This story was published 11/25/02

By Annette Cary Herald staff writer

An 83-year-old man arrived recently at the Kennewick General Hospital emergency department with a bulge in the main blood vessel that supplies blood from his heart to all his organs.

Such aneurysms, if they become very large, can break open.

The patient already had a host of complications, including kidney failure, that doctors don't like to see in a patient they're considering sending to the operating room. But if the aneurysm ruptured, the patient was sure to bleed to death.

The decision was made to proceed with surgery.

The patient spent 14 days in the intensive care unit before his family flew him to his home state of Montana. He said he wanted to go home to die.

KGH spent $50,965 on his care and printed out bills for about double that.

But because he was over 65, his bills were paid by Medicare at rates not negotiable either by his family or the hospital.

In the end, Medicare paid $29,813 and the hospital had to swallow the other $21,152 it spent on the man's care.

The real problem for Tri-City hospitals is that it was not an unusual case.

"We're heading for a train wreck kind of crisis in the industry," said Rand Wortman, chief executive at Kadlec Medical Center in Richland.

Hospitals in Washington have faced their toughest financial times in recent years since the state began maintaining data 20 years ago, with Eastern Washington hospitals particularly at risk, according to the Washington State Hospital Association.

Analysts are pessimistic that financial pressures will ease significantly in the next few years.

Even in the Tri-Cities, with the best economy in the state, KGH expects to end this year with a $600,000 loss.

Lourdes Medical Center in Pasco expects to break even, and Kadlec doesn't expect to do much better than break even.

Most hospitals can survive a year or two with losses or making just a little more than they spend, according to the hospital association. But if that continues for long, hospitals will not have the money they need to purchase technology, attract doctors and continue to serve patients.

Bond-rating firms usually require a 4 to 5 percent operating margin as a sign of a hospital's solid financial health, according to the hospital association.

But the most recent data compiled by the association show that rural hospitals in the state lost money on average in 2000, and urban hospitals had an operating margin of 1.6 percent on average.

The three Tri-City hospitals fall on the border between the two categories, with the association sometimes counting Kadlec as an urban hospital and the other two Tri-City hospitals as rural.

The KGH board is concerned enough to be looking for proposals from consultants to take a more in-depth look at the services the hospital offers and its business practices.

"We will be able to pay our bond holders," emphasized Kennewick General administrator Tom Nielsen. But if the hospital district ends the year without making enough money to meet its bond covenants, the next step will be asking a consultant to make recommendations on cost-trimming measures.

KGH, like other hospitals, is struggling with the need to cover rapidly rising medical expenses.

It can raise its rates, but almost no one ends up paying the cost charged. Medicare and Medicaid, for example, set their own rates.

A decade ago, the system worked because private insurers paid a little more, in effect, subsidizing the cost of any shortfalls from caring for the poor and the elderly.

In the mid-'90s, private insurers were paying providers about 15 percent more than the actual costs of care, according to the hospital association.

Essentially, it was a "sick tax," said James Dover, executive officer of Lourdes.

But in recent years premiums for companies providing workers with health benefits have been rising rapidly. "Employers are already hollering, and we can't do it anymore," said Chuck DeGooyer, assistant administrator at KGH.

In September, KGH admitted 43 patients whose care cost at least $10,000 more than the hospital received in payment. Those cases left the hospital with $900,000 in costs that it had to cover with money from some other source.

Some of the biggest losses were for patients who were covered with Medicaid, the government program to pay the medical costs of the poor.

Take the case of a 44-year-old man admitted from the emergency room with respiratory problems who remained in the hospital for 22 days.

His care cost the hospital $30,483. But the state paid the hospital $5,406.

In addition to hospital write-offs for inadequate Medicare and Medicaid payments, the three hospitals also provide about $10 million in care annually for people who are treated as charity cases or people who do not pay their bills.

The hospital association expects charity care to rise across Washington as the sagging economy continues, leaving many in the state without jobs or health insurance.

The number of people without insurance has increased to 10.7 percent of the state population, up from 8.4 percent of the population two years ago.

In addition, the state has discontinued Medicaid coverage for 28,000 immigrants, most of them children whose parents cannot prove they are in the country legally.

When many of those people face a medical emergency, hospitals are likely to pick up the cost of their care. And they're more likely to see them in the emergency room - where care is the most expensive to provide - because they have no doctor or because minor health problems have become serious without regular medical care.

With the state facing a $2 billion budget shortfall, hospitals are expecting more cuts next year by the Legislature to programs that pay for the care of low-income patients.

"If we emerge unscathed by May, it will be a miracle," said Randy Revelle of the hospital association.

Medicare payments have dropped dramatically since the Balanced Budget Act of 1997, with Washington hospitals projected to lose $1.3 billion in Medicare revenues from 1998 to 2004, according to the hospital association.

Nor can the hospitals look to private insurers for relief. With three hospitals in the Tri-Cities, commercial payers have a good negotiating position to request wholesale prices.

