Monday, January 15, 2001

Hospitals stanching flow of red ink

By Tim Bonfield
The Cincinnati Enquirer

        Tristate hospitals won't say they've returned to full fiscal health, but they may be ready for transfer out of intensive care.

        Last year, Cincinnati's three biggest hospital groups — the Health Alliance of Greater Cincinnati, Mercy Health Partners and TriHealth — combined to lose more than $60 million on patient services.

        This year, only one of those hospital groups expects to lose money while two predict to at least break even.

        Hospital executives credit the turnarounds to internal cost cutting, better contracts with managed care plans, fewer cuts from Medicare and growing demand for services.

        “The good news is that hospitals are not losing as much as they were. The bad news is that they are still losing a lot of money,” said Lynn Olman, president of the Greater Cincinnati Health Council.

        At the Health Alliance - which includes University, Christ, Jewish, St. Luke and Fort Hamilton hospitals — a turnaround plan that missed a goal of breaking even by June 2000 appears on track for June 2001, when its next fiscal year ends, said spokeswoman Gail Myers.

        A year ago, the alliance expected to be losing about $12 million by this time of year. Instead it has lost $6.2 million and expects to make that up that loss in the next several months, Ms. Myers said.

        At Mercy Health Partners, absorbing the 1999 acquisition of two Franciscan hospitals turned a slight gain in its operating budget into a loss of at least $10 million. The Mercy system, which includes six suburban hospitals, runs on a calendar fiscal year.

        Last year, in its biggest cut in several years, Mercy announced it needed to eliminate 99 jobs to cope with the financial losses. While nothing can be guaranteed, no further job cuts are expected in 2001.

        “We expect to break even or have a slight marginal gain in 2001,” said Ken Page, regional vice president for payor and government relations.

        TriHealth, which includes Good Samaritan and Bethesda North, reported the biggest losses of fiscal 2000 — $34 million. As part of its cost cutting plans, it closed Bethesda Oak Hospital in Avondale in early 2000.

        But only some of the estimated $12 million a year in savings from that closing were realized in fiscal 2000.

        Even with a full year's benefit from the closing, TriHealth expects to lose some money in 2001. How much, officials won't predict.

        TriHealth expects to break even on operations in a couple years, said spokesman Steve Schwalbe.

        A big factor for all the hospitals has been gradually increasing rates paid by managed care plans.

        None of the hospitals would reveal details about their contracts, but many are winning higher payments as multi-year contracts come up for renewal.

        Those benefits, however, hit hospitals at different times. For example, the Mercy and Health Alliance hospitals already report some improvement from recently renegotiated contracts. TriHealth, however, is still negotiating with several insurers and would not discuss the talks.

        In addition to better deals with commercial HMOs, several hospitals stand to benefit from the recent exit of several Medicare HMOs.

        While the departures, effective Jan. 1, have forced thousands of seniors to rearrange their health coverage, hospitals have escaped some contracts that were causing multimillion-dollar losses, Mrs. Olman said.

        Another factor expected to kick in during 2001 is an amendment Congress recently passed to the 1997 Balanced Budget Act. The change means that many hospitals will get more money from Medi care than previously projected.

        Any good news on the Medicare front is important for hospitals, because the federal health plan for seniors and people with disabilities accounts for nearly half of all patient revenue at most Tristate hospitals.

        But the new Medicare rates won't be a bonanza.

        “The BBA relief act won't be a major increase in revenue. That helped mostly by not continuing planned reductions,” Mr. Page said.

        Hospitals also have gained somewhat from increased demand. Emergency department visits have been rising for two years. Intensive care units have been running full. In fact, hospitals have been so busy they've set records for diverting life squads in recent months.

        However, increased volume doesn't help much if insurance payments don't cover the costs of care, Mrs. Olman said. Health plans are starting to pay more, but costs are going up too.

        Hospitals expect to spend more to hire and retain nurses, technicians and other staff in a tight labor market, Mrs. Olman said. Rising energy and pharmaceutical costs also could hurt the bottom line.

        “Things are getting better. But it could still be years for hospitals to dig out from under this,” Mrs. Olman said.


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