Each year, just as the President of the United States does a State of the Union, I do a State of the System report for WMHS. I have attached that report which addresses a very challenging Fiscal Year 2012, our plans for FY 2013, my prediction for the next several years to come and how we are responding to very dramatic changes to the health care industry. I hope by reading this report, you will get a better understanding of the challenges facing WMHS and our industry as a whole.
I will be taking the next two weeks off from blogging as I will be traveling. I look forward to resuming The Ronan Report on October 1, 2012.
State of the System
A Summary of Today’s Healthcare Environment
From Barry P. Ronan, President and CEO
It has become obvious that health care spending is unsustainable at a federal level given record high deficits and at a state level with balanced budget pressures. The Western Maryland Health System has begun to ensure that we are appropriately prepared for the changes ahead. We are moving forward to be better positioned under health care reform, placing greater emphasis on integration, accountability, and better coordination of the delivery of care. For the last year, we have been focusing on the Triple Aim of health care reform: improving quality, reducing cost, and improving the overall health of our community.
During Fiscal Year 2012, we saw an increase in underinsured and uninsured patients, especially those whose insurance coverage has either run out or their employers are increasing their co-pays and deductibles. This has resulted in record amounts of bad debt and charity care for the Western Maryland Health System. During the same year, we also saw an increase in supply costs; higher costs for physician recruitment and retention; provider taxes being assessed by the state on hospitals, including the Western Maryland Health System; and a decline in overall reimbursement.
When these changes were anticipated for FY’12 and FY’13, the Western Maryland Health System took the opportunity offered by the state in 2011 to participate in a ten-hospital demonstration project called Total Patient Revenue (TPR). TPR provided us the opportunity to work within a global budget to increase the value of the care and services that we provide. We focused on decreasing the volume of services, tests, and procedures provided while improving quality and efficiency in the delivery of patient care. At our most recent System Board meeting, we were able to demonstrate that our financial situation for FY’12 would have been far worse under the previous fee-for-service payment model.
In addition to all of these changes occurring, the long-standing rate regulatory system, from which our health system benefits greatly (usually in excess of over $15 million per year) is in jeopardy of being lost in Maryland. As a result, the Western Maryland Health System experienced only a .21 percent increase in its rates in FY 2013.
There is also greater risk, as well as reward, through the quality-based reimbursement and potentially preventable complications programs in Maryland. Maryland hospitals that do really well related to core measures, patient satisfaction, and complications avoidance are rewarded, while those that see little to no progress are penalized. In 2011, the impact was a $1.2 million reduction in our rates. For fiscal year 2012, we have made considerable progress in each area (patient satisfaction; core measures; and reduced complications, such as falls, pressure ulcers, and infections). We have improved our position, resulting in a gain of almost $300,000 in rates and a $1.5 million turnaround from last year.
All of the changes facing our industry, as well as those that the Western Maryland Health System has experienced, have had a substantial financial impact. Our expense for bad debt and charity care increased in excess of $5 million, and there was an unbudgeted Medicaid assessment of $500,000. Not qualifying for an anticipated Medicare drug program resulted in a $2 million loss for the health system. The need to expand our primary care practices with physician and advanced practice professionals added cost in excess of $1.5 million. All of these factors contributed to a double-digit million dollars’ loss from operations for FY 2012 for the health system.
Some might say that our financial situation is related to building the new hospital, and I can assure you that is not the case. In fact, our costs, especially for labor, would be significantly higher without the benefit of our advanced technology, the centralization of our services and the state-of-the-art automation system wide on our new hospital campus. We continue to meet all of our required payments as well as bond covenants month after month.
The failed economy is the direct cause of our financial issues. The federal government’s commitment to rein in Medicare spending and the state’s balanced budget requirement have impacted our revenue both directly and indirectly.
To ensure that the Western Maryland Health System does not experience a similar loss in FY 2013, the health system has engaged in a significant expense reduction/revenue enhancement initiative through the assistance of two national firms. The health system continues to focus on expense reduction in areas of labor management and physician preference supply items, such as orthopedic and cardiac implantables, through Premier. We also engaged the services of Grant Thornton to assist us in physician practice improvements by increasing the number of visits in each practice and clinic and improving our revenue picture for the overall physician practice enterprise.
During Fiscal Year 2013, the health system has projected an admission decrease of almost eight percent due to a change in how we deliver care; again focusing on the value of the patient experience, not the number of days in the hospital or the volume of tests or procedures received. We have substantially improved quality and successfully reduced readmissions of patients by focusing on a more longitudinal approach to discharge planning, more individualized patient education, and increased referrals to our Care Link and Home Care programs.
We have also reduced potentially preventable conditions system wide, improved case management of our frequent patients to our ED, opened a heart failure clinic to better treat patients in a clinic setting and prevent admissions, expanded primary care in the region, introduced observation beds to eliminate one-day patient stays, improved reconciling of patient medications, reduced the length of stay for patients, planned for the opening of a new Diabetic Medical Home program in October, and introduced the nursing home transitionist to reduce unnecessary admissions and readmissions from area nursing homes.
We will also continue our commitment to better quality, reduced cost, and doing what is right for our patients in FY’13. Our goal is to position this health system so we are able to sustain the anticipated financial challenges ahead. In order to get health care spending in line, we are expecting reductions in our rates of 2 to 3 percent each year over the next 5 years, resulting in a $30 million to $45 million decrease in payments. We will also work with patients to reduce risk factors associated with poor choices, such as an unhealthy diet, smoking, excessive drinking, and a lack of exercise. Our focus is a healthier population.
The time is now for all of our partners to work together to meet the Triple Aim of health care reform and for WMHS to be appropriately positioned to withstand the current and future financial challenges.