixed for Martha’s Vineyard Hospital

The Windemere Nursing Home ended fiscal year 2013 in the red. — By Nelson Sigelman

Martha’s Vineyard Hospital (MVH) ended its most recent fiscal year on September 30, 2013 (FY13), with a net total profit of $3,650,310. That bit of good news was tempered by a whopping loss for the hospital’s Windemere Nursing and Rehabilitation Center unit, which ended its fiscal year with a $624,489 net loss, including revenue from donations.

In a discussion with The Times that accompanied the release of the figures Friday, hospital administrators described the pressures and costs that affect all health care providers and those unique to a small Island community where the responsibility to care for aged residents is not always a question of balancing black and red ink on a ledger sheet. State and federal reimbursements are the largest factors that affect the bottom line in both institutions.

Because Martha’s Vineyard Hospital is designated a critical access hospital, it receives cost-based federal reimbursements. A recent change in state law also now provides cost-based reimbursement to the hospital for patients who qualify for state Medicaid, also known as MassHealth. But there has been no change in reimbursements paid to the only Island nursing home that accepts residents on Medicaid.

Profit and loss

In FY13, the hospital had total operating revenues of $62,049,056 and total operating expenses of $60,398,396, which resulted in a gain from operations of $1,650,660, for a slim operating margin of 2.7 percent.

Donations totaling $1,105,114 and investment income of $894,536 boosted the total gain, or profit, to $3,650,310, and the total margin, the percentage of gain compared to total revenue, to 5.9 percent, according to a statement of operations provided to The Times.

On the Windemere side of the ledger, the nursing home had total operating revenues of $6,446,714 against total operating expenses of $7,119,034 for a loss of $672,320. That figure was buffered somewhat by donations that totaled $43,831.

Net loss

Windemere ended FY13 with a decrease in revenue of about $500,000, compared to the previous year. Total operating expenses increased only slightly over FY 12, about $30,000. But in an industry where profits are hard to come by, the shift was significant.

For aged Islanders who are no longer able to care for themselves and who do not have significant financial resources or long-term care insurance, Windemere is often the only option to remain on the Vineyard.

The cost of care in Windemere is about $380 per day, or about $138,000 annually. But even as costs of care have increased, Medicaid reimbursements have not increased in six years, administrator Ken Chisholm said.

At the same time, the resident mix between private payers and those on Medicaid has shifted in favor of Medicaid. Even at 96 percent occupancy, Windemere loses money, Mr. Chisholm said, because payments do not cover the cost of service.

It loses more money when Medicaid does not pay for care already given. As an example, Mr. Chisholm described one case in which a woman was given a bed on the assumption that she would qualify for Medicaid. One year down the road, Windemere learned that a complication with a reverse mortgage made her ineligible for Medicaid, but there was no equity in the house and no money left. Windemere absorbed that loss.

Mr. Chisholm said a mainland institution might have initially refused to admit the woman without payment up front. Windemere chose not to do that on the assumption that the house or Medicaid would pay the bill.

Mr. Chisholm said Windemere may take more risks. “We are an Island, and we try to take care of the Island,” he said.

While Medicaid payments are the same across the state, Island costs are significantly higher. For example, he said, Windemere paid more than $30,000 just to transport laundry by ferry to a facility in New Bedford.

For now, hospital leaders are making an appeal to the Department of Public Health for rate relief that would take into account higher Island expenses for labor and housing.

Strong medicine

Martha’s Vineyard Hospital ended FY2012 with a net gain of only $400,678. One year later, the gain had increased by $3,249,632.

Hospital administrators pointed to several reasons for the increase in profitability.

Edward Oliver, hospital chief financial officer, said the Affordable Care Act allowed MVH to use its critical care access designation to qualify for the 340B contract pharmacy program, a program under which it now purchases drugs at a discounted rate, and it can also provide those drugs through retail pharmacies. That program helped boost revenues by $500,000. The increase in state Medicaid reimbursement rates also helped, he said.

In FY13, donation income also increased by $323,000 and investment income increased by more than $884,000, a reflection of the strong stock market.

Cost of care

An increase in patient volumes boosted patient service revenues from $57,979,146 to $62,768,181. That gain was diminished in part by an increase in free care from $3,446,890 to $3,924,776, which brought net patient service revenue down to a total of $58,843,405.

So-called free care increased from $3,446,890 in FY12 to $3,924,776 in FY13.

By law, with some exceptions, all residents of Massachusetts must have health coverage that meets new federal standards.

Asked why, if health insurance is mandated, the hospital is still picking up the tab, Mr. Oliver said, “The law doesn’t cover everyone.”

Those not covered would include non-citizens and people waiting for MassHealth eligibility. Much of the cost is incurred in the emergency room, he said.

Those who fall outside the insurance system rely on the state’s Safety Net program. All hospitals contribute to that program, and in 2013 MVH paid $374,000 into it. Although the hospital bills the safety net program and the program keeps an account of the bills, it does not reimburse the hospital. Bad debt, in which people may not pay their deductibles, is another contributing factor to the free care number.

MVH does receive some compensation from the safety net program for its dental clinic charges, Mr. Oliver said.

Tim Walsh, hospital chief executive officer, said the free care figure is expected to drop as the Affordable Care Act kicks in.

On the expense side, labor, both internal and external, accounted for $10.6 million in expenses. Mr. Oliver said outside programs and skilled clinical personnel include MGH anesthesiologists and radiologists and the hospital’s MGH cancer center, which now allows people to be treated on-Island.

MVH also added a new orthopedic surgeon at significant investment. The addition now means the hospital has 24/7 orthopedic coverage in the operating room.

Strength in numbers

Asked if Martha’s Vineyard Hospital is financially healthy, Mr. Walsh answered, “Very healthy.”

Mr. Walsh pointed to the balance sheet, which lists assets and liabilities. “It tells you what you are worth today,” said Mr. Walsh.

The hospital has $34,566,691 in assets — cash in various designated accounts, some of which are set aside for specific purposes. Of that, the board controls approximately $16.5 million. That money is used to replenish accounts and fund new programs.

“That is where the strength of the hospital is,” Mr. Walsh said. “We have no debt, a brand-new hospital, and substantial cash right now.”

The new hospital accounts for an asset worth $56,168,813. Total assets are listed at $110,602,931.

Against that figure are $9,051,346 in total current liabilities and $3,469,805 in long-term liabilities that include a mortgage of only $931,449.

Despite being in the red, Windemere’s balance sheet has been helped by an investment from Massachusetts General Hospital of about $3 million to upgrade the aging building.

The nursing home shows $9,078,768 in assets and liabilities of $3,364,675.