Business

Triple threat could cost Pardee $54 million

Pardee CEO Jay Kirby speaks to the Republican Men's Club.

By Bill Moss, Published: February 28, 2013

The triple threat of deep Medicare reductions, sequestration cuts scheduled to take effect Friday and the state Legislature's refusal to expand Medicaid coverage to cover non-payers could cost Pardee Hospital $54 million over the next 10 years, the hospital CEO said Wednesday.

In a presentation to the Henderson County Republican Men's Club Wednesday morning and in remarks to the hospital Board of Trustees that afternoon, Pardee CEO Jay Kirby outlined the consequences from what he described as a series of body blows delivered by the federal Affordable Care Act, the congressional stalemate over deficit reduction and state lawmakers' refusal to participate in an option to cover more patients.
A $5-million-a-year cut in Medicare payments, Kirby said, would have been offset by expanded Medicaid coverage, which the North Carolina Hospital Association projected could have covered 500,000 North Carolinians, many of whom now show up in emergency rooms and receive free treatment absorbed by hospitals.
Kirby told the political club and the hospital board that cutting costs, expanding services to generate more income and capturing more insured customers are part of the answer. Job cuts, he warned, could be in Pardee's future if the hospital does not generate sufficient business to make up for the losses.

Health care experts knew the Affordable Care Act would bring painful cuts financially, he said, but they projected that a new pool of paying patients would balance the scale. Pardee delivered $10.1 million worth of free care to indigent patients in 2011. With expanded Medicaid coverage, the hospital projected that it would get roughly half that amount back.
"So we will feel that $5.4 million (per year) loss," Kirby told the Pardee board. "We will forfeit $4 to $6 million that would have offset that loss. The whole (Obamacare) program was put together in its entirety to have increased coverage to offset the cuts in Medicare. So it is not propaganda when folks tell you that not expanding Medicaid is going to cost jobs."
The hospital will feel the impact on the bottom line right away, he said. Sequestration, the automatic cuts devised by Congress as fallback budget reductions if no other plan passed, will cost Pardee $94,000 a month starting Friday.
The bad news on the fiscal front comes as Pardee is enjoying some of its best financial performance numbers of the past 10 years.
Board treasurer Bill Smith reported Wednesday for the second straight month a positive profit margin for the hospital, including gains over budget in in-patient income, urgent care and physician practices.
"In the last 10 years we've only had a positive net operating margin in three of those 10 years and this is the best year so far," Smith said as he reported on the first third of the fiscal year that began on Oct. 1.

Overall, counting operating and investment revenue, Pardee finished the October-January period $1.5 million ahead of last year and $343,000 ahead of budget, Smith said. Go to Pardee finances.

Revenue mix
At the Republican Men's Club, Kirby walked the small audience through the hospital's finances, its payer mix and its strategy for growing revenue in an ever-shifting health care landscape.
The 222-bed county-owned facility has 1,036 employees, owns 16 physician practices and uses 297 physicians who offer treatment in 39 specialties. It has annual revenue of $143 million and a payroll of $71 million.
"Some would say we're headed toward socialized medicine and a federal single-source payer," the CEO said. "I would say to you from Pardee's perspective, we're already there. Sixty percent of the dollars that come into Pardee Hospital come in a federal check through Medicare. Medicaid, which is paid for by the federal government and state, is 10 percent, so clearly 70 percent, right off the bat, comes to us from government sources."
Medicare and Medicaid reimbursement rates are under actual costs and falling, he said, while commercial insurance covers the cost with a small margin on top. Federal regulations require the hospital to treat all comers even if they have no coverage.
"We take care of your tired, your weary, your hurt," he said. "When they knock on that door, whether they're loaded or they don't have a penny to their name, we're going to treat 'em."
Getting more patients with insurance — young families, working people with commercial coverage, moms with babies — is one way to ratchet up revenue.
"But we're all fighting for that same thing, because they're in the same boat," he said of Pardee's competitors. "So March 1, $90,000 a month less. You think that's going to have an impact on the men and women that work at Pardee Hospital? You think that's going to have an impact on you, if you seek services at Pardee Hospital, or Park Ridge or Polk or Mission? Absolutely."
He said he understood the pressures that legislative leaders face, including state Sen. Tom Apodaca, the Hendersonville Republican who cosponsored a bill rejecting Medicaid expansion. But as CEO, he added, it was his job to tell the board and the public the impact of state and federal law. Expanded insurance, he said, was part of the deal hospitals hoped they'd receive as health care reform kicked in.
The reform advocates promised, "We're going to give it back, we're going to provide insurance for everybody. So that 7 percent of the uninsured are the folks that we expected to be in Medicaid. We expected the two to balance out.

"We expected the federal government to cut that $54 million over 10 years (through Medicare reimbursement reductions). But we also expected that the state, as most states, would sign on to Medicaid, and the coverage for the uninsured would help balance that out. Doesn't look like that's going to happen. So that $54 million, as soon as the governor signs it, becomes very real for me."