De Queen Hospital on Life Support While LR Facilities Thrive

Most Profitable Hospitals
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Once again, the most surprising item on this year's Arkansas Business list of hospitals and medical centers ranked by net income is the performance of Northwest Medical Center of Washington County.

When the Springdale hospital closed the books for fiscal year 2002, it had eye-popping net income of $131.9 million.

But a lot has changed in a year.

This year, Northwest is last on the list with a loss of $14.65 million on patient revenue of $275 million, according to its Medicare cost report filed with Arkansas Blue Cross and Blue Shield.

Northwest Medical Center referred questions to its parent company, Triad Hospitals Inc. of Plano, Texas, which didn't immediately return a call for comment.

Even profitable hospitals didn't clear as much in 2003 as they did the previous year, said Paul Cunningham, senior vice president of the Arkansas Hospital Association.

"We're hearing from a lot of hospitals this is one of the toughest years they've had in a long time," Cunningham said.

On Sept. 3, De Queen Regional Medical Center filed for Chapter 11 bankruptcy protection, listing nearly $7 million in claims. Board chairman Jay Bunyard said the hospital is on the verge of shutting its doors if the city doesn't step in and buy it for $5.25 million.

Bunyard said De Queen City Council members will have to override the mayor's veto — which would have allowed the city to buy the hospital — at its Tuesday meeting or "we will likely begin closure [procedures]."

Meanwhile, Cunningham said brighter days are ahead for hospitals as Medicare rates to Arkansas hospitals are going to be higher than they have been in the past. Hospitals see some increase in their Medicare rates every year — typically actual cost inflation minus a certain percentage — but this year they are going to get their full inflationary increase, he said.

"We think it will mean roughly $70 million-$80 million a year for Arkansas hospitals in terms of additional revenue that they would not have gotten," Cunningham said.

Little Rock Success

Some hospitals, especially those in Little Rock, have had vast improvements since Arkansas Business published the annual ranking last October. Four of the five hospitals with the highest net income are in Little Rock.

Baptist Health Medical Center of Little Rock saw its net income jump nearly 135 percent, from $11.2 million for its fiscal year that ended at the end of 2002 to $26.3 million in 2003. Baptist was second on this year's list only behind Arkansas Children's Hospital, which reported a $27.7 million net income for its fiscal year that ended in June 2003.

Baptist spokesman Mark Lowman attributes the increase to a rise in patient volume and focusing "on managing our expenses."

He said the hospital saw nearly a million patients in 2003. As a result, its patient revenue climbed from $775.7 million in 2002 to $913.5 million in 2003, a 17.8 percent increase.

Lowman said the increase in patients was a result of "good quality care."

Lowman also added that whatever net income Baptist has is spent on hospital equipment, medical supplies or staffing. Baptist also provided $68 million in free health care services to the poor and uninsured in 2003.

Across town, St. Vincent Medical Center and Doctors Hospital, which operates under a single Medicare provider number, also saw a major financial improvement. A loss of $23.8 million for its fiscal year that ended in 2002 turned into a net income of almost $13 million in 2003.

St. Vincent CEO Stephen Mansfield said the 2002 loss was tied to a $17 million, one-time restructuring cost related to the St. Vincent Doctors Hospital property.

"So the improvement [in 2003] is not as dramatic as it might appear," Mansfield said.

Still, St. Vincent's patient revenue climbed from $508.4 million in 2002 to $644.9 million in 2003.

Mansfield said St. Vincent had more patients in its heart, orthopedics and senior health program, which was just getting off the ground in 2002.

St. Vincent also slashed expenses in 2003. The hospital saved more than $1 million in the fall of 2003 by discontinuing an external nursing agency that provided temporary nurses to the hospital.

Instead, the hospital system used the savings to provide bonuses to encourage its own part-time nurses to go full-time and to provide overtime pay to its other nurses.

Overall it was a lot of "little things" that helped land St. Vincent in the No. 5 position on this year's list, Mansfield said.

Mansfield also said St. Vincent is anticipating that Arkansas Blue Cross and Blue Shield will have to open its managed care networks under the state's long-dormant "any willing provider" law.

