Eastern Maine Medical Center facing $7 million shortfall

The Eastern Maine Medical Center complex in Bangor.
Gabor Degre | BDN
The Eastern Maine Medical Center complex in Bangor. Buy Photo
By Jackie Farwell, BDN Staff
Posted March 13, 2014, at 4:25 p.m.

BANGOR, Maine — Eastern Maine Medical Center faces a $7 million shortfall from shrinking government reimbursements, fewer patients than expected, and a surge in unpaid care.

“We’re five months into our fiscal year, and we haven’t met our targets,” Deborah Carey Johnson, EMMC’s president and CEO, said in a notice on the hospital’s website. “As the only provider of many healthcare services for the northern two-thirds of the state, it’s important that we are able to quickly adapt to today’s rapidly-changing healthcare environment. The flexibility we show today will help ensure that we’re strong in the future.”

The $7 million operating loss stemmed from much lower revenues than anticipated in January and February, Johnson told the Bangor Daily News on Thursday. EMMC recently funded its reserves with millions of dollars funneled to the hospital as part of Gov. Paul LePage’s pledge to repay Maine’s hospitals nearly $500 million in Medicaid debt, but remains in the red on day-to-day operations, she said.

“Overall, EMMC is still extremely financially sound, as an organization,” Johnson said. “We’re sort of looking at this as a rough patch, if you will, that we need to take very seriously.”

Government payments to the hospital for treating Medicaid and Medicare patients are projected to fall by an estimated $10 million compared with last year, largely through cuts outlined under the Affordable Care Act. While those cuts were anticipated, higher revenues to offset the losses haven’t materialized, Johnson said.

“That’s a huge decrease in reimbursement,” said Dr. James Raczek, the hospital’s chief operating and medical officer. “You don’t hear about that, nobody’s talking about that with the Affordable Care Act. The political fight is over the insurance mandates and the Medicaid expansion.”

At the same time, charity care, provided for free to patients who can’t afford treatment, and bad debt, including unpaid medical bills, currently total $27 million over the last five months — an $8 million increase over the same time frame last year. Other hospitals are seeing similar jumps, Johnson said.

“That’s throughout the state, it’s not unique to us,” she said.

EMMC anticipated a drop in charity care and bad debt as a result of more Mainers gaining health insurance coverage under the federal health reform law, the notice states.

More than 25,000 Mainers have signed up for private health insurance under the Affordable Care Act, making the state a leader in enrolling residents through Healthcare.gov, according to new federal data released Tuesday. With those policies taking effect Jan. 1 — and some later given the troubled rollout of the website for the insurance marketplaces in Maine and 35 other states — hospitals haven’t yet seen a big drop in charity care, said Andrew Coburn, a rural health expert and chairman of the Master of Public Health program at the Muskie School of Public Service at the University of Southern Maine.

“That effect of greater access to health coverage won’t be felt until right around now,” he said.

The federal government has not yet released data on where individuals gaining health coverage under the Affordable Care Act live, so it remains unclear how many reside in EMMC’s service area.

“Some of the numbers in the state look good, but we’re not convinced that it’s actually decreased the true number of uninsured in the state, just by the fact of our amount of free care and bad debt we’re seeing,” Raczek said.

As for Medicaid, known as MaineCare, legislation to expand the program passed in the Maine Senate on Wednesday but failed to attract enough votes to escape an expected veto from Gov. Paul LePage, a staunch opponent. Thousands of childless adults also were dropped from MaineCare as of Jan. 1 under cuts backed by LePage and fellow Republicans.

“It has made a difference in the amount of free care and possibly bad debt that we’re seeing,” Raczek said of the cuts and failure to expand MaineCare. “Also, it’s been evident that those individuals have been accessing and seeking care. If they do get sick, then they come to the hospital and they’re much more ill than they would be if they had been accessing care on an ongoing basis.”

EMMC budgeted for less bad debt and free care during the second half of its fiscal year, anticipating both a MaineCare expansion and more residents gaining coverage under the Affordable Care Act, according to Raczek.

Even outside the health reform law, health care has undergone major shifts — including greater focus on primary care and preventive services — leading to slower rates of cost growth and less reliance on hospital services, Coburn said.

Lower patient volumes contributed to the shortfall, according to EMMC. Fewer patients than expected are visiting the hospital’s physician practices and undergoing inpatient and outpatient surgeries, Raczek said. EMMC added physicians and improved operating room scheduling to accommodate more procedures, but has fallen short of expected growth in surgeries, he said.

EMMC is reviewing its operations and working on a strategy to improve efficiency, boost productivity, and lower costs while maintaining quality care, Johnson said. If the hospital, which employs about 3,900 people, needs to cut staff to reduce expenses, Johnson said she hopes to do so through attrition and by leaving 170 already open positions unfilled.

“At this point we don’t know,” she said of potential layoffs. “We are looking at putting a plan together.”

Hospital employees are also being asked to cut back on discretionary expenses.

The shortfall comes as EMMC embarks on a $250 million expansion and modernization project described as the largest ever undertaken by the hospital’s parent organization, Eastern Maine Healthcare Systems. Now under construction, the new seven-story tower at EMMC’s State Street campus was funded primarily through $155 million in bonds, along with more than $100 million in cash and equity set aside by the hospital, and $20 million from private fundraising.

The hospital also used $11 million of the money it recouped in MaineCare debt to fund the project. Formerly owed $75 million in state and federal funds for unpaid MaineCare bills dating to 2009, EMMC was the single largest holder of that MaineCare debt among Maine hospitals.

The tower project will move ahead as planned, Johnson said.

“This is a very important project for us, we’ve already secured the financing for that,” she said.

The hospital expects to spend another $40 million on replacement equipment during the course of the upgrades. EMMC is also expanding away from its main campus, with plans for a $5.25 million medical office building located off Maine Avenue to house primary care providers.

While funding expensive projects in the face of a financial shortfall might seem incongruous, many hospitals turn to capital markets to borrow money for expansions and renovations in an effort to compete into the future, Coburn said.

“The other side of the coin is what is the ongoing, day-to-day revenue. … Hospitals are complex entities that have multiple business lines,” he said.

http://bangordailynews.com/2014/03/13/health/eastern-maine-medical-center-facing-significant-financial-shortfall/ printed on August 20, 2014