Study: Ellwood hospital one of highest in state on revenue gap, Medicare use

Beaver County Times (PA)

Jun. 24--ELLWOOD CITY -- Most smaller hospitals in western Pennsylvania are spending more than they are bringing in from patient revenue and relying heavily on Medicare and other medical assistance programs reimbursements, but Ellwood City Medical Center has one of the largest gaps in operating margins and greatest percentage use of Medicare in the entire state, according to a recent study.

The Pennsylvania Health Care Cost Containment Council, an independent state agency created in 1989 to address rapidly growing health care costs, released a study in May looking at the finances of 168 acute care hospitals throughout the commonwealth, specifically looking at net patient revenue, total operating expenses, operating margins, percentage of uncompensated care and shares of Medicare and other medical assistance programs that provide patient revenue. It did not look at laboratory or testing fees, surgical centers or specialty medical practices such as psychiatric hospitals.

Ellwood City Medical Center was one of 29 for-profit hospitals reviewed for fiscal year 2018. Seventeen of the for-profits reported a negative operating margin, which is what is left after all operating expenses are paid, for the year. Ellwood was one of those in the red, with an operating margin of -44.97 percent.

Only two other for-profit facilities had a worse ratio, Philadelphia Academic Health Systems LLC, -47.65 percent, and Barix Clinics of Pennsylvania LLC, -45.08 percent. For-profits on average ended fiscal year 2018 at a rate of -9.05 percent operating margins, according to the study.

Other area hospitals had operating margins as follows: Butler Memorial, 11.73 percent; Heritage Valley Beaver, -0.03; Heritage Valley Sewickley, -1.84; Sharon Regional, -1.52; UPMC Jameson, -0.27; and Indiana Regional, 0.91.

Overall, 69 of the 168 hospitals, 39 percent, had negative operating margins in 2018, up from 62, 37 percent, the year before, the study said.

Ellwood City transitioning

Ellwood's hospital, which was a nonprofit until its purchase in October 2017 by Florida-based Americore Health LLC, actually has closed its operating margin gap a bit in the last two years. It reported operating expenses of $32 million in fiscal 2017 and revenue of $22 million, a $10 million chasm. However, for 2018, the expenses were down to $22 million and the revenue fell to $15 million, a $7 million difference.

Since taking control, Americore has reduced the workforce by about half to approximately 180 and cut some programs it deemed unprofitable or not suited to the health care needs of the region. The goal is to adjust the operations of the hospital to better suit the region's health care market, officials have said.

However, the process has been rocky at times. Workers at the medical center reported more than a dozen times since last August that they were not paid or received reduced wages on payday, leading to an investigation by the U.S. Department of Labor and Industry in January. Hospital officials said workers have received full wages each of the last four paydays.

"Ellwood Medical Center continues to transform its services to meet the needs of the community," Beverly Annarumo, hospital CEO, said in a statement in response to the study. "In the current environment for community hospitals, this is no small task."

Medicare share

The study also looked at how large of a portion of patient revenue hospitals were relying on to be reimbursed by Medicare and other medical assistance programs. It was not uncommon for medical facilities to list 30 to 40 percent of patient costs being covered by Medicare, but only seven centers had numbers of 60 percent or higher in fiscal year 2018.

Ellwood City was the only one listed as Medicare providing 100 percent share of net patient revenue. The closest other hospital noted was Suburban Community in the Bucks County area, which listed a 74.38 percent share. The eastern Pennsylvania center also listed 22.15 percent of its remaining patient revenue coming from other medical assistance programs.

Annarumo did dispute the Medicare and other figures included in the report, but was unable to provide other numbers.

"I have reviewed the report, and the numbers do not represent the full 2018 fiscal year for our hospital," she said in her statement. "Furthermore, I know with certainty that our patient share is not 100 percent Medicare. I have asked the team to review the numbers and provide more accurate details of the mix of our patients."

Annarumo added, "The information in the report is over a year old, and we have significantly reduced our costs while aligning our services to market needs since this time."

George Gugoff, who helped put together the report for the cost containment council, said all the data used in the study came from figures reported by the individual hospitals. The council's methodology says it gives each facility an opportunity to review data and make corrections, so the responsibility for data accuracy lies with each hospital.

Gugoff said the operating margins are financial indicators and can be used to interpret a hospital's financial viability, but the council doesn't make judgments on the health of hospitals itself because its members are not forensic auditors.

Small hospitals struggling everywhere

It is not just Pennsylvania where small community hospitals, especially in rural areas, are struggling.

According to an April study by the federally funded North Carolina Rural Health Research Program at the University of North Carolina at Chapel Hill, the proportion of rural hospitals nationwide at high risk of financial distress has increased from 7.1 percent in 2015 to 9.2 percent in 2019.

That percentage is 196 of the 2,129 rural hospitals included in the study. Another 17 percent, 361, were predicted at a mid-high risk and 43.9 percent, 934, in the mid to mid-low risk category.

The South is the worst region of the country for rural hospitals, with 18.7 percent projected to be at high risk of financial distress. The Northeast region, which includes Ellwood City, has 4.5 percent of its rural hospitals in the high risk category. Medicare-dependent hospitals overall are listed as 18.2 percent at high risk.

Authors of the study said the impact of these hospitals struggling is magnified because they tend to serve patients who are older, poorer and more dependent on public insurance than urban hospitals. If these facilities close or significantly cut back on services, the health of their community members could suffer, they said.

In Pennsylvania, approximately 30 of its 42 rural hospitals are currently at risk, according to state Sen. Lisa Baker, R-20, Dallas, who has introduced legislation to create a center to help troubled medical facilities in collaboration with state and federal agencies and private institutions.

Senate Bill 314 passed earlier this month and has moved to the state House for consideration. The measure would form the Rural Health Redesign Center, which would aid hospitals by creating a more predictable payment plan and a fixed budget to stabilize reimbursements. The center would be utilized by health systems participating in the state's Global Payment Model for rural hospitals.

"Most of the qualifying hospitals are running in the negative, with one in three operating with margins in the red," Baker said. "These facilities are indispensable in the health care network, serving 1.8 million Pennsylvanians.

"Equally consequential, they are significant employers and economic generators as one of the top five employers in their respective communities," she added.

Once the center is up and running, support will be provided to offer new community health services and programs to help hospitals meet key needs such as behavioral health and substance abuse. It will initially be funded by a $25 million grant from the Center for Medicare and Medicaid Innovation, and funds from private sources moving forward.

"If so much time and energy is not devoted to keeping the doors open, or agonizing about available funds to make payroll, the focus can shift back to progressively extending, rather than painfully constructing services and operations," Baker said. "It also clears the way for a greater emphasis on community intervention services such as behavioral health, substance abuse treatment and home health care."

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