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The Honolulu Advertiser
Posted on: Tuesday, November 5, 2002

Hospitals anticipate $440M loss

By Frank Cho
Advertiser Staff Writer

Hawai'i hospitals and nursing homes are projected to lose approximately $440 million this year because of increasing demands for medical services and falling federal and state reimbursements, according to a new report commissioned by the Healthcare Association of Hawai'i.

Hospitals will likely lose $35.8 million on Medicaid patients this year. Losses from uncompensated care — which includes community programs, medical education, bad debt and charity costs — are projected to reach $133.1 million this year, according to the report produced by accounting firm Ernst & Young.

Rich Meiers, the association's president and chief executive, said hospitals also are expected to lose more than $275 million this year for treating Medicare patients.

"Nobody is making big bucks here," Meiers said. "The reimbursements from the state and the federal government are getting smaller and we are living beyond our means."

Reduced government reimbursements, rising labor costs and Hawai'i's aging population have combined to threaten the financial health of dozens of Hawai'i hospitals. While administrators say it has not affected the quality of healthcare they provide, it has reduced availability in some areas with providers cutting programs, eliminating positions and raising fees to offset losses.

Hospitals say they have traced many of their financial problems to the federal Balanced Budget Act of 1997, which reduced government Medicare and Medicaid reimbursements to providers below their cost of providing the service. Since then, the burden of unreimbursed costs has grown from $370 per patient in 1998 to $2,886 in 2001.

Hospitals, under the so-called Emtela law, are required to provide emergency medical care without regard to a patient's ability to pay. The report, released last week, projected that Hawai'i hospitals will lose more than $90 million this year from such charity care and bad debt.

At the Queen's Medical Center, the state's largest hospital, losses from uncompensated care rose to $22.8 million in 2001, up more than 200 percent from $7.2 million five years ago, according to the medical center.

"A number of facilities around the state are deferring maintenance on buildings and purchasing new equipment," said Rix Maurer, the Queen's chief financial officer. "But I don't think it has negatively affected the quality of healthcare."

Instead, hospitals often find themselves paying out of pocket for much of the uncompensated expenses, Maurer said. During the past five years, it has cost the Queen's more than $43 million.

The Hawai'i Health Systems Corp., which oversees a number of small rural and community hospitals, said it lost $35 million in underpayments by Medicare, Medicaid and Quest programs last year.

"In spite of HHSC's dramatic increases in collections resulting in a $150 million reduction in losses over the past five years, the cost of safety-net care still exceeds reimbursements," said Thomas Driskill, Hawai'i Health Sytems' president and chief executive officer.

For years, hospitals have counted on higher payments from commercial insurers and income from the rising value of investments in the stock market to help offset losses, said Dave Heywood, vice president of Hawai'i Pacific Health, the parent of Kapi'olani Health, Straub Clinic & Hospital and Wilcox Health System on Kaua'i.

"Historically, we had been able to offset losses, but the ability to do that greatly diminished in the 1990s as the commercial payers negotiated their reimbursements down, particularly with managed care programs," Heywood said.

This has cost Kapi'olani Health about $17 million during the past year, Heywood said. Straub has lost about $10 million, primarily from reduced Medicare reimbursements, while Wilcox has lost about $2 million, he said.

The three health systems merged last year in an effort to save money. The company has eliminated about 30 positions and consolidated its purchasing to further pare costs.

"It's just tightening your belt as much as you can," Heywood said. "I think we are probably at the last notch on the belt in terms of how skinny we can get."

Reach Frank Cho at 525-8088 or fcho@honoluluadvertiser.com.