Will layoffs heal Hanover Hospital?: National economic ailments catch up to local nonprofit hospital. [The Evening Sun, Hanover, Pa.]

Feb. 28--When Hanover Hospital announced it was laying off about 50 people of its staff of 1,300, hospital President and Chief Operating Officer George Kyriacou said it was the tough times seen in the rest of the country catching up here.

"The economic realities that have been facing the health-care industry across the nation have finally come to Hanover," he said the day the layoffs were announced.

That same day, 29 people were to have their hours reduced. Twenty vacant positions were eliminated. Managers took reductions in pay -- Kyriacou took a 10-percent cut.

What really is behind the hospital's woes, which amount to $1.7 million in losses during the past six months?

Some say the hospital has seen its admissions drop 200 patients over last year because it outsourced its long-term bill collection to an Nevada-based bank that charges interest. But based on research done by numerous policy groups nationwide, Kyriacou's position -- that the economy is at fault -- holds water.

As unemployment increases, so does the number of people without health insurance, putting increased pressure government programs and hospitals which must often absorb at least some of the cost.

Whatever the cause, the hospital had to do something to stay in the black. The changes are expected to save $5 million over the long haul and make Hanover sound by the end of the next fiscal year.

"This is a very painful, but necessary, decision that will ensure that we retain the ability to provide care to the community we serve," Kyriacou said. "We need our organization to be healthy."

Government programs

According to the United Stated Department of Labor's Bureau of Labor Statistics, the unemployment rate in Pennsylvania rose from 6.4 percent in December 2008 to 8.9 percent in December 2009, an increase of 2.5 percent over the year.

Meanwhile, a study done in 2008 by the Urban Institute for the Kaiser Commission on Medicaid and the Uninsured found that an increase of 1 percent in the national unemployment rate would increase Medicaid and SCHIP (State Children's Health Insurance Program) enrollment by 1 million -- 600,000 children and 400,000 non-elderly adults.

Between 2007 and 2008, the years for which statistics are available, the number of people in Pennsylvania on Medicaid increased by about 122,000, with every indication the increase would continue. According to a report released in May by the Hospital & Healthsystem Association of Pennsylvania, there are 1.8 million people in the state on Medicaid -- about 14 percent of the population.

Kyriacou said there were large increases in the number of Medicare and Medicaid patients the hospital is treating, as well as the huge number of people receiving free care because they lack insurance or are simply unable to pay their debt. The hospital saw an increase in Medicaid uncompensated care -- the difference between the cost of care and what the government pays -- of about $1.6 million over budget for the first six months of the year.

"Medicare and Medicaid don't negotiate; they set their rate," explained Dennis Shea, a professor of health policy and administration at Penn State University's College of Health & Human Development.

Generally, Medicare pays for about 93 percent of the average hospital's costs, he said. Medicaid, at best, pays about 40 percent.

Still, some hospitals -- 40 percent nationally, Shea said -- have been able to make a profit despite the low payments.

"So, is Medicare paying too little? Or are the other 60 percent of hospitals just not working hard enough to find the efficiencies that the profitable hospitals have found?" Shea asked. "Are private insurers subsidizing government programs or are they just not being tough enough in their negotiating with hospitals, which would reduce health insurance premiums?"

Hanover Hospital is familiar with negotiating with its private insurers, and for smaller health-care facilities, that can be especially challenging.

Shortly after Kyriacou came on board almost two years ago, the hospital began renegotiating payments with all the major insurance companies to make it so all of them paid the same rate for different procedures.

The hospital secured increased payments from all of them -- except one.

Issues remain with Capital BlueCross, which is paying 20 to 30 percent below other insurance companies with patients at the hospital, Kyriacou said. Unless the hospital and insurer can reach a compromise, the hospital intends to no longer accept Capital customers starting July 1, 2012.

Access to insurance

Another key issue is the number people out of work in the area, reducing the access to health insurance. And increasingly, that's a problem not limited to the unemployed.

In a February 2009 report, the Hospital & Healthsystem Association of Pennsylvania found about 36 percent of those under age 65 in the state are without job-provided health insurance. The same report also found the percentage of firms in the state offering coverage dropped from 71 percent in 2000 to 64 percent in 2007, in part due to rising premiums.

Additionally, citing statistics from a September 2008 study by the Kaiser Commission on Medicaid and the Uninsured, the report found that about 50 percent of adults in the state have no regular source of health care.