ABCBS, the state's dominant health insurance carrier, hasn't taken open bids on provider contracts in the 11 years since it entered a formal business partnership with Baptist Health in the form of a health maintenance organization known as Health Advantage. The state Legislature tried to foster more competition by enacting the any willing provider law in 1995, but it has never been enforced because a federal court found that it violated a provision of the federal Employment Retirement Income Security Act (ERISA).

In April 2003, though, hope was given to competitors when the U.S. Supreme Court approved a similar any willing provider law in Kentucky. ABCBS responded by filing a federal lawsuit in an attempt to get a direct ruling on the applicability of the Kentucky decision in Arkansas. That case is still pending and industry observers are expecting a decision at any time.

Mansfield said enforcement of the any willing provider law should increase St. Vincent's patient count because ABCBS patients will no longer have to pay a premium to use the hospital.

But if any willing provider doesn't occur, Mansfield said he doesn't expect St. Vincent's net income next year to be as high as it was in 2003.

Other Movers

St. Bernards Medical Center in Jonesboro jumped from No. 11 on last year's list with $6.6 million in net income to No. 4 this year with a net income of $14.5 million for its fiscal year that ended Sept. 30, 2003.

Larry Alford, vice president of finance at St. Bernards, said a $2.56 million judgment against Medi-care in 2003 ex-plained part of the improvement. The hospital had sued Medicare about three years ago over the way the federal insurance program calculated the wage index it paid St. Bernards.

St. Bernards also received $2 million more than it expected from accounts considered uncollectible.

"The rest of that was watching what our expenses are and trying to keep our health care costs low," Alford said.

Ozark Health Medical Center at Clinton had one of the biggest gains on the list. It went from a loss of $6.8 million in its fiscal year in June 2002 to a net income of $11.1 million a year later. The turnaround was good enough to boost Ozark from No. 85 on the list to No. 6.

An Ozark spokesman didn't immediately return a call to comment on the improvement, but a look at its reported revenue contains a hint: It rose 363 percent from $3.18 million in 2002 to $14.76 million in 2003.

Losses

While Northwest Medical Center of Washington County is listed as the hospital with the largest loss, it's only because Sparks Health System of Fort Smith submitted financial numbers the fiscal year that ended in June 2004, and it is Arkansas Business' policy to use the most recent data available.

Sparks lost $2.92 million in the most recent fiscal year, a dramatic improvement from the $50 million loss on its fiscal 2003 Medicare cost report.

Greg Russell, director of Sparks' marketing and communications, blamed most of the $50 million loss on one-time writeoffs of $26 million — mostly accounts receivable.

Russell also blamed the sluggish economy, low Medicare reimbursement rates and patients not paying their bills as reasons for the losses.

Because of the losses over the years — it lost more than $8 million in 2001 — Sparks has agreed to form a partnership with Triad Hospitals to operate Sparks. The partnership went into place on Friday. The two companies also announced they will build a new $139 million hospital, which should open in three years.

The news isn't bright at De Queen Regional Medical Center, though.

Bunyard, the board chairman, said the hospital was placed on life support because it — along with other hospitals across the state — have lost millions of dollars from Medicare payment reductions sparked by the Balanced Budget Act of 1997. It also has been without a full-time surgeon for about two years, which hurt revenue, he said.

For the fiscal year that ended Thursday, Bunyard projected a loss of $1.2 million.

Bunyard also said the De Queen hospital has not received tax subsidies from the city, while other hospitals in the area have.

De Queen voters approved a 1 cent sales tax in May to help the hospital. The tax is expected to generate just more than $1 million a year, but the city has to buy the hospital first before it receives the money.

At a September De Queen City Council meeting, the council approved buying the hospital using bonds backed with the hospital sales tax money and future hospital revenue. De Queen Mayor Dale Kesner vetoed the sale because he said the city could be on the hook if the hospital continues to bleed red ink. But he agreed that closing the hospital "could be devastating."

Not only would about 150 hospital employees be out of work, but it would be difficult to receive emergency medical care in the city.

"But yet you look at tremendous debt loss ... and it makes it difficult for the city to jeopardize other services," Kesner said.