Hospitals look for ways to cut costs in wake of Medicaid reimbursement reductions

by Paige Rentz, Fayetteville Observer, October 27, 2013.

Beginning next year, nurses at Southeastern Regional Medical Center in Lumberton won't get pay perks for working weekend shifts.

The move, which affects 95 nurses, will save Southeastern about $3 million as administrators try to make up for cuts in Medicaid reimbursement rates and other funding losses handed down from the state and federal governments. It is the latest cost-savings move by a North Carolina hospital, as many are finding it harder to cover budget gaps.

Thomas Johnson, chief financial officer at Southeastern, said changes put in place by the General Assembly in July included reductions in Medicaid reimbursements. Those reductions, he said, mean Southeastern will have to absorb another $4.4 million in costs over the coming year.

Don Dalton, spokesman for the North Carolina Hospital Association, said Southeastern's troubles are common across the state.

"We're seeing hospitals try a number of things short of laying off people," he said. "And unfortunately we're also seeing layoffs across the state as well."

Just last month, Cape Fear Valley Health announced it was cutting 118 jobs to deal with a $22 million cut in federal funding, including $3.7 million from lower Medicaid reimbursement rates and $10.7 million in Medicare reimbursements. All but 19 of the jobs were vacant.

Across the state, Dalton said, 46 percent of patients at an average hospital are on Medicare, the government health insurance program for the elderly and disabled. For their care, hospitals are reimbursed at 91 cents on the dollar for the cost of services.

About 16 percent of patients in the state are on Medicaid, the insurance program for the poor, and the reimbursement is about 73 cents. Hospitals receive 32 cents on the dollar for the uninsured.

"Is it any wonder that the 27 percent of our patients who have private insurance pay more?" Dalton said.

Dalton said hospitals are implementing a number of measures, including reducing hours of operation and pay for employees. In one instance, he said, an administrator took a 25 percent cut in salary.

At Southeastern, about 23 percent of the patients receive Medicaid, much higher than the state average of about 16 percent. Johnson said that because of this, the effect of state cuts and those imposed by the Affordable Care Act are larger.

Beyond the expected losses in Medicaid funding, Southeastern last year absorbed about $34 million from unpaid care for patients with no coverage at all.

"The promise of expanding Medicaid was going to help alleviate that problem," he said.

Cuts to reimbursements in the Affordable Care Act were meant to be offset by the creation of insurance exchanges and the expansion of Medicaid. North Carolina's lawmakers chose not to expand Medicaid, which leaves more than 300,000 residents without coverage. Had the legislature voted differently, Southeastern would have picked up about $3.7 million in reimbursements, Johnson said.

To further complicate matters, Johnson said, the hospital still has $20 million in outstanding Medicaid claims that are tied up in NCTracks, the state's troubled new computer system implemented July 1. The hospital wrote off another $15 million in debt from insured patients who couldn't afford to pay their portion of medical bills after insurance.

Dr. Tinsley Rucker, a partner with Fayetteville Family Medical Care, said the reductions are affecting smaller practices as well.

"Any care - whether it's Medicaid, Medicare, Tricare or private insurance - they're all reducing reimbursements, and we have to adjust," he said, adding that the suddenness of the changes is making it difficult.

Rucker said that in his practice, as in any business, costs must be cut when income is down.

"We take a look at everything we spend money on and ask if we really need that item - is it really helping the patient?" he said.

According to Dalton, the impacts are going to get worse. He said the hospital association projects North Carolina hospitals can expect the state cuts to cost about $150 million a year, and federal cuts driven primarily through the Affordable Care Act to cost about $800 million over the next 10 years.

"As much of a community organization hospitals are," Dalton said, "they have to operate as a business, and they have to keep doors open to continue the mission."