NVH seeks ways to deal with Assisted Living costs

TONASKET – When North Valley Hospital CEO Linda Michel, CFO Helen Verhasselt and the Board of Commissioners tried to find data for a time when running the Assisted Living facility was profitable, it turned out there was no such data for any time within the last seven years.

As Chief Financial Officer Verhasselt discussed at the Thursday, Nov. 29 Board of Commissioners meeting, and Michel detailed further in an interview several days later, any answers to getting Assisted Living into the black won’t come from looking at the past.

But if past precedent doesn’t offer any answers, the future is murky thanks to such things as budget cuts that may or may not come thanks to the sequestration (the “fiscal cliff”), additional cuts likely to come through the implementation of the Patient Protection and Affordable Care Act (a.k.a. “Obamacare”); and further cuts contained in the Jobs Creation Act.

“We are not saying that we’re closing,” Michel said. “But we are asking the community if anyone has any ideas. We’re in the middle of it. We see it every day, and maybe someone from the outside can see things more clearly than we can.

“We need to do something quickly, though.”

The past

As detailed in letter accompanying this article from the NVH Assisted Living Committee, the Assisted Living facility has lost about $100,000 or more for all but one of the last seven years, and this year’s anticipated loss of nearly $200,000 more than makes up for the relatively good year of 2011, which saw it “only” $56,000 in the red.

Nearly all of the patients in Assisted Living are Medicare patients, meaning that NVH is reimbursed a fixed amount for each day of residency. That amount – $59 to $60 per day – is far less than what is required to run the facility, which has fluctuated between $80 and $100 per patient per day depending on how many beds are filled.

Even if it was filled to capacity — which it is not — Assisted Living as it is currently set up has no way to break even.

What lies ahead

One way or another, budget cuts are coming that will have a direct effect on North Valley Hospital, although in not all cases is it clear what cuts will affect whom.

  • Through this year, the hospital has been able to write off 100 percent of its bad debt and charity care. Beginning in 2013, it will only be able to write off 88 percent of those expenses on their cost report, meaning lower reimbursements from Medicare;
  • Critical Access Hospitals will see a one percent drop in Medicare reimbursements in 2013 as one of the effects of Obamacare;
  • If Congress chooses to “go off the fiscal cliff” that will mean another two percent cut to Medicare reimbursements;
  • Cuts to Medicare are matched by cuts to Medicaid.

The net effect is that Assisted Living will receive less direct funding through those reimbursements, and the profitable divisions of NVH will be less able to support the non-profitable divisions such as Assisted Living.

“They’re kind of vague about those (Obamacare) cuts,” Michel said. “So we don’t that the Medicaid cut would affect Assisted Living. But they will affect our revenue-producing departments that are supporting that business.

“A three percent cut — we don’t know, it could be more that. You cannot decipher those pages of Obamacare. That’s what we use the American Hospital Association for, and they are going through those and trying to figure out what kind of impact it will have on Critical Access Hospitals. We do know that we can’t continue to do business the way we have been.”

The board also expressed no desire to close the facility.

“Most of these Medicaid patients have nowhere else to go,” said commissioner Lael Duncan. “If it closed down, they’d be out on the street. There’s got to be a way to build some energy around that. There must be some way to bring the situation to light. We’re not the only ones in the county having this problem.”

Even with bringing pressure to bear on legislators, additional government funding may not be forthcoming given the current pressures on state and federal budgets.

“So much is up in the air,” Verhasselt said. “We have to set our budget ahead of time. But (Congress) can change mid-year. It probably won’t get better. If anything, it will get worse. With all the rules and regulations, we actually need to add staff. There is nowhere else to cut.”

Assisted Living Committee requests input

To the Communities of Okanogan County:

North Valley Hospital Assisted Living continues to struggle to be financially viable. We have put together a team to evaluate the Assisted Living Facility and make recommendations regarding its future to the Board of Commissioners. In an effort to solicit assistance from the community, the North Valley Assisted Living Team would like to share our current findings and challenges with you.

We began by reviewing the historical data from the Assisted Living for the last seven years. We were hoping to find a time of profitability in the past, so that we might take that data and apply it to today’s business model. Unfortunately, we found the following:

Table 1:

Year                 (Loss)
2006              ($112,601)
2007              ($111,081)
2008              ($116,581)
2009               ($99,877)
2010              ($126,826)
2011                ($56,640)
2012**           ($197,702)
** Annualized

As you can see by the information above in Table 1, the Assisted Living has historically operated at a loss. It s not just the lack of residents that affects this deficit, but also the payments the Assisted Living receives from Medicaid. It does not matter what the set monthly charge is: Medicaid pays us $59 to $60 (per resident) per day, and we have to write off the rest (called “contractuals.”)

Table 2

Year Avg.      Residents*      Cost/Day/Resident
2006                 26.04                   $82.47
2007                 25.17                   $90.65
2008                 27.12                   $91.15
2009                 26.57                   $92.05
2010                 26.68                   $86.99
2011**             23.70                   $99.66
*Total possible resident rooms = 32
** Annualized

$59 to $60 a day sounds like a lot when totaled for a month but consider this: with the current resident average of 24, it costs $99.96 per resident per day to provide care, food and housing. We have done everything possible to contain our cost per day per resident and according to Table 2 above have done well in this area.

However, even at full capacity (32 residents) the cost per patient per day would be $74.97. Considering this information, and our average resident occupancy, it is easy to see why we have experienced a loss these past seven years.

The economics of the county has an effect on all our lines of business, but especially the Assisted Living. We have a large population in the county that depends on Medicaid for their health care needs. A small number of the Assisted Living residents are self-pay, which affords us a slightly higher financial benefit than Medicaid residents. However, due to the economic situation as well as the historical data of residents in the Assisted Living, we do not ever expect to have a larger number of self-pay residents.

We have considered selling to a private company but have been told be several that due to the history of loss in Assisted Living it would be a bad investment for a private company. We cannot sustain services that are not profitable, continue to pay our debts and have financially viable hospital services for our communities. We are taking the small amount of money we make on other services to cover the lines of business that are not making money such as Assisted Living.

The Assisted Living Committee asks for your suggestions on how to sustain this service for the communities we serve. While we do not expect to make money we would expect to at least break even.

We invite you to call Linda Michel at (509) 486-3160 with any suggestions or points of discussion regarding the profitability of this service. Your help is needed!

                                                                                        The North Valley Assisted Living Committee
                                                                                        Linda Michel, CEO, North Valley Hospital
                                                                                        Linda Holden, Long Term Care Senior Leader
                                                                                        Jana Symonds, PFS Senior Leader
                                                                                        Helen Verhasselt, CFO
                                                                                         Jan Gonzales, Human Resources Senior Leader
                                                                                         Clarice Nelson, Board of Commissioners
                                                                                         Lael Duncan, Board of Commissioners