Chesapeake health system upbeat after down year

Aug. 18--The Chesapeake Hospital Authority lost money in the budget year that ended this summer after a "perfect storm" of problems, officials said.

The health system has dug into its cash reserves to cover the losses caused by bugs in a new information technology system, reduced payment from Medicare, a decline in the number of patients and struggles to staff physician hospital shifts, said Peter F. Bastone, president and CEO of Chesapeake Regional Medical Center.

"It was a difficult year. I can't hide it," he said. "It was a difficult year for a lot of hospitals, so it was a turnaround and reorganization year for this hospital."

The financial struggles came during a time when the health system experienced turnover in some of its top positions, including new hires and longer-term employees.

A chief financial officer hired in October left this summer, and Chesapeake Regional hasn't yet appointed a permanent replacement. The system's financial director of more than 17 years -- who served as interim CFO for more than a year -- departed in January.

Despite the hospital authority's recent struggles, Bastone pointed to signs of its financial health, including an A2 bond rating from Moody's Investors Service and the fact that the authority had earnings before accounting for interest, taxes, depreciation and amortization.

"They like us because we have so much cash in the bank," he said. "We're still strong."

The hospital authority is a tax-exempt government organization that operates the health care entities that constitute Chesapeake Regional Medical Center, including Chesapeake General Hospital, outpatient centers, a physicians group, an assisted living facility, and hospice and home care services. The authority also owns 40 percent of The Outer Banks Hospital and about 50 percent of The Surgery Center of Chesapeake.

Although the Chesapeake City Council appoints the hospital authority, the board is financially independent from the city. It employs about 1,800 full-time staff members and another 700 on a part-time or per diem basis.

Bastone said he could not provide a detailed financial statement reflecting the authority's most recent fiscal year, which ended June 30, because the books were being audited and weren't yet closed.

A statement through May for Chesapeake General Hospital, the health system's flagship, showed that the facility's expenses exceeded its $230.3 million in revenue by $8.7 million in the fiscal year's first 11 months. For the same period in the previous year, the hospital was in the black, with revenue nearly $10 million higher than expenses.

Malfunctioning of a new information technology system added expense and subtracted revenue, Bastone said.

When the new system from McKesson went live in October, a Web-based application for scheduling outpatient visits stopped functioning and a replacement didn't work. Patients and doctor offices could only use a call center for scheduling, and wait times climbed up to 10 minutes, he said. The problem persisted into February, and outpatient volume dropped about 20 percent.

"We lost a lot of referrals from doctors," Bastone said. "We've had to re-establish our credibility now that the system's been fixed."

On the inpatient side, the electronic medical records system automatically "down-coded" patients, logging them as less sick than they actually were, he said. The inaccurate coding meant reimbursements were about $9.1 million lower than expected and didn't reflect the care provided.

"We have to re-bill and try to get that money back," Bastone said, adding that the recovered money should appear in future financial statements.

The health system enlisted consultants and extra support staff to fix the problems. Overall, the IT system racked up about $10.4 million in one-time expenses, Bastone said.

Chesapeake Regional has decided to install a system from Epic, which is used by other Hampton Roads health providers. It will cost an additional $30 million over five years, he said.

Chesapeake Regional also struggled last year with its hospitalists, who are physicians that care for patients at the hospital, he said. The group that the health system contracted with lost half of its physicians and ultimately closed. Chesapeake Regional spent about $4 million it had not budgeted for on temporary physicians, Bastone said.

Meanwhile, the hospital paid $5 million more for salaries compared with the previous year. Much of that money went to IT people, said Jeff Brillhart, Chesapeake Regional's interim chief financial officer.

Bastone said the health system had based hiring on projected growth in patient volumes that didn't materialize. He said he eliminated about 90 positions through attrition. Another 12 positions were cut when a medical unit was closed because of low patient volume. Four of the employees found jobs elsewhere in the system.

The hospital also saw its revenue drop $4.8 million from the $235.1 million that had been reported for the same period in the prior year.

One reason is that Medicare, the government insurance for seniors and some disabled people, cut its payment to the hospital by $7 million, Bastone said.

Previously, the money went to the facility to offset the cost of treating low-income and uninsured patients. The payment was reduced by the Affordable Care Act because the federal law called for expanding insurance to that population -- providing a source of reimbursement for their care -- by broadening eligibility for Medicaid. Virginia lawmakers continue to be at a deadlock over whether to expand the state-federal insurance program.

The amount that Chesapeake General wrote off to bad debt by May was $5.6 million more than the prior year. Brillhart and Bastone attributed the increase to patients' struggles to pay insurance deductibles as high as $5,000 and to billing delays because of the faulty IT system.

They also said inpatient volume fell by 10 percent, a change Bastone attributed to a shift toward outpatient treatment and an emphasis by public and private insurers on minimizing inpatient care.

Chesapeake General spent about $1 million more than the budgeted amount on a marketing and branding campaign.

The hospital's financial troubles come after a few years of stronger performance. For the previous fiscal year, the authority's combined enterprises posted an operating margin of 3.1 percent after averaging below 1 percent for the prior three years.

Bastone said May was a turning point for Chesapeake Regional.

"I think we've turned the corner," he said. "For next year, we're budgeting flat, hoping to break even. But I think we'll do better than that."

Amy Jeter, 757-446-2730, [email protected]

___

(c)2014 The Virginian-Pilot (Norfolk, Va.)

Visit The Virginian-Pilot (Norfolk, Va.) at pilotonline.com

Distributed by MCT Information Services