Hospitals Sound Alarm on Fiscal Stress and Local Impact

In October 2015, the Virginia Hospital and Healthcare Association launched a campaign called “Virginia Hospitals: Our Lifeline.” Why did they need to do this? Doesn’t everyone know that hospitals are critical pieces of our communities?

Well, no. Many people perceive that hospitals, and especially doctors and administrators, are well-off and paid top dollar. Seismic shifts in health care, particularly related to financing, have changed this for many health care organizations and anxiety is rising.

According to VHHA president Sean Connaughton, most people don’t understand the complexity of the finances of health care or the current realities.

“Everyone is looking backwards—hospitals were doing well, but those good old days are in the past. Challenges are real, especially reimbursement cuts from the state and federal governments at the same time, and trying to change service delivery within organizations,” he says. “There are challenges in trying to explain a very complex financial model—in health care, there’s federal and state government, insurers and individuals paying for it.”

The campaign to raise awareness is fundamentally about the financial stress, according to Connaughton.

“We are starting to see changes due to the financial challenges, first, hospitals are starting to delay capital improvements, second, they aren’t hiring the additional staff needed and third, services that are associated with hospitals close—like delivery rooms,” he says. Connaughton says that these steps are not visible to the public until a hospital announces its closing, and then it’s too late.

Open 24/7, 365 Days a Year

Even if many people get their regular health care needs met by their family physicians, the coverage that hospitals provide in case of an emergency needs to be available around-the-clock. This expensive care, which includes physicians, nurses, staff and specialists on site at the hospital or on call, must be provided whether it’s used or not. A Level I trauma center for example, has to have surgeons trained in trauma, orthopedic physicians, neurosurgeons and around 100 other staff members ranging from receptionists to security to cleaning crews. If they have an air ambulance or “life flight,” it’s considerably more. The Nightingale program at Sentara Norfolk General runs a $1.6 million operating deficit, in addition to the financial deficit for the Level I trauma program of $3.2 million.

Some hospitals are questioning the costs of providing high acuity care in light of the lower reimbursement levels. They have scaled back on some specialty services, and are considering changes to services, including stepping back on trauma center levels, which range from Level 1 (with the most services) to 5.

“Everyone agrees that they want a well-staffed emergency room for the chance that they have an emergency, and they also want it nearby. But as hospitals strain due changes in finances, they have to make tough decisions,” says Connaughton.

Over the River and Through the Woods…to the Emergency Room We Go

This care doesn’t just need to be open every moment of the day, it needs to be accessible geographically. Western Virginia not only has fewer hospitals, it has mountains and further distances for residents to reach them, making highly-skilled emergency care even more important. According to the National Rural Health Association, 14 rural hospitals shut down in 2013 nationwide, leaving whole communities without quick access to emergency care. One of those hospitals was Lee Regional Medical Center in Pennington Gap, Virginia, citing “reimbursement cuts associated with the Affordable Care Act, extremely low community use of the hospital and a lack of consistent physician coverage.”

The NRHA says that more than half of all rural hospitals are currently experiencing negative total margins and that rural health care access is not sustainable without targeted policy changes.

In addition to decreases in funding due to Medicare cuts and sequestration, there’s also the issue of uncompensated care, which nearly all hospitals provide at their cost of millions of dollars each year. According to a report from the Virginia Commonwealth University department of Health Behavior and Policy, uncompensated care absorbed by Virginia hospitals was $1.2 billion in 2013. And, there may be more to come.

“Many of the Medicare payment cuts associated with the ACA have not yet been fully phased in, so we expect that financial stress will increase over the next several years,” says Robert Broermann, senior vice president and chief financial officer of Sentara Healthcare. But Broermann also noted that the uncompensated care burden has eased slightly as more people have become insured with access to the federal health insurance exchange, so there are some ups and downs.

Good Health Care Means Good Jobs

Besides the economic impacts of hospitals cutting back or closing, there is a desire to emphasize what health care as an industry brings to local communities. According to VHHA, one out of every nine jobs in Virginia is tied to health care and in most communities, the hospital is one of the largest private employers.

