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Thursday, Mar 28, 2024

Valley Hospitals Could Lose Big

A new statewide effort to enroll the state’s poorest and sickest residents in managed care is expected to save California taxpayers and the health care system nearly $1 billion a year. But the cost for San Fernando Valley Hospitals could be tens of millions in lost revenue. The program is going into effect next year, but hospitals already are preparing for what they say will be the biggest hit to their bottom line in years — one that will force cost cutting and potential layoffs. Hardest hit are likely to be small, independent community hospitals. Observers say these facilities may see their Medicare business dwindle and migrate to the larger hospitals, which are part of an integrated system that can compete for managed care contracts more effectively. “It’s going to be a dramatic change,” said Kelly Turner, senior vice president and CFO of Glendale Adventist Medical Center. “It will challenge the revenue stream and make sustainable margins much more difficult to achieve.” The program would move an estimated 1.1 million Medicare and Medi-Cal eligible beneficiaries into coordinated managed care. It was initially a four-county pilot of the Center for Medicare & Medicaid Services (CMS), but has been expanded under Gov. Jerry Brown’s budget proposal to cover eight counties statewide. By far the biggest effort is taking place in Los Angeles, where up to 373,000 residents who qualify for both Medicare and Medi-Cal benefits will be enrolled in managed care plans and offered coordinated care through a primary care physician. Cost of care Often referred to as “duals,” these patients represent the 20 percent of the population that often accounts for 80 percent of the cost of health care, said Dylan Roby, director of Health Economics and Evaluation Research at the UCLA Center for Health Policy Research. State officials hope to achieve savings of $679 million in 2013 and $1 billion by 2014 and beyond, although those figures have since been slightly reduced as the start date of the program has been pushed back to July 2013. The goal is to reduce hospital admissions and costs by 20 percent or more by managing chronic illness more effectively through more outpatient services—potentially costing Valley hospitals $50.58 million a year, according to the calculations of the Hospital Association of Southern California. It is those reductions that worry hospital officials. Duals represent the single largest block of patients at most hospitals, said James Lott, executive vice president of the HASC. At San Fernando Valley hospitals, duals accounted for $545 million, or 19 percent of net revenue, and 23 percent of total volume, or charges based on patient days. At some hospitals, those figures are as high as 33 percent, according to Lott. “The potential impact is huge,” he said. “In the San Fernando Valley, you are talking about a quarter of the volume and a fifth of the revenue that could be impacted if utilization is reduced or payments are cut.” What’s more, he said, if hospital admissions drop — as they are intended to — many hospitals could lose their so-called disproportionate share funds, or extra money that compensates hospitals that have a larger-than-average share of Medicare beneficiaries. Several Valley hospitals, including Northridge Hospital Medical Center, Providence Holy Cross Medical Center and West Hills Hospital & Medical Center, receive such funds, Lott said. “I’ve had many hospitals tell me this could cut their bottom line by $1 million to $4 million a year,” Lott said. For many hospitals operating on razor-thin margins, such reductions could be devastating and are likely to force major cost cutting measures, including possible layoffs, he added. Mounting concerns Hospital executives said they are not opposed to state efforts to revamp the way “duals” are cared for. Indeed, they say they recognize the need for more coordinated care, and the critical need to cut costs. Many dual eligible beneficiaries float from one doctor and hospital to another, their medical data often lost in the process. This results in repeated tests and frequently unnecessary hospitalizations and bad health outcomes. “As a nonprofit, we are geared toward improving the health of the community,” Turner said. “And to the extent that this will better coordinate care for a fragile population, we think there are positives.” But they can’t help but worry about the impact. “We have to be able to make a certain margin to make our mission sustainable,” Turner added. There is similar concern at Valley Presbyterian Hospital in Van Nuys, which also receives disproportional share funds from Medicare. “There are many moving pieces but we do anticipate a significant impact on revenue,” said Julie Reback, vice president of business development. “It will have an impact and we’re concerned about that.” Hospital officials said there still are many unknowns that could soften the blow. For example, the state program has an opt-out provision allowing beneficiaries to remain with their current doctor in a fee-for-service system, should they choose to do so. Previous efforts to enroll other patient populations in managed care, however, have resulted in declines in hospital admissions, Lott noted. For example, the Medicare Advantage program for seniors and the effort to enroll special needs patients in managed care both led to a drop in hospital admissions, he said. Preparing for impact Hospital executives are doing a number of things to prepare for the expected decline in revenue. They have started to meet with state officials and the managed care companies tasked with enrolling patients right now to make sure their point of view is represented. They are also mobilizing in Sacramento to make sure that even if utilization is cut, at least the rate currently paid to hospitals is not, Lott said. To prepare for the impact, Providence Health & Services, which operates three hospitals in the Valley, is making a concerted effort to eliminate waste to bring its cost structure in line with potentially reduced admissions, said Michael Hunn, who oversees the operations of five Providence hospitals in the L.A. region as senior vice president. “We are working hard because we have to get to affordability,” he said. The system is in the midst of implementing an extensive electronic medical records (EMR) system, which is expected to eliminate waste from the system, Hunn said. In addition, the system is forging deeper alliances with physicians in the hopes that as a more tightly integrated and aligned network, it will be in a better position to capture business from the managed care companies. The system has recently formed a limited liability corporation with physicians and has a foundation that mimics the Kaiser Permanente model of employing physicians. Hospitals that don’t have their own network of closely aligned doctors are scrambling to make sure they have contractual relationships with large group practices. For example, Glendale’s Turner said his hospital would be looking to forge alliances with any group practice expected to enroll patients. Among them will be large independent practice associations such as Northridge-based Heritage Provider Network and Healthcare Partners, which both are expected to benefit from the move into managed care — potentially at the expense of small, independent physicians. And like Providence, Glendale is looking to reduce costs in case revenues do drop precipitously. With 23 percent of patients at Glendale Adventist dually eligible, the reduction in utilization could be steep. “We are focused on providing as much value as we can,” Turner said. “We will maintain cost as responsibly as we can.”

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