Hawaii’s hospitals see
continuing losses as
reimbursements tumbleCosts for education and charity
care also are mounting at
cash-strapped facilities
Hawaii's hospitals and nursing homes say they are continuing to lose money despite the latest report by the U.S. Census Bureau that says the nation's health and social assistance sector registered revenue increases 2002.
The Census report, released Dec. 16, said hospital payments from private insurance were up 11 percent over the previous year, payments from the Federal Medicare program increased 10 percent, while payments for the state and federal jointly-funded Medicaid program were up 8 percent. A state-level breakdown was not available from the Census Bureau.
But a report released last week by the Healthcare Association of Hawaii that is specific to Hawaii's hospitals and nursing homes paints a far different picture.
When it comes to federal reimbursements, it all depends on where you live, said Rich Meiers, president and chief executive officer of the association that represents the state's hospitals and nursing homes.
"We are in the bottom 10 states for Medicare (reimbursements). The formula doesn't include (the cost of living allowance)."
For example, the Hawaii study, prepared by accounting firm Ernst & Young, notes the national Medicare payment was 45 percent higher than Hawaii's average payment per enrollee in 2000.
That difference translated to a gap of $281.6 million in 2000 when there were 162,000 Medicare enrollees in Hawaii, the report said.
Dave Heywood, vice president of corporate development at Hawaii Pacific Health, also argues the Census report doesn't reflect the health care picture in Hawaii.
"If they are looking at total dollars, there are more, but there has also been an increase in utilization. The total dollars may be more, but not on a per unit basis, so we are no further ahead," he said.
The association report is part of a five-year study begun in 1999 to look at the effects of the 1997 federal Balanced Budget Act on local health care facilities.
For the last three years, Hawaii hospitals have experienced growing losses.
"Three years ago, it was about an $8 million loss, that increased to $53 million in 2001. In 2002, the latest data shows its now up to $90 million," said Rix Maurer, chief financial officer for the Queen's Health System.
Because payments from Medicare and Medicaid make up a significant portion of Hawaii hospitals' incomes and those populations continue to grow, hospitals have traditionally looked to private insurance to help offset the losses. But as private insurers look for ways to cut costs reducing payments to providers, the hospitals are being squeezed on that front as well.
Apart from reimbursement shortfalls, a big concern for the hospitals is the growth in unfunded costs they have to absorb. Those costs include medical education, community programs, charity care and bad debt.
The Hawaii study found that from 1998 to 2003, the average annual charity care for the hospitals in total was $79.3 million, with a total of just over $476 million for the six year period.
Moreover, as the percentage of uninsured people in Hawaii increases, bad debt and charity care increases. Medicare provides some payment to offset bad debt, but those payments have been decreasing, the report said.
For Queen's Medical Center alone, the combination of bad debt and charity care it must absorb was more than $23 million for the fiscal year ended June 30 this year, said Maurer.
For Hawaii Pacific Health, which includes Kapiolani Medical Center, Straub Hospital and Clinic and Kauai's Wilcox Memorial, charity care and bad debt amounted to about $10 million for the fiscal year, Heywood said.
Medical education also has been a growing cost for the hospitals. Seven hospitals have physician teaching programs.
Payments to help pay for those services come mostly from Medicare, but those payments have been decreasing due to Balanced Budget Act cuts.
At the same time, shortages in some staff areas mean hospitals are spending more on education. Such is the case with nursing, Maurer said.
"We have really supported the education of nurses. That's really due to the nationwide shortages. We've also been supporting the university with additional faculty so they can increase enrollment," he said.
With hospitals tightening their belts, the impact on community programs is already being felt with the closure of services and clinics, increased use of emergency care services and reduction or elimination of community-based services. Examples of closures and losses include alcohol and drug treatment programs, services for the elderly, nutrition programs, school health and counseling and outpatient clinics for the underserved and uninsured.
The six-year total for community programs provided by the hospitals came to $125.6 million. Of that, they received $15.6 million in federal and state funding.
For Hawaii Pacific Health, when all the shortfalls are added from various programs and under-reimbursements are included, the losses move closer to $47 million for the fiscal year, Heywood said.
Other increasing costs for all hospitals include drugs, new technology, malpractice premiums and the conversion to electronic medical records, Heywood said.
Hospitals really need about a 4 percent to 5 percent margin of profit to keep up in terms of basic reinvestments in personnel, equipment and facilities, said Heywood.
"I can't think of a hospital doing that in Hawaii," he said.
If there are any bright spots, Heywood said some things the hospitals originally thought they would loose will now not happen.
For example, the passage of the Medicare prescription drug program includes sustaining the current rate of reimbursement to hospitals for Medicare patients, Heywood said.
"That was originally going to be cut, but now Medicare reimbursement for hospitals and physicians is pretty much staying flat," he said.
There has also been some resolution to much of the unfunded care hospitals provide to immigrants from the Federated States of Micronesia as covered under the Compact of Free Association agreement. Hawaii will share in federal payments of $30 million annually, Heywood said.
"In the 2003 federal fiscal year, the state of Hawaii Medicaid program will get about $1 million and the hospital will get $2 million," he said.
"It's small compared to what the hospitals have lost, but what they are going to do on an ongoing basis is to provide $30 million per year for the next 20 years divided among Hawaii, American Samoa, Guam and the Northern Marianas." That money will be used to pay for health care, social service and Department of Corrections costs, Heywood said.
The hospitals say they will continue to tighten their belts, but given the current fiscal environment there's not a lot to be optimistic about.
At Queen's much of the most painful belt tightening took place in 2000, Maurer said
"We've really tried to manage our costs. What we went through in 2000 was very difficult for everyone. I never want to go through that again," he said. The organization also refinanced some of its outstanding debt, which helped save a couple of hundred thousand this year, he said.
At St. Francis Healthcare System, which has battled for several years to cut costs and reduce overhead, the recent layoff of 40 employees follows the closure of some community programs and services. In 2000, the organization eliminated 150 jobs.
Larry O'Brien, Kapiolani Medical Center chief executive officer, believes it may take hospitals having significant layoffs or even going out business before some of the major issues are addressed.
"My belief is that it's going to get worse, especially with baby boomers turn 65," he said.