The cost of keeping a rural hospital healthy

Medicare, Medicaid shortchange Yampa Valley Medical Center millions of dollars

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— When it comes to funding hospitals, the federal government may be trying to fit many different square pegs in one round hole.

Medicare and Medicaid continue to shortchange hospitals, which, in 2000, added significantly to Colorado hospitals' unpaid charges, according to a study released by the Colorado Health and Hospital Association in January.

Rural hospitals, like Yampa Valley Medical Center, took the biggest blow from government shortfalls.

Medicare accounted for $3.5 million lost in unpaid hospital charges and Medicaid accounted for almost $761,000 in unpaid hospital charges at Yampa Valley Medical Center in 2000, according to the study.

"The federal rates are basically 'one size fits all,'" said Bob White, Routt County Human Resources Director. "One size doesn't fit all."

White oversees the county's Medicaid program, which receives $350,000 to $500,000 monthly and $4 million annually from the state of Colorado and the federal government.

State and the federal contribute the same amount for Medicaid, a program that finances health care and long-term care for low-income people.

Medicare, a federal program, provides health insurance for people 65 and older and certain disabled persons.

Federal law mandates that hospital charges must be the same for all patients for the same service. What a hospital actually collects, however, can be quite different.

While most insurance companies pay a certain percentage of those charges, Medicare and Medicaid pay a flat rate, said Frank May, chief financial officer for Yampa Valley Medical Center.

"From the standpoint of what the funding is, it's just not keeping up," May said.

Under-funded charges are complicated by the fact that indirect costs, such as housekeeping and administration, are not adequately covered, he said.

According to the study, Yampa Valley Medical Center lost $2.5 million in the unpaid costs of Medicare and almost $297,000 in the unpaid costs of Medicaid in 2000.

Larger hospitals fare somewhat better with Medicare and Medicaid funding because they deal with a larger patient base and medical staff and expanded programs, said Peg O'Keefe, vice president for public affairs and education at the Colorado Health and Hospital Association.

"In a lot of cases, a rural facility will get reimbursed less because the costs are determined to be higher at a metro facility," May said.

The federal government may determine the cost of living to be higher in an urban center than a more rural area, he said.

"When we are required to do the same things as a 300-bed hospital in Denver and maintain those same levels of care, it does become harder to cover those costs," May said.

Medicare reimburses hospitals by paying a fixed amount for each of 511 categories of illness.

These "diagnostic-related groups" should theoretically even out the cost of care for patients whose illnesses require fewer resources and patients who illnesses require greater resources.

The theory has unfortunately not worked out in practice, O'Keefe said.

"It is based on a formula that counts on averages averaging out," she said.

In smaller hospitals, she said, just a few patients with severe needs can tip that scale.

The effects of under-funded Medicare and Medicaid programs trickle down to local businesses that must deal with the costs passed on to paying patients.

O'Keefe said businesses have begun to express their concern to the federal government, saying the federal government "can't promise programs it can't finance."

Every hospital, she said, regardless of its structure, must be able to maintain a bottom line that allows it to pay its shareholders and taxes, and put resources into infrastructure and the community.

"Increasingly, hospitals are having difficulty in making that bottom line," said Karl Gills, Chief Executive Officer of Yampa Valley Medical Center.

Rural hospitals face many of the same challenges as urban hospitals, he said, but Yampa Valley Medical Center boasts a large staff for a small community, an amenity not enjoyed by other rural hospitals.

The hospital continues to maintain its bottom line, Gills said, thanks to contributions from the community and interest income on its investments.

Its 2000 operating loss stemmed not only from government under-funding, but also from uncompensated care, which includes charity and bad debt, he said.

"Neither of those plans (Medi-care and Medicaid) cover the cost of delivering care to the patients in the acute setting," Gills said.

Yampa Valley Medical Center handled almost $6.5 million in losses when $2.2 million in uncompensated care was added to government shortfalls, according to the CHA study.

Charity care results when hospitals provide care for people who do not have the means to pay, such as those in the Colorado Indigent Care Program.

Bad debt occurs when hospitals expect people can pay at the time they receive care, but financial circumstances, such as the loss of insurance, prevents them from paying.

May said the hospital has seen charity care increase, and he expects it to increase in the future.

"It does force us to be as efficient as we can," May said.

The construction of a new facility created some debt for Yampa Valley Medical Center, Gills said, but the hospital anticipated that debt increase.

The expansion came at a price, he said, but the hospital needed to grow in order to continue investing in its employees and building new programs.

When the 2001 CHA report comes out next year, he said, the hospital's operating side would be in a better position than 2000.

As a nonprofit institution, Yampa Valley Medical Center gets no tax support. Its revenue stems from the services it provides and any contributions or interest on its investments.

The only option for increasing revenue to offset its losses comes by expanding its services or increasing its prices.

Yampa Valley Medical Center will continue to minimize its price increases, but it will certainly maximize its growth potential to meet the needs of Steamboat Springs, Gills said.

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