Hospitals try to do more with less while not compromising quality as they adjust to changes in the health-care marketplace

A. B. Chandler Medical Center at the University of Kentucky

Hospitals are laying off employees and cutting budgets because of changes in the marketplace and the ways consumers seek care, Editor Mark Green reports in an in-depth article for The Lane Report.

Now that consumers are paying more direct costs, they are paying more attention to prices and more likely to use out-patient procedures, which are cheaper, Green writes. Also, consumers are increasingly using wellness programs to avoid health problems, and "Taxpayer-funded government compensation models are making better medical outcomes and financial efficiency important bottom-line issues."

Less inpatient treatment means fewer employees are needed at Kentucky hospitals, but not all are financially burdened, Green reports; those who provide the best service at the least cost are increasingly reaping the profits.

While the Patient Protection and Affordable Care Act may make care more affordable, it also "puts pressure on health-care providers to keep costs in check,” Carl Herde, chief financial officer for Baptist Health, told Green. “However, many of the issues facing health care were in place before the ACA came into effect.”

Dr. Michael Karpf, administrator of UK HealthCare since 2003, told Green that hospitals are adjusting from a model that was based on volume to one that is based on value. Karpf has said for years that the "health-care industry is on an unsustainable financial course."

“There is a real need to decrease utilization to get healthcare costs under control. It just puts pressure on institutions,” Karpf told Green. “We won’t be doing business the same old-fashioned way we’ve been doing it.”

Some hospitals are still showing a healthy profit, but are also cutting costs and looking for increased efficiency, like UK HealthCare, whose $920 million hospital budget is producing a seven to eight percent cash flow, Green reports. But KentuckyOneHealth expects a $218 million deficit in its $2.5 billion budget, laid off 500 of its 15,000 workers last month, says that it won't fill 200 openings and will close the emergency room at Medical Center Jewish Northeast in Louisville on April 1. The company told Green that it might close an entire hospital, without telling which one.

KentuckyOne CEO Ruth Brinkley told Green, “The recession has come to health care, and that is causing the industry to transform. There are many causes for the changes, among them: the economy, reduced payments from government and commercial payers, increasing consumerism, and shifts in how care is organized and delivered. We have seen large and respected healthcare organizations announcing restructuring, budget cuts and layoffs. Among them are Vanderbilt University Medical Center and Cleveland Clinic. This situation is even more acute in Kentucky, with steep declines in inpatient volumes.”

Baptist Health, a Louisville-based system that has the most hospital beds in Kentucky, had a $22 million operating loss in fiscal 2013, but $78 million in investment income erased that deficit, Herde told Green: “There is increasing pressure for hospitals to do more with less without sacrificing quality, so we are exploring creative ways to contain costs, but we are financially sound now – and we are confident that we will remain so in the future.”

Owensboro Health's hospital (HGA.com photo)

When the state turned management of Medicaid over to insurance companies, that created higher administrative costs for hospitals, said John Hackbarth, chief financial officer for Owensboro Health, which in 2013 opened a $385 million medical center.

“After movement to a managed-care model, we have five insurance plans, plus some patients remaining on Kentucky Medicaid indemnity,” Hackbarth said. “This has increased costs in many areas such as contracting, compliance, billing, IT and case management because we are dealing with five times the amount of rules and hoops to jump through for a slower payment and ultimately less reimbursement.”

State officials say the expansion of Medicaid under health reform, to those with incomes up to 138 percent of the federal poverty level, is forecast to bring Kentucky providers an extra $15 billion for care and create 17,000 new jobs. But not yet.

Green reports that the most common response from five major hospital operators was that "Medicaid expansion eventually should lower their annual charity care and bad-debt burden, which is hundreds of millions of dollars." But first they are focused on adjusting their services to meet an increased demand for care by the formerly uninsured.

The Louisville region's biggest provider, non-profit Norton Healthcare expects that when the federal subsidy for expanded Medicaid is reduced, to 90 percent, the state will have to cut the number of Medicaid enrollees or reimbursements to providers. The reform law's overall impact to date, Gough said, is “decreases in Medicare reimbursements.”