Lgh Surplus Again Declines ; Takes Steps To Increase Profits, Cut Expenses Revenues Rise ‘Charity’ Care [Intelligencer Journal (Lancaster, PA)]

Staff Writer

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Lancaster General Hospital officials saw it coming.

The hospital, the county's largest employer, remains in good fiscal health.

According to the IRS Form 990 released earlier this month on its website, LGH had $60.3 million left over after paying the bills last year. Such a surplus would be the envy of many other health care providers.

But it marked the fifth year in a row that the surplus declined. It's down more than 55 percent from its peak of $136.8 million in 2007.

None of it surprised executives at parent Lancaster General Health. They knew more and more patients were shifting to government health insurance programs such as Medicare and Medicaid, which don't always reimburse providers for the true cost of care. They knew operating costs were rising; they knew demand for inpatient care was dropping.

And even as the decline in its annual surplus was being reported, Lancaster General Hospital was doing something about it.

Beginning in the third quarter of calendar year 2011, the hospital asserted in its tax filing that LGH initiated a drive "to achieve up to $100 million in increased revenue and reduced expenses by July 2013." Hospital spokesman John Lines said LGH is more than halfway there.

"This effort is in response to critical uncertainties in health care such as health care reform, shrinking government reimbursements for services, a dramatic increase in uninsured patients and the challenging economy," Lines said.

"It's producing results."

It's not as if the patient was at death's door.

The hospital's tax return reports that revenues rose to a record $857.3 million, up about 1 percent from the previous year (total expenses rose 1.5 percent, to $797 million). The size of the workforce fell slightly; in its tax form, which covers the tax year July 1, 2011, to June 30, 2012, the hospital reported that it employed a total of 6,455 people - down just 50 from the 6,505 it reported the year before.

The decrease, Lines said, "is due to natural attrition such as resignations and retirements."

The hospital remains the county's biggest employer, according to data compiled by the Economic Development Company of Lancaster County.

Lancaster General Hospital is a subsidiary of Lancaster General Health. The "hospital" includes the downtown facility, Women & Babies Hospital, the Suburban Outpatient Pavilion in East Hempfield Township and eight other outpatient facilities around the county. The new Ann B. Barshinger Cancer Center also will be considered part of the "hospital."

Lancaster General Health includes Lancaster General Medical Group, Lancaster Cleft Palate Clinic and several related operations, in addition to the hospital.

The hospital accounts for nearly 90 percent of system revenues.

Even with fewer employees, the hospital paid a record $417 million in salaries, other compensation and benefits, according to its tax forms. Employees got an average raise of 2 percent last year, Lines said.

But two top LGH executives took home less than they did the year before.

Hospital CEO Thomas Beeman and Executive Vice President Jan Bergen both earned a total compensation of more than $1 million two years ago; last year, their total compensation fell to $966,945 and $872,165, respectively.

The reason for the fall in Beeman's compensation was a decrease in bonuses and incentives, from $345,000 two years ago to $98,650 last year. Lines said this reflected the fact that Beeman, a captain in the U.S. Naval Reserves, was on a military leave of absence from the hospital for more than six months of the 12-month reporting period.

Bergen, who filled in for Beeman in his absence, saw a significant drop in "other compensation," which can include deferred compensation or other nontaxable benefits such as contributions to 401(k) or 403(b) retirement plans.

Rounding out the hospital's highest-compensated employees last year, according to its Form 990:

Marion McGowan, executive vice president, $808,004.

Dr. Lee M. Duke II, senior vice president and chief physician executive, $704,149.

Dr. Frederick Rogers, medical director of the LGH Trauma Center, $696,958 .

Dr. Alan Brader, a bariatric surgeon who has since left LGH, $633,747.

F. Joseph Byorick III, former chief financial officer who has since moved to a new position, chief financial officer emeritus and treasurer, $605,239.

Another five employees earned total compensation of more than $500,000.

The hospital provided $92.9 million in uncompensated "charity" care last year, down from $94.6 million the year before. That figure includes costs not recovered serving Medicare and Medicaid patients. That represented 12.6 percent of all expenditures.

Grants and other financial assistance to area governments and organizations declined, from $4.4 million two years ago to $3.7 million last year. This was largely due to a reduction in aid to SouthEast Lancaster Health Services, which got $299,000 last year - down from $807,000 the year before.

The higher total the previous year helped support SouthEast Lancaster Health Services' Arch Street clinic. The hospital, spokesman Lines said, contributed $2.5 million over three years toward the purchase of the site and another $1.2 million to get the medical clinic up and running.

The hospital's annual payments-in-lieu-of-taxes, or PILOT payments, to the City of Lancaster and School District of Lancaster remained static, $1.38 million and $1.34 million, respectively. Other organizations receiving grants of $60,000 or more last year included the James Street Improvement District, $160,500; the Lancaster County Medical Foundation, $75,000; the United Way of Lancaster County, $68,000; and the Clinic for Special Children in Strasburg, $60,000.

"We're fortunate to be able to earn a surplus that we can reinvest" in the community, hospital staff, technology and health care services, Lines said.

But as the surplus has begun to ebb, LGH officials have been eyeing ways to ensure that their good fortune continues.

The health care system is working to eliminate redundancies and increase efficiency, working with physicians to reduce the variety of similar products purchased and whittling down the number of vendors used, while negotiating deeper discounts for the items it does purchase.

The system also is "working more closely with insurers to reduce the rate at which they deny payment for services we have provided," Lines said. The health system's transition to electronic medical records has helped with this effort, he said.

Looming health care reforms are also prompting changes.

"We will be working more closely with employers and insurers to better coordinate our efforts to reduce health care spending," Lines said. "There will be greater shared responsibility for costs and outcomes."

That will be accompanied by a renewed focus on prevention.

" We want to help people reduce their health care costs by keeping them healthy," he said.

More than halfway to LG Health's fiscal goal, hospital officials are optimistic the system will remain on stable financial footing despite the challenges. But Lines said the focus remains on what's best for Lancaster County, not just its biggest health care system.

"We are actively managing LG Health's response to these factors on behalf of the best long-term interests of the community," he said.