Medicare Cut Threatens to Cost Arkansas Hospitals $407M

Congress delayed automatic spending cuts that included pushing back a 2 percent Medicare payment reduction until March 1.

That move to avoid the “fiscal cliff” postponed across-the-board budget cuts demanded under the sequestration component of the 2011 Budget Control Act, and it gave another temporary reprieve to doctors.

But it has done little to ease the uncertainty of how much financial pain health care providers, particularly hospitals, will have to endure in the budget process. Arkansas hospitals were bracing for $42.6 million in lost revenue during 2013 alone from the 2 percent Medicare cut. Over 10 years, lost revenue from the deficit-reducing gambit was projected to top $407 million for the state’s roster of hospitals.

“Aggregately, Arkansas hospitals stand to lose $2 billion over a 10-year period in Medicare cuts, and that applies pretty much to hospitals across the board,” said Paul Cunningham, executive vice president of the Arkansas Hospital Association. “For Arkansas, that is a lot, and it will try many hospitals.”

More than a third of the hospitals in the state already were running in the red, according to an annual checkup by Arkansas Business in October. Of the 91 hospitals in Arkansas, 33 reported losses in their most recent annual reports.

While politicians wrangle over health care reimbursements, hospital administrators are forced to move forward with budgets bolstered by contingency plans aplenty.

Larry Morse, CEO at Johnson County Regional Medical Center in Clarksville, headed into 2013 with a fiscal battle plan prepared for the worst scenarios and hoping for the best.

“We had put in place a plan to reduce our expenses by approximately $500,000,” said

Morse. “That plan in-cluded a reduction in matches to retirement plans and adjustments to a litany of items we pay for.”

Examples of the cost-cutting laundry list included lowering premiums paid for weekend work by staff, adjusting the physician staff call coverage, reducing managerial salaries, reducing payments for subsidized services and cutting anesthesia services costs.

“As of today, it looks like we won’t have to implement all of those cuts, but we’re still cautious,” Morse said. “Our goal was, No. 1, to affect the fewest number of people, which was a challenge.

“We have placed a priority on keeping staff employed and second, not to cause financial harm to our lowest-paid employees. About 28 percent of our staff is paid under $9 an hour.

“At some point, if we continue to get cuts, we’re going to have to look at other issues.”

Johnson County Regional Medical Center is among four Arkansas hospitals that received a budgetary reprieve thanks to an 11th-hour deal to extend the Medicare Dependent Hospital Program.

Congress allowed MDH to expire on Sept. 30, but then the program was revived with funding of $100 million as part of the year-end fiscal cliff avoidance package.

“We were certainly facing a challenge up until that,” Morse said. “We were looking at a reimbursement loss of about $750,000, which represented our profit for all of 2012. That would’ve moved us into the red.”

Launched in 1990, MDH was established to aid small rural hospitals. In Arkansas, Baptist Health Medical Center in Stuttgart, Hot Spring County Medical Center in Malvern and NEA Baptist Memorial Hospital in Jonesboro also participate in the program.

The one-year extension of MDH put $461,000 back in the 2013 budget for Johnson County Regional Medical Center.

Morse estimates the looming Medicaid cut will hit hospital revenue somewhere under $200,000 year.

“For our hospital, it’s a significant amount of money, but we thought we could handle the additional 2 percent Medicare cut,” he said.

“What we weren’t prepared for was the major changes in payment rates for insured patients. That’s projected to reduce revenue by $350,000.”

While hospital revenue is getting squeezed from a number of directions, physicians gained another year of special dispensation from substantial cuts in Medicare reimbursement.

On paper, the accumulative cut amounted to somewhere around 29 percent, according to David Wroten, executive vice president of the Arkansas Medical Society.

“As part of the bill that was passed to avoid the fiscal cliff, Congress put off physician fee cuts for another year,” Wroten said. “It’s status quo for 2013.”