Leader Blues

Tuesday, August 05, 2008

TOP STORY > >Hospital to close birth unit

By NANCY DOCKTER
Leader staff writer

Expectant mothers who had planned to have their babies delivered at North Metro Medical Center after Sept. 30 have been told that they need to make other arrangements or have labor induced, because the hospital’s obstetrics unit is closing.

Horizons for Women clinic, which is located down the street from the hospital, has sent a letter to its obstetrics patients announcing the discontinued service. With one physician retiring and another considering getting out of delivering babies because of the high cost of malpractice insurance, the demands of around-the-clock on-call coverage at the hospital is too much for the remaining two physicians in the group, explained Margie Litton, office manager for Horizons for Women.

The hope was that the hospital could step in with another physician or two to fill the gap, but given the current financial difficulties that the medical center is facing, that has not been forthcoming.

“We’re kind of left with one or two doctors bearing the brunt of it and have asked for help from the hospital, but they have been unable or unwilling to provide,” Litton said. “It is a sad situation.”

The discontinued service may affect up to 125 patients who may have to find another doctor for the delivery. Litton said that it is uncertain if the obstetricians will make arrangements to deliver elsewhere, but that they are trying to assist patients in the sudden change.

“We are trying. The doctors are talking to each patient,” Litton said. A good number are Medicaid patients, however, who may have trouble working through the snarls of governmental red tape in time for their baby’s arrival.

“The average Medicaid patient gets lost in the system, with the volumes and volumes of cases,” Litton said.

IMPACT OF FINANCIAL DIFFICULTIES

Medical center chief executive officer Scott Landrum says that at this time, the hospital’s position is that “there is no scheduled closing” of the birthing clinic, and that hospital administration is “evaluating” strategies for keeping the clinic open.

The clinic will remain open and continue providing gynecological care.

This pending change in services is a milestone for the community hospital which has served Jacksonville and surrounding areas since 1962. It is also a sign of the financial difficulties that the hospital leadership is currently grappling with.

Hospital administrators nonetheless insist that the community can count on the medical center remaining open and that the financial picture at North Metro has actually improved in the last year. “We’ve improved greatly – much better than 2007,” said Cal Brummund, interim chief financial officer for North Metro Medical Center, in an interview Monday.

Brummund refused to say how long the hospital has been operating at a loss or the amount the hospital is losing annually, saying he did not see the point of “publicizing the degree of our losses.”

“Losses are in the past and we would rather not focus on the past, but the future,” Brummund said. “We are seeking our niche for how to remain open and evolve. We are committed to serving the community.”

Brummund maintains that the hospital administration had no part in the decision to close the obstetrics unit. Rather, the five obstetricians made that call, presumably because of the decline in deliveries there, fewer now than two per day on average. In fiscal year 2006-07, 505 babies were born at North Metro; in 2007-08, the number was down to 448, according to hospital administration.

“The OB physicians are totally independent, and we, the hospital, are servants to the physicians, if you will,” explained Brummund. “We make sure that they have everything available that they and their patients need, but if the physicians quit delivering, we do too, because they’re the ones that bring the babies.”

Other hospital departments have seen an increase in patient visits in the last year, according to hospital data. A comparison of the first 11 months of the 2007-08 fiscal year, which ended June 30, with the same time period for 2006-07, showed an 8.3 percent increase in visits to the emergency room from 1,788 per month to 1,936 per month. Outpatient services comparing the same time periods, showed a 2.9 percent increase in visits from 3,543 per month to 3,645 per month.

BOTTOM LINE REALITIES

The hospital’s administrators say the facility is in financial straits because of its poor rate of return on total patient charges. According to 2007 data provided by the hospital, 63.3 percent of all patient charges are written off as uncompensated. That means for every dollar billed the rate of return is 36.7 cents.

Landrum says the current rate of return is unacceptably low and says the basic issue is the proportion of persons served by North Metro who use government insurance rather than private (or commercial) insurance. According to 2007 data provided by the hospital, its patient payer mix is 24 percent privately insured, 47 percent Medicare, 9 percent Medicaid, 11 percent Tricare, and 9 percent self-pay.

