Spiraling bad debt puts hospitals in a tight spot
As of this week, executives and staff physicians at Kent Hospital earn 8.5 percent less than they used to, and senior managers, 4 percent less. The entire staff had been scheduled to get a 2-percent raise on March 25; now it will be delayed until Oct. 7.
Merit pay raises are also being delayed, and continuing-education reimbursements are being cut back sharply. Non-critical vacancies will not be filled, and a few management jobs are being eliminated. A community outreach program and two outpatient offices will be closed.
All this, President and CEO Mark E. Crevier said last week, should save about $3.3 million by Sept. 30. That’s about what Kent needs to make up for a $4.2 million loss in October and November and end up with just a $1.25 million loss for fiscal 2007, its original goal.
The fall is always tough, Crevier said, because activity slows down and reimbursement hikes don’t kick in until January. But these results were so much worse than anticipated that the hospital’s trustees agreed they couldn’t wait for December figures before taking action.
“If we are to remain a strong community health care provider,” Crevier wrote in a Jan. 16 letter to the staff, “we must take immediate steps to deal with this situation. … We must decide what services are essential to our mission, build utilization and revenue and move forward.”
Kent’s financial difficulties are not a new thing. The hospital has lost money in eight of the last 11 fiscal years – $1.99 million in the year that ended Sept. 30 – and that’s part of why Crevier, previously chief financial officer for Care New England, was brought in a year ago.
The health care system itself also has been losing money. Despite a
$3.5 million operating profit at Women & Infants Hospital, its largest member, the system lost $960,000 from operations last year, according to spokeswoman Amy Blustein.
And the market as a whole isn’t doing well, said Edward J. Quinlan, president of the Hospital Association of Rhode Island, of which Care New England is not a member: An unofficial tally by the group found only three of the state’s 12 hospitals ended fiscal 2006 in the black.
But what makes Kent’s sudden crisis significant, Quinlan, Crevier and others agree, is that it shows how delicate the finances of Rhode Island’s community hospitals can be.
Crevier attributed the hospital’s losses in October and November to a drop in patient volume – partly due to the mild weather, partly due to the implementation of a new electronic records system, partly unexplained – and to a steady rise in bad debt.
The latter is a major problem for all the state’s hospitals, said Quinlan, and it’s escalating. Several times last year, he said, hospitals reported breaking monthly records for bad debt. And the cost of collecting deductibles and co-payments is “extremely significant,”
“I think the factors contributing to Kent’s first-quarter difficulties are evident throughout the state,” Quinlan said. “The only difference is the degree of magnitude, but we clearly have an issue that’s worsening with alarming speed.”
Moreover, Crevier and Quinlan said, another industry trend is taking away a key source of revenue that hospitals have traditionally used to offset losses: imaging and other outpatient services, which a many of freestanding facilities now provide.
The R.I. Department of Health had been considering in recent months whether to subject high-end imaging facilities to the same “certificate of need” process used for hospitals, but this month, that plan was dropped.
John J. Hynes, president and CEO of Care New England, said the combination of spiraling bad debt and growing competition is a serious threat to the hospitals’ financial stability.
“This is a very fragile infrastructure that we have in this state,” he said, “and many of the hospitals have been able to count on outpatient activity to help sustain some of the more robust and costly programs that we provide to the community. When you begin to pull away at that fabric, you begin to wreak havoc on the infrastructure.”
Being part of a larger entity gives Kent a measure of protection from short-term crises, Crevier acknowledged: Care New England has an internal line of credit, and several key functions, including IT, are handled at the system level – all benefits that Rhode Island’s independent community hospitals don’t enjoy.
(Lifespan, the state’s other health care system – which includes Rhode Island Hospital, Bradley Hospital, The Miriam Hospital and Newport Hospital – is even stronger financially, with a reported operating profit of $43 million for fiscal 2006, a 3.2-percent margin.) But Care New England itself has had to make small cutbacks, at Women & Infants and at the corporate level, where Hynes reported about 15 job reductions – primarily through attrition.
Asked how confident he is that Kent and the system as a whole can weather this crisis and move forward, Hynes offered a mixed review.
“We’re concerned about all our operating units – Kent, for sure – and we’re concerned about the impact of the performance of those operating units on the system,” he said.
In its 12 years, Care New England has seen one or two of its units lose money each year, “and we’ve been able to work our way through that,” he said. “We hope to do be able to do that this time as well.”
At Kent, most of the staff “has responded very well” to the cuts, Crevier said. “They know these cuts have gone all the way from the top, myself, all the way down to the housekeeper, and … because we have shared the pain, people have looked at it as, ‘We needed it.’ “
Spiraling bad debt puts hospitals in a tight spot