Medicaid causes financial crunch
A change in the way Medicaid determines its reimbursement rates is causing a financial crunch for Westlake Regional Hospital.
Westlake, or the Adair County Hospital District, is specifically affected by the change because of its management structure, which includes operating Casey County Hospital and Jane Todd Crawford Hospital in Green County.
Ralph Morgan, chief financial officer, explained the problem to members of the hospital board last December.
According to minutes from the Dec. 29, 2009 meeting, Morgan said Medicaid reset the rates by which it determines how much a hospital receives. Up until that point, Medicaid paid a flat rate based on how a patient’s illness was categorized, using categories called diagnosis-related groups (DRGs).
Now, Morgan said, Kentucky hospitals are being paid according to 2006 Medicare Cost Report.
Nancy Galvagni, senior vice president of the Kentucky Hospital Association, said in a telephone interview this week that the state was unaware of the negative affect the change would have on Westlake when the new system was approved.
Westlake is unique because of its business structure, and that is what caused reimbursements to drop.
The new rates factor in the hospital’s actual cost of service. Because Westlake oversees a 30-member management team that manages all three hospitals, the revenue paid for that team’s work at the other two hospitals was being
considered income for Westlake. As a result, Westlake’s costs figures were distorted and its reimbursements reduced.
Hospital Administrator Rusty Tungate said the hospital is restructuring its management team to solve the problem.
In March, the board gave Tungate authority to “disassemble the management contracts” with Casey County Hospital and Jane Todd Crawford Hospital, according to minutes of the board meeting. In April, the board terminated the service agreement and separated the management staff among the three facilities as full-time and part-time employees.
In addition, Tungate has been in contact with the governor’s office hoping to address shortfalls the change has caused. In the March minutes, Tungate said he met with the lieutenant governor and members of the Kentucky Hospital Association.
Around 20 percent of Westlake’s patients qualify for Medicaid, Tungate said. The change in the way Medicaid funds are distributed cut their reimbursement by a third, he said. Morgan said last December it could cut reimbursements by as much as half.
In addition, Tungate said the hospital had seen a reduction in the number of in-patients this past year. Westlake changed its status from a critical care facility to a PPS facility–a critical care facility must stay under 25 patients. Even so, Tungate said the hospital’s census is averaging 17.
With the number of patients down and with the reduction in Medicaid reimbursements, Westlake’s finances have taken a hit.
In April, the board approved a plan to restructure the hospital’s debt.
While the hospital showed net income of more than $378,000 in the fiscal year ending June 30, 2009, after nine months into the current fiscal year, the hospital showed a deficit of $379,000 at the end of March.
Tungate said he is confident the hospital will work through the problem, as it has many times in the past.
“Small hospitals never have a lot of money put away,” Tungate said. “We have to change whatever we are doing to make our reimbursements the best they can be. We will work through this. We always have. This is nothing new. We are no stranger to hard times.”
HOSPITAL
EXPANSION STILL IN WORKS
Tungate said a plan to expand the hospital is still on hold. A groundbreaking was held for the facility in 2009 but bonding was no longer available after an economic recession.
Tungate said the hospital is considering funds from USDA and is in the blueprint phase of construction.
By Sharon Burton
snburton@windstream.net
