Hospital to raise fees by 5 percent
By Matthew Whittle
Published in News on September 11, 2013 1:46 PM
With uncertainties swirling around the January implementation of the federal Affordable Health Care Act's individual mandate, officials at Wayne Memorial Hospital say they are taking a conservative approach to their planning for fiscal year 2014 and projecting expenses to rise 4 percent. To counter that, though, in its new budget, the hospital board of directors approved Wednesday an average rate increase of 5 percent. That increase will go into effect on Oct. 1.
It's a move, President Bill Paugh explained, that should allow the non-profit hospital to clear 4.18 cents on every dollar of revenue -- funds that it plans to plow back into capital expenses.
Among the uncertainties this year, though, is how many people will actually seek medical care at the hospital and who will be paying for that care.
Because of the Affordable Care Act's requirement for everybody to have insurance, Vice President of Finance Becky Craig said, it would be reasonable to assume that patient volumes will increase, and that most of those people will have some sort of insurance.
But, she added, hospital officials don't know how well the online exchanges will work, or how many people will fall between the minimum income level to receive federal insurance subsidies and the maximum income cutoff for Medicaid due to the North Carolina General Assembly's refusal to expand the program.
Currently in Wayne County, Mrs. Craig said, there are more than 20,000 uninsured adult residents.
"It's a question of how many of them will be able to actually go to the exchange and get insurance. We just don't know what's going to happen. There are a lot of questions right now," she said.
If things go as planned, Paugh said, then there likely will not be any problems, but any changes in the implementation timeline or process at this point could present some difficulties.
"It's not going to be smooth. This is a big change, and it's very complicated," he said. "We have made our best faith effort."
But for the hospital, it comes down to how many people come in the door for care.
In terms of outpatient volumes, the hospital expects to be relatively flat. And while officials expect emergency department volumes to increase slightly, they are hopeful those will begin to level off as more as Wayne County's growing network of physicians is able to keep more people from seeking emergency care for non-emergency issues. The growth, officials said, is expected to come from inpatient admissions -- likely up about 8 percent.
The challenge, though, comes when patients don't have insurance or any other means to pay. Those costs are then born entirely by the hospital through its charity program.
"We don't turn people away because they can't pay," Paugh said. "If they need care, we provide care."
Officials are projecting to charge in fiscal year 2014 a total of $508 million, up 7.6 percent from 2013 -- 2.6 percent from the projected increase in volume and 5 percent from the rate increase.
Of that, nearly $58 million is expected to be written off -- $36 million for charity care, $22 million for bad debt, which are those bills people simply do not pay.
The hospital's net revenue, then, after charity, bad debt and insurance adjustments, whether for Medicaid, Medicare, Tricare or private providers, is projected to be about $214 million.
From that amount, the hospital then is projecting $205 million in total expenses.
Of that, the single biggest cost is salaries and benefits, worth about $83.1 million -- up about $2.5 million from $80.6 million in 2012-13.
"It is still the most important part of our care," Mrs. Craig said.
With approximately 1,500 full-time equivalents -- nearly 1,700 people total -- the staffing levels are expected to stay flat next year.
Rather the increase will come from salary adjustments to specific positions -- not an across-the-board market adjustment -- and from the hospital's pay-for-performance program.
That program, Paugh said, offers a zero to 5 percent pay raise based on individual performance, with the average raise sitting at about 3 percent.
"We think we are very competitive with the marketplace," he said. "This really is determined by how that person is performing."
Another cost area that is expected to increase is purchased services. Those, officials said, include investments in software to help streamline and computerize the hospital's paperwork procedures -- primarily in the surgical units this year -- in order to allow staff to focus more on bedside patient care.
Those are expected to increase about 12 percent, while medical and surgical supply costs are expected to increase about 10 percent.
In addition, pharmacy costs also are expected to increase about 14 percent, due to the need to work around shortages of common drugs such as electrolytes and nitroglycerin, as well as to changes to a federal program that offers extra discounts on certain drugs in communities, such as Wayne, that have a disproportionate number of very low-income residents.
Overall, hospital officials said, of that 4 percent increase in expenses, about half is expected to come from the increase in patient volume and an increase in sicker patients, with the other half coming from higher supply and equipment costs.
But there are other pressures reducing the hospital's revenue stream beyond direct costs.
N.C. Medicaid will be paying costs at 60 percent for 2013-14, as opposed to 70 percent in fiscal year 2013, while the effects of sequestration on Medicare payments are expected to continue, leading to a loss of about $1.3 million annually.
Furthermore, the military's insurance program, Tricare, is expected to cut more than $700,000 in payments in fiscal year 2014.
With approximately $9 million left available then, the final piece to the hospital's fiscal year 2014 is its capital expenses.
Technically, though, Mrs. Craig explained, capital expenses are budgeted at $18 million -- the $9 million in net cash available, and another $9 million (included in the larger $205 million in costs) for depreciation.
In addition to being used to keep the facilities up to date and equipment purchases and replacements, the hospital also plans to use those funds this year to finish the upgrades to the labor and delivery department, as well as to complete the move of the Wound Care Center to the second floor of the Medical Office Building where it will be expanded.
Other projects planned for 2014 are a $1.5 million renovation to the cardiovascular unit, the $1.3 million Phase 2 of the ground floor HVAC system upgrade, and a $1.2 million cardiac cath lab HVAC upgrade.