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Hospitals Preparing Triage for Budgets
Centers Brace For Steep Cuts In State Funding

By V. Dion Haynes
Washington Post Staff Writer
Thursday, June 25, 2009

Washington-area hospitals, already battered by the recession, are bracing for what could be a budget crisis in coming months resulting from funding cutbacks by Virginia and Maryland.

Hospitals throughout the region are experiencing soaring demand from uninsured patients who cannot pay for their care and plummeting revenue from reductions in investment income, charitable giving and elective surgery.

So far, both nonprofit and for-profit hospitals have coped by freezing salaries and putting off construction projects and equipment purchases. But some experts predict that it could get much worse in the next fiscal year, with layoffs and reductions in services and programs, when Maryland and Virginia cut tens of millions of dollars from hospitals' funding.

The cutbacks are occurring as discussion grows about efforts by the Obama administration to extend health care to more uninsured Americans, a proposal that would be financed in part by reducing the government's reimbursement to hospitals for such patients by hundreds of billions of dollars.

If the economy doesn't improve, there could be "ugly scenarios that would require wrenching changes and scaling back of services," said Chris Bailey, senior vice president of the Virginia Hospital and Healthcare Association, adding that some facilities may have to make such tough choices as whether to continue operating the emergency department or obstetrics.

"There will be a lot of hospitals that won't survive," he said. "Already a number of them are operating on thin margins."

Across the country, the number of uninsured people has risen to 51 million from 47 million since the economy began sputtering in late 2007, and hospitals are reeling.

In April, the District significantly increased reimbursement for doctors with Medicare patients. For instance, rates for primary care visits more than doubled, from $46.46 to $101.56, city officials said. Still, investment losses and reduced federal reimbursement for elderly patients contributed to a $1 million deficit at National Rehabilitation Hospital, officials said. To plug the gap, about one-third of the full-time staff at the nonprofit hospital in Northwest Washington volunteered to relinquish up to three vacation days and the administration put off plans to buy therapy tables with lifts and other equipment for stroke victims.

At Reston Hospital Center, bad debt increased from $6.7 million in 2007 to $14.35 million in 2008, spokeswoman Joanna Fazio said. To cut costs, Fazio said, the for-profit hospital laid off a few workers, eliminated some more through attrition and delayed hiring of some non-clinical staff.

At the nonprofit Doctors Community Hospital in Lanham, decreasing values of its investments in part spurred fourth-quarter total profit to plunge 76.2 percent, or $31.5 million, from 2007 to 2008, according to the Maryland Hospital Association.

Funds for hospitals in Maryland and Virginia are expected to get much tighter in the next fiscal year, which begins in July.

Virginia's 100 hospitals are expected to lose up to $55 million after the legislature eliminated funds that reimburse hospitals for patients without insurance and froze reimbursement rates for Medicaid patients.

Maryland's Health Services Cost Review Commission determined that 47 hospitals can raise rates for various medical procedures by only 1.8 percent, down from the 4.7 percent increase this year. Maryland is the only state with a panel that annually sets the rates hospitals may charge for such services as surgeries, lab tests, radiology, in-patient care and emergency room care.

Robert B. Murray, the commission's executive director, said soaring health-care costs led to a range of economic problems, from the state's projected $500 million deficit in next year's budget to bankruptcies of major corporations.

"Every 1 percent increase [in hospital care spending] costs the state $20 million," Murray said.

Seeking to control health-care costs at the federal level, the Obama administration is proposing over 10 years to cut at least $200 billion in funding that hospitals receive to defray costs of patients who are uninsured and who are in the Medicaid and Medicare programs. The number of uninsured will be "reduced dramatically as we move to cover everybody," said Nancy-Ann DeParle, a counselor to Obama and director of the White House Office of Health Reform. There will be "less of a need for hospitals to get the payments."

But officials at the Maryland Hospital Association said they fear that the government would cut funding before the transition, leaving hospitals with less money for uninsured patients.

Association officials say year-to-year total profit for hospitals in the state plunged $488 million in the last quarter of 2008. The association says revenue loss after July may result in an acceleration of budget-cutting measures, including eliminating such money-losing programs as mobile mammography vans and in-school health programs.

"The president is proposing unprecedented cuts at a time when hospitals already are economically challenged," said Carmela Coyle, president and chief executive of the Maryland Hospital Association.

Some experts say they fear that the funding cuts could force Washington-area hospitals to make the same severe reductions in patient care as at other health-care facilities around the country.

Loyola University Health System in Maywood, Ill., which is trying to save more than $30 million, has cut about 200 positions, restricted overtime pay and postponed some construction projects. University Medical Center of Southern Nevada was forced to scale back outpatient cancer treatment and shutter its mammography center, while Kessler Memorial Hospital in Hammonton, N.J., closed its doors.

Edward A. Eckenhoff, founder, president and chief executive of National Rehabilitation Hospital, attributes the $1 million deficit to several factors: Investments are down about 25 percent, charitable giving is down 50 percent and the government's reimbursement rate for Medicare patients is down six percent.

Medicare represents "45 percent of our business. That's not fun," he said.

The recession couldn't have come at a worse time for Howard County General Hospital, which is in the midst of a $30 million fundraising campaign to pay for renovations and a new pavilion. The new wing, which will add 90 new patient rooms, opens this summer, and the hospital plans to hire 120 nurses and others to staff it.

Next year's budget will be under extreme pressure, hospital officials say, with profit margins expected to decrease to 2.7 percent from 4.6 percent. While it will receive about $6 million less in revenue because of the Maryland cost review commission's rate setting decision, said Chief Financial Officer Jim Young, the nonprofit hospital will face a $1 million increase in expenses related to a decline of assets in its defined-benefit pension plan.

"We'll be looking at the various services the hospital provides," Young said, "and possibly discontinuing those that don't satisfy the mission and margin test."

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