Hospitals brace for sequestration-related cuts

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focus_hospitalHospitals across the state are bracing for billions in financial losses, thanks to sequestration and a series of other federal budget cuts.

While some cuts were expected and planned for, sequestration was not – and hospitals are struggling to figure out how to deal with the loss of revenue. For example, sequestration cuts Medicare provider reimbursements by 2 percent.

In Colorado Springs, Memorial Hospital expects to lose $1.1 million in the first six months of the sequester, and estimates from Penrose-St. Francis Health Services suggest it will see a $1.4 million cut annually for 10 years.

Both hospitals say the latest cuts are troubling — but won’t change their commitment to patient care.

The Centura Health system, which includes Penrose, will lose $7 million annually.

“The estimated loss to each of our hospitals ranges from about $40,000 to more than $1.4 million annually,” said Chris Valentine, spokesman for Penrose, the largest hospital in the Centura system. “These reductions would clearly have major impacts on our organization and are expected to begin with services provided on or after April 1.”

Memorial’s financial losses are potentially deeper than Penrose’s because Memorial sees more Medicare patients and more patients who are underinsured or without insurance.

“We are concerned about sequestration and the significant financial impact it could pose for Memorial Hospital,” Memorial spokesman Brian Newsome said. “It is too early to tell exactly what these cuts will mean for patients, but every dollar lost is a dollar that could have supported patient care.”

Caught by surprise

Colorado’s hospitals thought they were prepared for federal cuts to Medicare from the Affordable Care Act and changes to their payer mix. They thought they were prepared for the future – but that was before sequestration.

In 2010, hospitals backed legislation to expand Medicaid through the hospital provider fee — paying a per-bed tax to the state and receiving a federal match on a two-for-one basis. Colorado hospitals have received a $237 million benefit from the provider fee since it was enacted, offsetting underpayments in Medicaid and the Colorado Indigent Care Program.

But that was before sequestration took effect March 1. The Budget Control Act will cut $1.2 trillion from the nation’s budget deficit during the next 10 years.

It wasn’t supposed to happen.

“This was supposed to be the trigger that got Congress to fix the budget deficit,” said Steven Summer, president and CEO of the Colorado Hospital Association. “They didn’t. And now hospitals and patients are going to be hit. It’s bigger than it seems, once it’s put into context.”

Adding insult to injury, the Centers for Medicare and Medicaid Services are discussing other cuts that will deal a further financial blow to Colorado’s hospitals. And rural hospitals — the ones with higher numbers of Medicare patients and fewer people with insurance — could end up on the critical list.

That’s because the sequestration cuts — equaling $359 million a year — are combined with cuts to Medicare coding, causing lower payments for many procedures, lower radiosurgery payments and decreases in relief for bad debt.

“Rural hospitals typically see older patients, patients without insurance,” he said. “They’ll be the ones faced with closing down. Bigger, metropolitan systems have a more diverse payer mix, so they’ll be able to weather this better.”

Sequestration is just the latest in a series of federal cuts to reimbursement levels — and the results are getting more difficult for hospitals to bear. The reimbursement rates keep going down, Summer said. In 2011, Colorado hospitals received $253 million less for providing care to Medicare patients than they did in 2009.

Hospitals have only one option to cope: charging insurance companies more. It’s called the cost-shift, and traditionally it’s the consequence of having uninsured patients or patients who use Medicaid.

But not anymore.

“Colorado is now seeing a greater health care cost shift due to Medicare underpayment than Medicaid — a situation that was unthinkable to many just a few years ago,” Summer said. “This is especially disturbing given the expected increase in Medicare patient volume due to retiring Baby Boomers. Paying hospitals less and less for seeing more and more Medicare patients is unsustainable in the long run, and will inevitably result in higher health care costs for the privately insured.”

While sequestration cuts provider payments, it doesn’t cut the number of patients on the rolls, meaning hospitals must figure ways to treat more patients with less money.

The loss of revenue is adding to the uncertainty in the health care field, and Summer said it could not come at a worse time.

“We’re trying to figure out how to realign health care with the ACA,” he said. “We’re deciding the long-term future of the industry. It’s very, very complex and it’s very difficult to do it if you don’t know — if you literally don’t know — what you’re going to get paid next month.”

Compared to the Defense Department’s cuts, Medicare cuts were seen as small — but they’re large enough to be felt by hospitals, he said.

“You take a dollar here and a dollar there — and soon you’re talking about real money,” he said. “And with Medicare becoming the largest source of uncompensated care, even the biggest hospitals are going to be postponing major expansions, new services, new equipment.”

Cuts in services

Some senior services might even be cut, and access for the elderly is likely to be more difficult as hospitals struggle to make ends meet in the uncertain financial environment.

“Clearly, this is a challenging environment,” Valentine said. “Fortunately, though, this is the type of situation we have been preparing for over the past for years with the Centura Health 2020 plan.

“As funding becomes scarce, payers will increasingly be demanding health systems demonstrate their ability to deliver value, and we are a leader in our drive to make the switch from traditional fee-for-service medicine to a fee-for-value system that rewards our strategic goals to strengthen our foundation, create systems of care and move upstream to manage health.”

Centura is moving to partner with other hospitals to create a more efficient system, and is moving beyond traditional hospital settings to provide more wellness benefits — which will keep the brunt of the cuts from harming services.

Memorial strikes a similar tone.

“We are committed to ensuring that we provide the highest quality care as effectively and efficiently as possible with the resources we receive, no matter how challenging that may be or become,” Newsome said.

Hospitals clearly have done all they can, Summer said.

“Hospitals have been working hard to provide high-quality care, to keep costs down,” he said. “Asking me about hospitals isn’t the right question.

“Who should fix this? Congress. Congress is the only body who can do anything. They need to thoughtfully address the budget shortfalls without hurting health care delivery and access.”

Colorado hospital cuts

Sequestration — $359 million

Other annual cuts already under way due to ACA:

Medicare regulatory cuts and coding adjustments: $195 million

Radiosurgery payments and coding adjustments: $108 million

Decreases in bad debt relief: $29 million

Uncompensated care: $1.7 billion in 2011

National annual sequestration cuts

Medicare cuts: $11 billion

Hospital cuts: $5.5 billion

(Source: Colorado Hospital Association)

Local sequestration cuts

Centura Health: $7 million a year

Memorial Hospital: $1.1 million in first six months

Other annual health care sequestration cuts

Prescription medicine benefits: $981 million

Food and Drug Administration: $318 million

National Institutes of Health: $2.5 billion

Insurance exchange grants: $66 million

Project management for the Affordable Care Act: $76 million

Centers for Medicare and Medicaid Services: $605 million

Centers for Disease Prevention and Control: $490 million

Indian Health Services: $356 million

Substance abuse and mental health services: $275 million

Office of Health IT: $1 million