For the first time in more than 30 years, Carolinas HealthCare System is budgeting for a net loss of revenue next year, due primarily to deep cuts in government reimbursement for Medicare and Medicaid patients.
In 2014, the system projects a $5 million loss on $4.8 billion total revenue for its primary enterprise, which includes 12 hospitals in the Charlotte region. For the total system, which includes 40 hospitals across the Carolinas, the projection is for a positive operating margin of $38 million on total operating revenue of $8.3 billion.
“Our problem isn’t a lack of consumers,” CEO Michael Tarwater told his board of commissioners Tuesday. “It’s an ever-increasing percentage of reimbursements that do not meet the costs of providing care.”
Tarwater said 60 percent of the hospital system’s patients are covered by government programs, such as Medicare for seniors and Medicaid for low-income and disabled residents. And those programs don’t pay the actual cost of care, he said.
Also, the system continues to see a rising number of patients who can’t pay their bills. The amount of charity care and other uncollectibles for Charlotte-area hospitals rose to $928 million in the first nine months of 2013, an increase of 26 percent over the same period last year. Part of that increase was due to the addition of Cleveland Regional Medical Center to the primary enterprise.
Hospital leaders had anticipated that some of that unreimbursed care would be paid for when states expanded their Medicaid programs as part of the federal Affordable Care Act. But the Supreme Court allowed states to opt out of that requirement, and North Carolina’s legislature chose not to accept federal funds to expand the program.
Carolinas HealthCare will probably finish this fiscal year, at the end of December, in the black, Tarwater said. Tuesday’s report for the first nine months of 2013 showed the total system’s net operating revenue rose to about $5.9 billion, from about $4.9 billion the year before. Most of the increase was attributable to the addition of Greensboro-based Cone Health to the system. Total margin for Carolinas HealthCare was nearly $301 million through Sept. 30, down from $382 million in the same period a year ago.
Despite the “fairly radical change” in financial outlook for 2014, Tarwater reassured his board: “We face these challenges from a pretty good position. Financially we’re in pretty good shape.”
In addition to having reserves of more than $2 billion in the system, Tarwater said he and his management team “have invested a lot of resources to position ourselves” for the future. Some of the projects he listed that will help the system “do more with less” are:
• A virtual intensive care unit that links physicians and nurses to multiple hospitals through computers at a command center in Mint Hill.
• Group visits for patients with similar medical problems so doctors can see more patients at one time and patients can spend more time with their physician and benefit from each other’s questions.
• Adoption of electronic medical records that can provide “a treasure trove” of data. This can help identify patients at high risk for readmission after discharge so that doctors and nurses can work to reduce re-admissions along with the financial penalties that are now levied by Medicare.
Budgeting a loss for next year was “extraordinary,” Joe Piemont, the system’s chief operating officer, told reporters after the meeting. “It’s never been the case in the 32 years that Mike (Tarwater) has been here … It’s an emotionally disappointing situation for the management team.”
The decline in reimbursements was expected. “It just came harder and faster than we thought it would,” Piemont said.
Piemont said layoffs are not contemplated for hospitals in the primary enterprise or in the regional affiliates. But he added that “the circumstances of the regional affiliates vary and thus the plans are subject to change.”
He emphasized efforts to work more efficiently and achieve cost-savings by changing the way care is delivered. “That’s our challenge, adjusting the cost structure to be proportional to the reimbursement we receive,” Piemont said.
This is a time for “transformational leadership,” Tarwater said. “We need to re-think the way we think. You can’t just be receptive to change. You have to generate change.”
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