September 26, 2011 | last updated May 31, 2012 9:27 pm

Fewer insured patients put hospitals in a bind

Many Connecticut hospitals are seeing another spike in patients insured by government assistance programs like Medicaid that don't cover the full cost of service, putting pressure on their bottom lines and raising concerns about their long-term financial stability.

Hospitals are also seeing fewer patients with private insurance coverage, which pays higher reimbursement rates than their government counterparts.

The sour economy and high levels of unemployment continue to accelerate the cost shift, forcing hospitals to tighten their belts and look for new streams of revenue as more people depend on the government to pay at least part of their medical bills.

And federal health care reform could add tens of thousands of new patients to Connecticut's Medicaid rolls in the coming years, creating long-term uncertainty.

"It's a big issue," said Kurt Barwis, the president and CEO of Bristol Hospital. "We've seen a dramatic increase in Medicaid patients."

Barwis said Bristol Hospital's total government payer mix, or the percentage of revenue coming from government insurance, went from 58.3 percent in fiscal 2009 to about 62 percent in fiscal 2010, driven largely by increases in their Medicaid population.

That number is trending even higher so far this year, which has contributed to the hospital running a deficit for the past five months. Barwis said he expects the hospital to eventually break even but only because they recently qualified for $700,000 in extra funding from the federal government's disproportionate share program, which provides subsidies to hospitals that have significant indigent populations.

The poor economy is driving the increase in Medicaid patients because as people lose their jobs they also lose their employer-sponsored health insurance coverage, Barwis said.

But there are other issues as well.

One of the problems, Barwis said, is that there continues to be a tremendous lack of access for Medicaid patients to see primary care physicians. As a result, those patients use the emergency room for primary care services, which is a much more high cost setting.

Bristol Hospital has seen a steady uptick in ER visits in recent years (they are up 3 percent in 2011), which has forced the hospital to beef up physician staffing in its emergency department, further driving up costs.

"When you are getting non-acute care in the ER, it's going to cost you more to deliver that service than in a doctor's office," Barwis said. "Medicaid doesn't reimburse full costs. So hospitals are absorbing the increased costs to see those patients."

Stephen A. Frayne, senior vice president for health policy at the Connecticut Hospital Association, said for every dollar of cost incurred, in-state hospitals are paid about 87 cents by Medicare and 70 cents by Medicaid. The state budget allocates about $1.1 billion annually to pay hospitals, but that funding level hasn't increased since 2008.

Meanwhile, private insurers typically reimburse up to $1.30 for every dollar of cost incurred. That extra funding has helped hospitals close funding shortfalls from government payers. It's also one of the reasons for the high health care costs faced by employers.

With fewer people having private insurance coverage, however, hospitals are having a harder time making ends meet. Many hospitals have been forced to implement cost cutting programs to buffer their bottom lines. Wage freezes, delayed purchases and layoffs have also been implemented in the past few years, Frayne said.

At Middlesex Hospital, for example, officials have been working to control operating expenses, but also grow market share and volume in more profitable business lines like surgery, to offset some of the payer shift.

Vincent Capece, Middlesex's CEO, said the hospital saw a 2 percent decline in patients with commercial insurance coverage in 2010, and they expect a similar drop off this year. Non-government payers now represent only about 35 percent of their total business.

And the cost shift has accelerated significantly in the past few years.

In 2007, before the Great Recession of 2008 struck, Connecticut hospital's discharged 174,286 patients who had private insurance, and about 159,864 patients with Medicaid or other government assistance programs, not including Medicare.

In 2010, those numbers have essentially reversed themselves: Connecticut hospitals discharged 158,967 patients with private insurance last year, and about 179,866 patients with Medicaid or other government assistance programs, not including Medicare.

Meanwhile, recent U.S. Census data showed that approximately 65.2 percent of the state's population got insurance through their employer in 2010, down from 67.4 percent in 2009.

"This is a huge shift in the economic dynamics," Frayne said. "The people who we've relied on to help us make ends meet are the people who have had access to insurance from an employer. With that source shrinking, it is putting significant pressure on hospitals and many other providers. The question is 'how do you now meet that demand with fewer and fewer resources.'"

Despite the increase in patients with government insurance, however, most Connecticut hospitals did actually improve their financial performance in 2010.

More than three quarters of the state's 30 acute care hospitals achieved a positive total margin last fiscal year, compared to fewer than half two years ago. The statewide total margin was about 4 percent, up from 2.6 percent in 2009.

But most of the gains were achieved through improved investment returns and not operating performance. In fact, Connecticut hospitals actually experienced a 4.6 percent decline in net operating income last fiscal year.

Additionally, part of the increase in Medicaid patients experienced by hospitals was due to the discontinuance of the State Administered General Assistance program, or SAGA, which provided cash assistance to people who are unable to work. Individuals formerly covered under SAGA were transitioned to the Medicaid program in 2010. That actually provided a funding boost to hospitals because Medicaid pays higher reimbursement rates than SAGA did.

But Barwis, of Bristol Hospital, said the gains from the higher reimbursements were offset by the huge volume increase of Medicaid patients.

Capece, of Middlesex Hospital, said the switch did have a positive impact on the hospital's financial position, but still did not offset reductions from patients with commercial insurance.

And the future remains uncertain.

Frayne said federal health care reform could add over 100,000 more people to the state's Medicaid rolls, which has a current enrollment of over 500,000 people. At the same time, there will likely be downward pressure on Medicare rates as well.

"It's a good thing that there is a vital safety net," Frayne said. "But that safety net is not adequately funded. At the moment there doesn't seem to be a clear path to make that happen."

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