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Carolinas HealthCare CEO warns of dire financial woes for hospitals

Carolinas HealthCare System is “facing an overwhelming challenge” because of “misguided policy initiatives and reduced reimbursements” from state and federal governments, CEO Michael Tarwater told his board Tuesday.

Tarwater said the system’s challenge is to “maintain the proper focus on quality” and “guarantee access to health care for all” while coping with reduced payments and the threat of even more cutbacks.

“We found out during the recent legislative session (in North Carolina) that there are some who appear not to be taking seriously the gravity of the dilemma that’s being faced by this industry,” Tarwater said.

“We are in a time of unprecedented change, and the threat to access is real. ... Our highest volume payer is the government, and government reimbursement is going to continue to go down, no matter which party’s in control.”

In an interview after the meeting, Joe Piemont, the system’s chief operating officer, outlined specific threats, such as proposals to limit tax exemptions for nonprofit hospitals and to eliminate the 340B program, a federal requirement that drug manufacturers cut prices to hospitals that treat large numbers of financially needy patients.

If hospitals were to have to pay state sales taxes, Piemont said, “That money comes right off the bottom line. It eliminates what we have to reinvest in programs.”

Tarwater said “the one avenue of relief we’ve been counting on” was a significant increase in patients who are covered by health insurance through the federal Affordable Care Act.

But the Obama administration delayed for a year the requirement that medium and large companies provide coverage for their workers or face fines. Individuals who don’t have access to employer-provided insurance or don’t qualify for federal programs can begin enrolling in state and federal health insurance exchanges Oct. 1.

Both North and South Carolina legislatures refused to expand Medicaid eligibility, an option under the new law.

That decision denied health insurance to about 500,000 low-income people in North Carolina. As a result, Vidant Health System recently announced plans to close its 60-year-old community hospital in Belhaven in Eastern North Carolina.

“We’re not immune from things like this,” Tarwater said. “But fortunately we’re standing right now on higher ground because of our strength. ... We remain determined to create value for our patients and maintain appropriate access even given the many pressures that we face.”

Carolinas HealthCare is one of the largest public hospital systems in the country, with annual revenue of about $7 billion. The system owns or manages about 40 hospitals and more than 700 doctors offices, and it has more than 60,000 full-time and part-time employees.

For the first six months of 2013, the system reported operating profit of $47 million, compared with $94 million in the same period last year, and total margin of $126 million, compared with $260 million last year.

Tarwater listed a number of initiatives to demonstrate how the system continues to invest in programs to help patients. They include the new behavioral health hospital in Davidson and creation of the region’s first stem cell transplant program for adults with blood cancers.

“It would be easy for us to kind of hunker down and wait and see what happens next.” Instead, he said, the system continues investing in new programs. In the first half of 2013, the system spent $208 million on capital projects in Mecklenburg and nearby counties.

Also on Tuesday, the hospital system board voted to “modernize” its retirement program for employees by discontinuing its defined benefit pension plan in favor of a 401(k) Savings plan only, starting in 2018. Carolinas HealthCare will continue to contribute a percentage of an employee’s salary to the 401(k) plan. The exact amount is still to be decided.

The pension plan will be closed to new employees starting Jan. 1 and will be discontinued Jan. 1, 2018, according to Debra Plousha Moore, chief human resources officer. At that time, pensions will be frozen for those who have them. Employees who start working after Jan. 1 will not be eligible for the pension plan.

Moore outlined the national trend among large companies toward adopting 401(k)-only retirement programs. She said 72 percent of Carolinas HealthCare employees are members of Generation X (born from 1966-1976) and Generation Y (born from 1977-1994). They are expected to change jobs multiple times during their careers, and 401(k) plans are portable, Moore said.

Garloch: 704-358-5078
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