Actually, the North Metro profile comes very close to that of Arkansas as a whole.

The average rate of return for hospitals statewide is 39.9 percent according to the Arkansas Hospital Association. The patient mix for hospitals statewide is 25.1 percent privately insured, 44.3 percent Medicare, 20.4 percent Medicaid, 6.5 percent self-pay, with other government programs and unknown sources of support comprising 3.8 percent.

Landrum would like North Metro to bring the rate of return to over 50 cents on the dollar, which was where it was 10 years ago.

Paul Cunningham, senior vice president for the Arkansas Hospital Association, thinks that might be unrealistic in today’s market.

“Generally, there are not many people collecting 40 percent of what they bill,” Cunningham said. “It would be out of the ordinary to collect that much of your billed charges.”

The bulk of the 63 percent in uncompensated charges for both North Metro and other Arkansas hospitals is what insurers refuse to pay. Only a small proportion is due to inability to collect from patients. In the last year, North Metro wrote off 10 percent of total patient charges as uncollectible – 1.7 percent charity care and 8.3 percent bad debt.

Charity care consists of services for which the hospital provides without expectation of payment. Bad debt is bills for which the patient cannot pay or will not pay.

Hospitals statewide similarly report a small proportion of uncovered charges due to uncollected debt – 7.7 percent total in 2006, according to the Arkansas Hospital Association. That figure has remained fairly constant from 1999 to 2006, ranging from a low of 7.2 percent in 1999 to a high of 8.6 percent in 1995.

Because of the high proportion of uncompensated charges, hospitals in general would operate in the red if they had to depend only on patient payments to cover costs.

THE NATIONAL PICTURE

Profitability can be understood in terms of three types of margin, according to a study by the American Hospital Association.

Patient service margin reflects profitability after a hospital deducts its written-off charges and cost of services from what monies were actually collected. On average, U.S. hospitals report a patient service margin of -1.97 percent, and Arkansas hospitals report a -0.18 percent patient service margin.

Operating margin reflects profitability after calculating other sources of revenue that hospitals depend on to offset losses and make ends meet. They include revenues from the cafeteria, gift shop and parking. This revenue pushes the most hospitals into the black. Hospitals nationally have a 3.94 percent operating margin. Arkansas hospitals have a 3.31 percent operating margin.

Other revenues further strengthen a hospital’s bottom line. These may include contributions, tax appropriations, rental space income and investments. These funds contribute to what is termed revenue margin, which is 5.72 nationally and 4.99 percent in Arkansas.

North Metro’s Brummund has refused to divulge any profit-and-loss specifics for the medical center or even discuss in general terms how long the hospital has been operating at a loss. Those in the profession of hospital management are in “a very tough business,” he says, one made difficult by the federal government’s ever-tightening of insurance reimbursement rates.

“The basic answer is that the rate of inflation is increasing, especially for medicine, while your government is trying to control its budget,” Brummund said. “The two don’t go together. Every year we get a little farther behind.”

Litton, who has worked for Horizons for Women 23 years, summed up the travails of health care finances this way:
“Everyone is caught in the world of managed care. We thought it was going to come in and save us, but instead it shot us in the foot. Everyone is trying to get down to Medicare fee schedules.

“You look at your end-of-day accounting reports and think you are doing pretty good, that you’ll have a lot rolling in, but actually you write off as much as you get paid.”

CHANGE IS COMING

Brummund prefers to emphasize the efforts the hospital’s board of directors is making to improve North Metro’s financial standing.

“We have a very committed board that is determined to find services to provide the hospital with a stable platform financially,” Brummund said. “Patience is the name of the game at this point.”

Landrum this week echoed the same sentiment. In 30 to 60 days, he says that he hopes to announce an agreement with one of two “hospital companies” being courted by the hospital board and administration as potential “partners” of North Metro Medical Center.
“It looks really good,” Landrum says. “With that, we hope to have a niche change, a change in our menu of services.”
Whether or not the change in services includes obstetrics remains to be seen.