JOHNSON CITY, Tenn. (WJHL) – When the federal CARES Act’s first hospital stimulus payments went out, they relied on a formula that disproportionately favored hospitals that tend to make better margins, a Kaiser Family Foundation (KFF) study found.
That means Ballad Health hospitals and others that operate in rural and less affluent areas — and typically operate on thinner margins — likely received less per bed than some of their better funded peers.
KFF released the analysis May 13 on the first $50 billion in CARES Act payments to hospitals. It estimated hospitals in the top 10 percent based on share of private insurance revenue received an average of $44,321 per bed.
That was more than double the estimated amount of $20,710 for the 10 percent of hospitals with the lowest share of private insurance revenue.
“Hospitals typically command rates from private insurers that average twice Medicare rates per patient, and some are paid substantially higher rates from private insurers in highly concentrated markets,” the report written by KFF’s Karyn Schwartz and Anthony Damico noted.
Ballad CEO Alan Levine said the system’s hospitals tend to fall in the low range for share of reimbursements from private insurers — very likely in the bottom 10 percent in many cases. That almost certainly resulted in Ballad receiving multiple millions of dollars less than if the formula used a different basis.
Levine said he chalks the formula selected to the desire to push money out quickly without a major focus on policy.
“I think they made some policy mistakes but we’re grateful for the decision to move quickly to get money back out to hospitals, because hospitals all over the country are reporting massive losses right now including us,” Levine said.
He added, however, that non-urban and rural hospitals are suffering the most, and largely due to the challenging “payer mix” that the first round of money didn’t seem to account for.
“The way the money was distributed in that first tranche really benefited hospitals that have good payer mix and so it benefited hospitals that are in wealthier parts of the country, which is sort of counterintuitive,” Levine said.
“I think the Kaiser study makes plain the weaknesses associated with that approach and hopefully those will get addressed later on.”
Part of a larger issue
Levine said the outcome of that first influx of relief money comes from a paradigm many policymakers start from – one that’s based on a more urban focus and tends to benefit hospitals and systems in areas with growing populations.
“Most of the people that are elected, most of the people who are major policymakers, the lens through which they develop policy tends to be where the population centers are, and unfortunately rural markets are very different.
“They have different payer mix, they have a different complexion, and unfortunately we’re learning that through what is happening in the marketplace where rural hospitals are closing in record numbers now.”
As an example, the Joint Annual Reports filed for the fiscal year that ended in 2018 for Johnson City Medical Center (JCMC) show the hospital got 38.8 percent of its total net patient revenue from patients with commercial (private) insurance. Most of the rest, 55.3 percent, came from government payers such as Medicare and Medicaid.
Centennial Medical Center in Nashville got 51.8 percent of its net patient revenue from commercial insurance patients and 46.7 percent from government payers.
During that same 2018 year, Centennial’s net profit of $142.8 million represented 17.2 percent of its operating revenue.
JCMC’s net profit of $48.8 million represented 11.4 percent of its operating revenue. Bristol Regional Medical Center, with 34.4 percent patient revenue coming from private insurance, had a net profit of $9.9 million, or 4.2 percent of its $236.1 million operating revenue.
Judging by the KFF study, though, Centennial almost certainly received more per licensed bed than the two large Ballad hospitals. 2018 is the most recent year for which joint annual reports are available.
Levine said the CARES Act disparity is echoed in what he said are longstanding inequities in the Medicare Wage Index. That index results in lower reimbursements for hospitals operating in areas with lower overall salaries.
It’s an idea with some basis in fairness, but one that he said has been used politically to create wide gaps and, again, result in lower funding for hospitals in communities that can least afford it.
The index was updated last year and resulted in a bump of approximately $30 million to Ballad, but that change hasn’t been made permanent. The four senators from Tennessee and Virginia have introduced legislation that would make that wage index change permanent.
“Both Democratic and Republican senators cited Ballad health as a good example for why this policy needs to change. So this is not a new thing. Rural systems tend to get penalized.”
Levine is hopeful policymakers are taking notice. Large numbers of rural hospital closures are directly tied to payment models and how those don’t align with the realities rural communities and hospitals face.
“People don’t understand how you deal with a rural community where you don’t have the population density and the population, and of course you’ve got a different economic complexion in that market. The rural markets are very different from an economic perspective and there’s just lack of understanding of how these policies affect those communities.”
Hampering the comeback
As Levine noted, all hospitals are getting hit hard by the pandemic. Standard and Poors, a bond rating agency, has downgraded hospitals as a whole to a negative outlook.
The reimbursement discrepancies exacerbate the issues at systems like Ballad, and that makes it riskier for them to bring furloughed workers back — particularly those in non-clinical positions.
Ballad secured a line of credit that it will utilize if necessary, and planning for volumes in the fiscal year that begins July 1 is difficult. The system is in the middle of a three-week resumption of elective surgeries, bringing them from 50 percent to 75 percent to 85 percent of pre-COVID levels.
From there, volume and revenue will hinge on patients choosing to return for surgeries and having the means to do so.
“75 percent of our business is Medicare, Medicaid and uninsured,” Levine said. “Will they come back to the hospital for services based on this disease or will they continue to socially distance? If so that affects our volume.”
That question relates to the lower-reimbursing patients. Throw on top of that the possibility of high unemployment persisting, he said, “and you have a continued negative shift in the payer mix now you have a revenue issue on top of the volume issue.”
That will impact real lives as Ballad looks toward “a very conservative budget,” Levine said. While clinical staff are coming back as volumes increase, he said he doesn’t know when or even whether Ballad hospitals will get back to full capacity.
A return to a something approaching normal is essential for Ballad to confidently bring back all the non-clinical people it furloughed starting April 13. Levine said when those furloughs were announced April 8 the system would revisit the furloughs in 60 days and probably recall some of the 1,300 furloughed employees before that time was up.
The corporate/administrative portion of jobs furloughed was more than 600.
“Some of the positions that were furloughed that are not directly clinical, those won’t come back quite as fast because we have to take it piece, one piece at a time and see what the volumes look like and then what cost structure we can support.”