JFL on Quest to Break Even

This is the second in a series of stories on the financial crisis at the Juan F. Luis Medical Center and the various plans being proposed to confront it.

The financial crisis at the Juan F. Luis Medical Center can be viewed as two different but interconnected parts: the hospital’s sizable debt accumulated over years and its difficulty in covering month-to-month expenses.

Hospital leaders remain adamant that there is little they can do to solve their debt problem on their own and continue to lobby for a cash infusion, either from the government or from some private entity to help pay their $35 million tab.

As such, the majority of JFL’s recent structural changes – from layoffs to service cuts – has been aimed at fixing the hospital’s short-term finances, making the hospital’s current operations at least a break-even venture and thereby avoid going deeper into debt.

Deepak Bansal, the hospital’s chief financial officer, calls this “the first stage.”

“You have to deal with your current month-to-month before you deal with your past,” he said.

Bansal measures the short-term health of the hospital’s books using a metric called EBIDA, or earnings before interest, depreciation and amortization. Essentially it is a comparison of the hospital’s monthly revenue versus its monthly expenses, or more concisely, it asks whether the hospital made enough money to pay all of its bills for the month?

Bansal said EBIDA speaks directly to the underlying viability of the hospital and said the metric is often used by bankruptcy courts to establish whether or not a company would survive if freed from its debt.

The hospital realized several months of positive EBIDA in 2012 during Jeff Nelson’s administration as chief executive officer, but over the last six months JFL has consistently lost money on a month-to-month basis.

This change in fortunes has been attributed to several factors. Bansal has pointed to increased expenses on consultants relating to the hospital’s ongoing review by the Centers for Medicaid and Medicare Services as well as a large raise given to registered nurses in January. Bansal said the raises were an investment, however, and one that would hopefully pay out soon.

The strategy behind the raises was to make the hospital a more attractive place to work and thereby raise RN retention rates and attract new RNs from abroad.

With the raises, Bansal estimates RNs now make approximately $39 an hour when you factor in benefits. This is still far less than the $55 an hour currently paid to travel nurses working on short-term contracts.

The hospital would like to eliminate travel nurses entirely and, as each new RN is recruited, a travel nurse position is eliminated. When the conversion is complete, the hospital should save a substantial sum on payroll but, until then, they take a double hit having to pay both the higher local salaries and the remaining traveler contracts.

Eliminating travel nurses is just one way the hospital is trying to trim expenses. It is also trying to save $3 million by limiting the use of short-term contract doctors, known as locum tenens physicians, and by eliminating contracts with third-party providers of services the hospital believes it can perform in-house, such as information technology and pharmacy support.

The largest of the targeted contracts is with the hospital’s billing service, Inland Northwest Health Services. INHS began billing for the hospital in May of 2012. Hospital leaders acknowledge that before the contract was issued, JFL struggled to comprehensively bill for all of its services, meaning insurance claims were not being made on some procedures.

Bansal said the INHS was effective, raising the hospital’s revenues from $86 million in Fiscal Year 2011 to $122 million in FY 12. However, their service was expensive, costing the hospital around $150,000 a month.

JFL terminated its contract with INHS in April of this year and hired and trained eight new billing specialists to take its place. At a Senate hearing earlier this month, Bansal estimated that, even with the new salaries, JFL will save $80,000 a month by terminating the INHS contract.

Bansal says that so far the in-house billers are keeping pace with INHS’s performance from last year, but it may be too soon to tell if they will be as effective at generating revenue. In this way, the move represents something of a gamble on the part of JFL’s leadership, who are just as concerned with raising revenues as they are cutting expenses.

While hospital leaders continue to lobby for greater appropriations from the government, they have also presented some plans to increase existing revenue streams that would not require legislative action.

One is to try to increase the number of outpatient procedures performed at the hospital. Aside from the increased business, this would also allow the hospital to collect more money from the Medicaid/Medicare systems, which favor outpatient over inpatient procedures.

At the earlier Senate hearing, Interim Chief Executive Officer Dr. Kendall Griffith explained that Medicaid and Medicare do not reimburse the hospital for seeing their patients based on the services they were provided. Instead the hospital receives a per diem rate of $1,400 for every day a patient is admitted to the hospital.

That means that if a person is hospitalized for two days, the hospital will only receive $2,800 even if the patient received a $20,000 procedure during their stay.

He said the per diem rate does not apply to outpatient procedures, however. These are any services that do not require the patient to remain in the hospital for a full 24 hours. Reimbursement rates for these actually reflect the cost of the service.

On several occasions since becoming interim-CEO, Griffith has proposed converting a portion of the hospital into an outpatient procedure center to capitalize on this revenue stream, but as yet no firm plans for building one have been released.

With the hospital frequently losing money by treating Medicaid/Medicare patients, there is increased pressure on the hospital to attract privately insured patients, though the broader financial crisis facing the territory is making this difficult.

Kye Walker, chairwoman of JFL’s board of directors, said the hospital took a major hit after Hovensa closed and workers either left the island or lost health insurance benefits. To make up for this, the hospital is trying to claim a share of the estimated $50 million spent by privately insured St. Croix residents on health care off island.

To do this, Griffith has preached the need for JFL to rehabilitate its image so these patients feel more confident seeking treatment here. Part of this process is improving services and getting up to CMS standards, but Griffith has also pushed a number of purely aesthetic reforms in an attempt to make the hospital seem more professional.

In February he organized a volunteer cleanup day during which staff and community members cleaned and repainted the facility. He has also instituted a new uniform policy, which has already been implemented amongst administrative staff and should extend to nurses soon.

The hospital is also hoping to capture more money from its uninsured patients and they’re prepared to use both carrots and sticks to do so.

Bansal said the hospital hoped to increase pressure on those who haven’t paid their bills through their collection agency, but also offer people a way to settle their accounts through amnesty programs, periods of time during which the hospital will offer substantial discounts on old unpaid bills.

The hospital performed such a program in June 2012 and Bansal estimated they collected $300,000 more than they would have without the program.

Walker says people in the community need to better understand that when the hospital doesn’t get paid for its services, cuts have to be made elsewhere.

She said that when a person who is able to pay his or her bill doesn’t, it affects the provision of health care services to another individual. And just how serious is this issue? Walker said the results of JFL’s declining cash flow have already been seen.

Walker cited the closure of the hospital’s mental health unit as an example.

Originally billed as a temporary closure for remodeling, Griffith told senators at the hearing in May that the hospital has no funds to complete the repairs and has no plans to reopen the unit in the near future.

During a board meeting after the latest round of 24 layoffs in April, Bansal said the hospital would not have been able to make payroll in May if those positions hadn’t been terminated.

Hospital leaders are warning of more service and staff cuts if the books can’t be balanced in any other way.

They continue to request assistance from the government to make up for uncompensated care, but if the senators can’t find the funds in the 2014 budget, they and the hospital may have to look for some out-of-the-box solutions to keep the hospital viable.

In the next installment, the Source will begin analyzing some of the plans proposed by senators to restructure the hospital and make it more profitable.

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