Reimbursement rates to hospitals have remained largely steady over the last three years in the Tri-Cities, according to the hospitals, while average expenses per patient statewide during that time jumped from $6,000 to $8,000.

"There is no optimistic part of that scenario," said Revelle, about private pay, Medicare and Medicaid reimbursement.

On top of the other problems, a national nursing shortage is leaving hospitals with the choice of turning away patients or paying premium prices for traveling nurses supplied by agencies.

Kadlec expects to pay $3 million this year in premium pay for nurses, the difference between what it costs to pay the expenses of a traveling nurse and the cost of employing a staff nurse.

Even with all three hospitals relying on traveling and agency nurses, on any day, one or two of the Tri-City hospitals' acute care units may be closed to new admissions.

In addition, malpractice rates increased dramatically nationwide. KGH and Lourdes are paying $1.5 million more a year in malpractice costs - the equivalent of 25 nurses a year.

That's just the start. Lourdes said the cost of new pharmaceuticals are costing $300,000 a year - the equivalent of six nurses - and increased electrical costs have cost Lourdes an additional $300,000 a year.

Without insurance companies and other payers willing to increase reimbursements, the hospitals all have to find ways to absorb those costs.

That's more difficult in Washington than in most states.

While hospitals elsewhere are looking at ways to release patients sooner from the hospital to keep costs lower, Washington hospitals' length of stay is already 15 percent below the national average.

The three Tri-City hospitals have built budgets for 2003 based on more efficiency and growth, hoping slim profit margins on more patients will make up for those whose care costs more than the hospitals receive.

KGH is hoping to end in the black next year by a slim $40,000, a number that could easily be eaten up by just a couple more patients whose cost of care outstrips the hospital's reimbursement. It's also far less than the hospital needs year to year to maintain the margins that will let it invest in new technology and replace equipment.

But the hospital's financial plan does have some bright spots.

The budget does not include a tax increase for property owners in the Kennewick district, but the hospital board may decide after the first of the year to ask hospital district residents for more money.

The hospital also expects a $600,000 bonus from the federal government that it's eligible for after being allowed by the state this year to add more beds.

It's pinning part of its fiscal future to the new KGH Medical Mall, which offers outpatient services on the west side of Kennewick, where the community is growing and more residents have private insurance.

Other projects completed in the last few years also should help the hospital grow, including improved diagnostic imaging services, a new pediatrics wing, an expanded emergency department and 18 private rooms.

In Richland, Kadlec has already seen dramatic growth, treating 18 percent more patients in the hospital in the last two years and seeing a larger increase in demand for outpatient services.

But it so far has not seen the financial benefits of the growth.

"This is an investment in the future," Wortman said.

The hospital has just completed a $40 million expansion project - financed largely with bonds - and has invested $11 million in equipment for a new outpatient imaging center.

And it's added more than 200 new positions to care for more patients over the last two years, at a time when a shortage of nearly all types of health care workers means top salaries are needed to recruit workers.

But the investment may pay off. Already, new state-of-the-art imaging equipment - including some available nowhere else in the state - and the sophistication to care for more critically ill patients are drawing more patients from around the Mid-Columbia to the Tri-Cities for medical care.

Just three years ago, one in five Tri-City people who were hospitalized traveled to Spokane, Seattle or elsewhere. Kadlec's goal is to drop that number to one in 10.

Next year, it expects to end the year $2 million in the black. While that looks good compared with the tighter margins faced by other hospitals, it's not close to the bottom line the hospital had through much of the 1990s. In 1995, for example, it ended the year with $9.5 million, thanks largely to the well-insured Hanford work force.

Even with the additional expansion expenses it has had to meet this year, it will have about $25 million in savings at the end of the year. That cushion will help carry it through the leaner years likely ahead.

"But it's not going to be easy for Kadlec, either. We have the same concerns as the rest of the industry," Wortman said.

Lourdes, which lacks Kadlec's larger number of well-insured patients, still hopes to end fiscal year 2003 with better than a 1 percent operating margin.

"But I think it's going to be a struggle," said Dover, who's already led the hospital in an aggressive program to bring in more than it spends after the hospital lost $3 million in fiscal year 2000.

About 70 percent of Lourdes' patients are covered by Medicare or Medicaid or have no insurance.

"We have a goal of 100 percent access for the community," Dover said. The hospital is putting money into recruiting doctors to make sure everyone can find care.

New equipment is bought carefully, with an eye toward technology, such as new fetal monitors, that is used often and helps many patients.

One bright note: Lourdes could have a $3 million reimbursement coming from Medicare, based on what it believes was an underpayment by the federal government.

That money could help with an expansion of Lourdes Counseling Center in Richland, a new women's and children's center in Pasco and more primary care service in growing west Pasco.

"I think we are doing all the right things, but it is not a friendly environment out there," Dover said. "We will always do what is necessary to be a source of healing for the community."

-- Anonymous, November 25, 2002