As a result, they are four times more likely than the insured to delay or forgo needed care, the report states. They also are more likely to be hospitalized for preventable conditions, are less likely to manage chronic care and are less likely to seek preventative care, the report states. That all add up to higher bills when they are finally forced to seek care.

In Hanover, those who can't afford to pay are covered by the hospital's free care and bad debt fund, which is about $226,000 over the $5,152,000 budgeted for fiscal year 2009-10.

"The uninsured often will only be able to pay a portion of their bill," Shea said. "One of the reasons why we give nonprofit hospitals a tax exemption, of course, is because of the community service they provide in taking care of those individuals."

Impact of Sun West

What about the argument that the hospital brought this on itself by outsourcing its collections to a company that charges interest?

The hospital began using Sun West Bank starting July 1 to collect payments. Doing so meant eliminating Hanover Hospital's ability to offer patients interest-free payment plans on balances not paid off within 90 days, something still available at other area hospitals.

Sun West Bank -- which hospital marketing director Lisa Duffy said is keeping all of the additional income -- originally agreed to offer Hanover Hospital patients a 10-percent interest rate. After outcry from patients, that rate was reduced to 6.9 percent.

Some commenting on a story about the layoffs at www.eveningsun.com said the interest payments led them to look elsewhere for care.

Kyriacou and Duffy acknowledge the hospital could have done a better job informing its patients about the changes, as well as ways to create payment plans that fit patients' needs. But they said there are too few patients using the long-term payment option to have much financial impact.

Before the Sun West arrangement went into effect, 0.76 percent of all of the hospitals accounts were on a payment plan, about 2,200 out of 290,000 accounts. A week ago, Kyriacou said, the hospital's financial office ran the numbers year-to-date and just under a full 1 percent -- 2,500 out of about 290,000 accounts -- are on a payment plan.

Of that, about 1,500 are inside the 90-day period where no interest is charged. The remainder have been transferred to Sun West, but that was after they went through the same 90-day interest-free period, Duffy said.

"It's a very, very small number," Kyriacou said. "Three-fifths of those on payment plans are paying it off."

"We want to encourage people who are coming in for a procedure or testing, that they should feel free to contact our patient financial advocate," Duffy said. "We can try to estimate the costs and help them be prepared."

'Path to profitability'

Whatever the causes of the hospital's financial problems, it isn't alone.

According to statistics prepared in November for 2010 by the American Hospital Association, which represents hospitals and health care networks nationwide, about a third of hospitals nationwide report a negative total margin, and a little more than half have plans to, or already have, reduced staffing levels.

And the Hospital & Healthsystem Association of Pennsylvania recently noted the proposed 2010-11 Pennsylvania budget proposes cutting Medicaid payments by about $31.9 million.

Association President Carolyn F. Scanlan notes that the state's hospitals are solid employers in their communities, and reduced funding can cause more cuts like those seen in Hanover.

"Pennsylvania's hospitals are mindful of the budget realities facing Pennsylvania," Scanlan said in a written response to Gov. Ed Rendell's proposed cuts. "But the governor and lawmakers need to ensure that hospitals remain viable employers in their communities, where they can provide access to quality care, jobs and job-growth opportunities, support to other businesses, and overall stimulus to local economic activity."

This leads to the debate ongoing nationally regarding health care reform, said Shea, the Penn State professor.

Will a government-funded health care program help or hurt?

"I would argue that before we simply ask taxpayers to pay more, hospitals and insurers better be able to clearly demonstrate that they have taken every step they can to provide high quality care in an efficient way," Shea said.

Hanover Hospital officials state their cost-cutting, though painful, does make the hospital more efficient.

Using state and national benchmarks for the ratio of staff to patient volume, it reduced its staff. It also cut hours and salaries -- Kyriacou's alone was cut by 10 percent, he said. And the hospital is looking at other ways to maintain care while spending less money, he said.

The problem comes back to using private insurers to make up the shortfall from government programs.

"There's a disconnect the policy makers have between what they intend and they're actually going to get," he said. "What they pay through the government doesn't come close to the cost."

As politicians wrangle with health care reform, a viable solution that allows hospitals to continue quality care seems elusive. And more hospitals will end up in the same boat as Hanover.

"It's not clear that the long-term or short-term solution to this immediate problem is just raising Medicare and Medicaid rates," Shea said. "Ultimately, that just passes the buck to the taxpayer, who has to face higher taxes.

"Certainly, a number of hospitals have found a path to profitability through lower costs."

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