A new report by the Virginia Hospital and Healthcare Association paints a grim picture of the daunting financial challenges facing hospitals and other healthcare organizations in that state.
Citing the “unprecedented levels of change in the statutory and regulatory system” driven by the Affordable Care Act (ACA), the report highlights the impact of uncompensated care in Virginia.
“In 2012, Virginia hospitals provided over $600 million in charity care; absorbed shortfalls of $339 million in Medicaid services and $578 million in Medicare services because reimbursements do not cover the full cost of care; and incurred $454 million in bad debt expenses,” the report notes. “The ACA sought to address some of these challenges by expanding Medicaid and health insurance coverage and reducing the overall costs of health care services. However, the 2012 U.S. Supreme Court decision leaving Medicaid expansion up to the individual states has dealt a significant financial blow to hospitals and health systems in those states that have not expanded Medicaid, including Virginia.”
Sean Connaughton, president and CEO of VHHA, says these financial challenges mean that “each hospital and health system will have to make tough decisions regarding the breadth and depth of the services they provide.”
“In some instances, they can look at reducing administrative positions or not hiring when a position goes vacant,” he said. “This, however, can only go so far. Tightening budgets, curtailing educational opportunities for personnel, and revising scheduled maintenance and capital projects are next. Finally, practices and specialties, and entire facilities, will need to be looked at to make budgets balance.”
Fred Rankin, president and CEO of Mary Washington Healthcare in Fredericksburg, Va., can speak of the tough choices hospitals and health systems have had to make.
“Just three weeks ago we laid off 66 good people,” he said. “While that’s just about 2 percent of our workforce, to those 66 people it was devastating. Another 150 people had their hours reduced. And we’ve eliminated another 250 to 300 jobs through attrition.”
Rankin says that Mary Washington Healthcare “historically has been a very profitable organization.”
“But we lost $22 million in 2012, the first time we lost money in probably 30 years,” he said. “In 2013, we lost $8 million. That’s a $13 million improvement, but it’s still a loss.”
The financial crunch has forced Mary Washington Healthcare to look hard at which services and procedures they should offer the community.
“We got out of the pediatric mental health business because we thought our resources would be better deployed to the adolescent population,” he said. “And we’re starting to make decisions we’ve never had to make before. For example, if a doctor wants to bring in a new procedure, we go through a very detailed analysis of what the cost of that procedure will be, and we weigh the cost of the procedure against the benefit.”
Healthcare providers across the state are facing these same painful choices, Rankin says. And while he is optimistic the huge shift in how the U.S. healthcare system operates eventually will mean better care for Virginians, Rankin says “there’s no magic bullet.”
“Our industry is in the midst of a transformational change,” he said. “We are moving toward an economic model where we get reimbursed for keeping people healthy and keeping them out of the health system. We’re migrating from a ‘sick’ healthcare system to a ‘wellness’ healthcare system.
“Because so much of how we get paid is based on the old volume-based model, as we migrate, all healthcare organizations feel the stress of the built-in reductions that are part of the ACA,” Rankin said. “The industry eventually will find a new equilibrium, but in the meantime it’s chaos.”
Connaughton says it is up to individual hospitals and health systems “to come up with creative ways to reduce costs and eliminate or change services that have the least impact on patients and their communities.”
“With that said,” he added, “it will be very difficult to make cuts that in some way do not impact the patient. Even not adding new technology, upgrades to the building and cutting cost on maintenance and food services still will ultimately impact all patients."