“The health care industry tends to be more stable than most because the need for health care does not fluctuate with economic conditions. That steady employment base creates opportunities throughout other sectors of the local economy. The average wage in a hospital usually exceeds the local and national averages because there are so many skilled positions needed in a hospital. Most hospitals have internal training programs that provide opportunities for entry level employees to advance their careers,” says Broermann.

Hospitals also have an intense economic impact on their localities, including a skilled workforce, investment in real estate and capital improvements and a halo effect of good health care that appeals to businesses and people relocating to the area.

Hampton Roads Chamber of Commerce president Bryan Stevens says that everyone benefits from local high quality health care.

“Health care is extremely important to our economy. It’s one of the top three priorities for businesses looking to relocate or start here. Businesses are always looking for health and education opportunities for their employees and their families. We promote that quite a bit. ‘Relocate here, we have big hospitals and top facilities,’” he says.
Our numerous military branches also provide health care for service members and their families as well, increasing the variety of care and services available.

Health Care and Industry: Partners in Growth

“Health care is often overlooked in the three legged stool of military, port and tourism. There’s around 900,000 high-paying jobs. Even though most hospitals are non-profits, they still bring income tax from their employees, real estate tax on the homes that those employees buy with their stable income and some additional revenue,” says Stevens.

“Not only do we have four health systems in Hampton Roads, but clinics, doctors’ offices, a medical school and an insurer, Optima. And we’re looking at biotech expansion,” says Stevens.

Michael Dudley, president and CEO of Optima Health and senior vice president of Sentara Healthcare says that having a local insurance company benefits the economy of the community in which it operates in two ways.

“First, Optima works closely with hospitals and physicians to assure the right care is delivered at the right time in the right setting. The result of providers and health plan working together is high quality of care, enhanced patient experience and affordable coverage. Second, Optima is a not-for-profit health plan. That means that the income earned by Optima is returned to the community in the form of lower premiums and investment in health care services, technology or facilities,” Dudley says.

100 Cents Spent, 66 Cents Paid Back

Virginia hospitals are feeling the pinch from both the state government and the federal government. Medicare reimbursement from the federal government, is about 88 cents for every dollar, with Medicaid from the commonwealth of Virginia around 64 cents per dollar. That means that the dollar is spent, but the expected repayment is never worth 100 cents. A rise in the aging population on Medicare means more patients with lower reimbursement for services.

Under federal law, all Medicare-participating hospitals with emergency departments must screen and provide stabilizing care to someone with an emergency condition, regardless of their ability to pay. Nearly all hospitals provide some level of uncompensated care, but the amount varies across hospitals and is related to the size of the hospital, ownership type and location. This is categorized as “charity care” but is not the only financial cost absorbed by the hospitals. Because Virginia did not expand the Medicaid program under the option to do so with the Affordable Care Act, many more people below the poverty line remain uninsured than in states where coverage was expanded.

According to a report by VHHA, in 2013, hospitals in Virginia provided $628 million in charity care (to uninsured or underinsured individuals), offered $376 million in community benefit programs (where they reached out to the community to offer services, education, research, in-kind contributions.) In addition, they offered $135 million in subsidized health services (paying part of the cost for the service) and then had a Medicaid shortfall of $341 million (where they were underpaid by Medicaid by the state). VHHA’s campaign aims to remind the public that hospitals are assets, not liabilities, and Connaughton aims to get state and federal legislators to support health care providers whole heartedly.

“We want to open minds to think about how important we are and who we are and that we have challenges. Health care has been through a lot of politics. It shouldn’t be partisan—let’s put aside politics and focus on hospitals as great assets, community drivers, and then sit down and work on solutions,” Connaughton says. “What we want in five years is to have a stable and growing hospital and health care sector in state.”

About the author

Natalie Miller Moore

Natalie runs Moore than Words, a health communications consulting firm in Williamsburg. She loves to learn and write about health, particularly relating to patient experience and research.