Wednesday, June 6, 2012
Trouble collecting payment for services rendered is a continuing threat to Erlanger at Hutcheson’s financial health.
One year after Erlanger Health System assumed management of Hutcheson Medical Center, now doing business as Erlanger at Hutcheson, the Fort Oglethorpe hospital continues losing about $1 million each month.
Farrell Hays, the hospital’s chief financial officer, said during last week’s hospital board meeting that except for billing and collections, things are markedly improving even though he reported the hospital lost $1.9 million during April. Roger Forgey, hospital CEO and president, said the hospital’s financial condition — while grim — is not dire, and some of those losses exist only on paper.
“The worst is past, we have a handle on the situation and are working toward improvement,” he said. “Our current situation is due to a big, federally mandated billing change that affected all hospitals everywhere. We had accounts that were billable but not collectible. At one point we had about $5 million in collectibles that were tied up, and there is still money out there we haven’t collected yet.”
If the same rate of collections that occurred in the fall had carried over into spring, he said the loss for April could have been between $300,000 and $400,000.
Forgey described the current situation as a temporary cash flow problem and, in a letter to the hospital’s staff, explained how a billing conversion and vendor issues contributed to the loss:
“We were just starting to see movement in the right direction in late 2011,” he wrote. “In October and November the hospital lost about a million dollars a month, but we were starting to show improvement. By January those gains turned to growing losses again.
“When I arrived in February, I discovered that losses were continuing to mount because the hospital was unprepared to adjust to a government mandated billing system change [called HIPPA 5010 Conversion] that had occurred on January 1, 2012. We weren’t alone. Many hospitals across the country fought to adjust to this new program as well, and the billing system issues resulted in insurance reimbursement delays and denials.
“Some hospitals in Georgia borrowed money to meet their cash needs while the bugs were being worked out of this new billing system. Hutcheson has no cash reserves, so we responded by drawing from the credit line we have with Erlanger. Had we been able to collect the dollars we are owed, we would have received about $5 to $6 million more in actual income. That would have substantially improved our situation and decreased the amount of money we had to draw from our line of credit.
“Let me put this into a different perspective so that it will make more sense. Due to these challenges, our overall collection rate has dropped a great deal. If we had booked the same collection percentage for April 2012 as we did for October and November 2011 we would be showing a loss of [$349,497] rather than the $1.7 million reported for EAH.
“Without a doubt, indigent care is a factor in our losses, but not being able to collect the dollars we are earning is even more impactful.”
Problems with updating the hospital’s software to accommodate new billing requirements and an unexpected spike in indigent care costs have also contributed to expenses outpacing revenue. And all this coming as summer, traditionally the season of fewest admissions to the hospital, approaches.
“This has been a perfect storm,” Forgey said. “It is hard to report the biggest loss and at the same time say we are doing better, but that is true. The paper losses are hurtful, but they are not as bad as they seem. Really. The money we have out there should be collected over the next few months.”
After defaulting on a $35 million bond in 2011, Hutcheson turned to Erlanger for help. That help included Erlanger’s pledge to provide administrative assistance and recruit physicians. Perhaps more important in the short term, Erlanger extended a $20 million line of credit to Hutcheson.
Catoosa and Walker counties each committed $10 million to guarantee that line of credit which has been more a lifeline than a life support system for Hutcheson.
Costs have been contained, more doctors are admitting and seeing patients at Hutcheson, and about $9 million of the $20 million remains untouched. Forgey said numbers in every category except admissions are going up, some dramatically, and even admissions are expected to rise in the coming months.
“Rebuilding a hospital takes time,” he said, “time to rebuild trust; time to rebuild physician staffing.
“We originally budgeted to break even in September, but now it looks like that could happen in January or February. Our board and our staff has been incredible, everyone is working together to make it succeed. If we can do that [return to solvency by year’s end], I’ll be ecstatic.”