DCHS hobbled by reimbursement cuts

Hospital, system report $6.1 million loss in operations through July

IRON MOUNTAIN — Regulatory changes are adding to the financial challenges faced by Dickinson County Healthcare System, which continues to explore methods to remain a viable, top-ranked public hospital.

Most recently, Medicare’s decision to deny DCHS cost reimbursement for its Rural Health Clinics could mean a potential loss of $2.5 million for 2015, 2016 and 2017. The hospital is appealing that decision, but other issues persist.

DCHS has experienced additional reimbursement cuts valued at an estimated $4 million annually since 2016, officials said. Medicare adjustments have led to lower compensation to hospitals for inpatient care, particularly when patients are expected to be in the hospital for less than three days. Under this change, such inpatient stays are classified as outpatient services and reimbursed at much lower rates.

“It is these types of reimbursement changes, along with other significant insurance billing and coding changes, that have created substantial financial challenges for our health care system,” said John Schon, DCHS administrator-CEO.

Through July of this year, the hospital has reported a $6.1 million loss in operations.

Despite some up and down financial years, DCHS historically has generated enough revenue to be self-sufficient and pay for new equipment and expansions. But as expenses climb and insurance reimbursements drop, staying out of the red has become a daunting task.

After posting a gain of nearly $3.2 million in 2015, the hospital ended 2016 with an operating loss of about $3.6 million. A loss of about $2.1 million originally was forecast for 2017 – partly due to a temporary loss in eligibility for the 340B federal prescription drug discount program.

As a nonprofit Public Act 230 community hospital, DCHS’s financial survival always has been achieved independently. The hospital receives no county appropriations or taxpayer support.

In a press release, hospital officials said procedural and regulatory changes have cost DCHS $8 million in revenue in each of the past two years.

“It is virtually impossible to make ends meet when you are repeatedly trying to hit these reimbursement reduction types of ‘curve balls,’ that are constantly being thrown at us by Medicare and other health insurers” Schon said. “When people are coming up to me, in a social setting, and apologizing for their insurance company’s lack of reimbursement, you know there is a problem.”

One possible solution is to form an affiliation with another health care system. The venture, officials said, must be a collaborative effort that will offer DCHS additional support and infrastructure, and allow for more opportunities to create economies of scale. A specialized health care strategy firm is advising DCHS on its options.

“DCHS has been in situations like this in the past and we have always found a way to overcome these bumps in the road,” Schon said. “We are exploring any and all methods of fine-tuning our performance, improving our efficiency, and maintaining our viability. And we know we are not alone. Everyone can feel the effects of the rising costs, not only in health care but in most areas of our lives.”

To ensure the community has round-the-clock Emergency Department coverage in several specialties, DCHS spends $1.2 million annually to subsidize physician practices to assure their availability.

“Although there has been some consideration to reduce or eliminate this emergency ‘on-call’ coverage expense, we have chosen so far to continue this subsidy and provide this extremely important emergency coverage for our community,” Schon said. “Our mission has always been to provide the best and most complete health care we can for this community. Unfortunately, we have seen an increase in the amounts of subsidies we are forced to provide for our Medicare, Medicaid and Blue Cross patients.”

In trying to regain its ability to receive cost reimbursement for its Rural Health Clinics, the hospital is seeking help from U.S. Rep. Jack Bergman, R-Watersmeet, and potentially a health care law firm that specializes in these types of legal challenges for hospitals.

Some good news is DCHS’s return to the federal 340B drug program, which requires drug manufacturers to sell outpatient drugs at a discount.

DCHS’s high number of Medicaid and indigent patients qualifies it for the program but it narrowly missed the threshold in 2015. As a result, DCHS was deemed ineligible from July 2016 through June 2017, resulting in an estimated loss of $4.4 million in 340B cost savings and/or reimbursements for that period.

Despite its financial struggles, DCHS still boasts some of the top patient safety rankings in the nation. The hospital is among only four in Michigan – and the only one in the Upper Peninsula – to receive “straight A’s” from the Leapfrog Group since its twice-a-year grading system began in 2012 and has been ranked in the top 5 percent in the nation by the Healthgrades rating agency for overall patient safety.

“I think our high patient safety scores are an example of our commitment to the patient, sending the message that no matter what financial hurdles are in front of us, we will still deliver the highest level of service and care,” Schon said. “Perhaps it is a silver lining, but it is something we can all be proud of,” he said.

“The DCHS administrative team, medical staff and hospital staff, along with the hospital’s Board of Trustees, are working on several initiatives to overcome these financial challenges,” Schon added, “and we will continue to keep the community informed of our progress and recommendations going forward.”

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