Financial problems for the Regional Medical Center at Memphis — The Med — started last November, according to the hospital’s president and CEO, Dr. Bruce Steinhauer. It was then that the hospital began seeing a dramatic increase in uninsured patients and a decrease in service repayments. In the midst of a sagging economy, enrollees were being dropped from TennCare — Tennessee’s health-care program for the poor, uninsured, and uninsurable — during a reverification process begun in July 2002. By March of this year, 25 percent of the hospital’s rolls consisted of uninsured patients, accounting for 32 percent of its health-care costs.
The situation at the hospital has now become a crisis, causing an outpouring of support from state legislators, hospital administrators, patients, and even taxpayers who recognize the importance of the 174-year-old hospital. With six centers of excellence in specialized care (including the Mid-South’s only trauma unit), a newborn intensive-care unit, and a wound-care unit, The Med’s services are unmatched. In the past few months legislators have lobbied for bills, hospital staff members have cut costs, and requests have been made to government officials, all to ease the hospital’s budget deficit, which has reached more than $15 million. “The problem is clearly changes in the environment in which we are in,” said Steinhauer. “[The amount of uninsured patients] has added up to millions of dollars in debt. We can’t save our way out of this. We need help.”
Helping Others, Hurting Themselves
Financial experts need not worry about persuading Paul and Sarah Lowe about The Med’s importance. Five years ago, their son Stephen was airlifted to the hospital’s Elvis Presley Memorial Trauma Center. On December 19, 1997, while on the way to lunch with a group of friends, another driver ran a stop sign and crashed into Stephen’s truck, pinning his 6’4″ frame between the dashboard and steering wheel. The Bolton High School student was declared brain dead five days later, on Christmas Eve.
While the loss of their son has been hard, the Lowes appreciate the importance of The Med. “We didn’t even know where they had taken [Stephen] when it first happened,” said Sarah Lowe. “Once at The Med, our son received excellent care. Not only did they take care of him, but they also took care of [me and Paul]. That is a great hospital and we just can’t lose it.”
This latest round of financial troubles is nothing new for The Med. In 1994, a financial crisis caused by TennCare’s implementation left the hospital with a $3.8 million deficit, forcing a layoff of employees and a reduction in the number of patient beds. The current situation is much grimmer. The deficit is five times as much as it was in 1994 and the hospital could be out of money in two months. The facility — which needs $750,000 to operate each day and more than $3 million in payroll every two weeks — has just seven days worth of operating expenses on hand.
“This community cannot exist without The Med,” said Methodist Healthcare president Gary Shorb. “If [the legislature’s] got a list of priorities, put The Med’s above ours, because it’s that important that they survive. We could not do what they do with the trauma center, burn center, jail services. There’s no way any [health-care] provider in town can do that.”
Doing those things is partly to blame for the hospital’s current situation. Over the years The Med has garnered the label of Shelby County’s “charity hospital.” It cares for the majority of the county’s indigent patients, regardless of their ability to pay. County taxpayers fund $31 million of the hospital’s $250 million annual budget.
On the state level, the large amount of unreimbursed care equates to millions of dollars of federal funding. The money is shared with six other Tennessee hospitals (including Vanderbilt University Hospital and Erlanger Medical Center), called “safety-net” hospitals, that provide similar indigent care. Local hospital administrators and legislators have requested that Governor Phil Bredesen release half of those funds to The Med. Bredesen has in turn asked hospital administrators to first submit solutions for long-term financial solvency. This year, The Med has received $6 million of a promised $12 million from those funds. It is the only safety-net hospital serving the Mid-South, with the next closest facility, Metropolitan Nashville General Hospital, 206 miles away.
“Shelby County is different from a lot of places because we have a lot of poor people here,” said Steinhauer. “With corporate layoffs and other things, there are a lot of people who just don’t have insurance anymore.”
When finances took a downturn, Steinhauer and his hospital staff made some profound discoveries regarding their clients. An assessment of patients revealed more than 60 self-pay patients each day — those who either had been expunged from TennCare or had no other form of insurance — who used more than $4 million in health-care services. With ailments including congestive heart failure, AIDS, tuberculosis, and gun and knife wounds, the patients had come to the right place, but the hospital was left to absorb the costs. “One of the biggest problems with no-pay patients is that the majority of them that are trauma patients cannot go from The Med to home; they need intermediate care. It’s been difficult to find accommodations for them, which leads to the high number of days here,” said Steinhauer. The study found that patients requiring orthopedic services only remained at the hospital an average of one day, while some high-end trauma patients required an average hospital stay of 240 days.
“I don’t think the hospital’s reputation has suffered from our financial problems becoming public,” Steinhauer added. “I think the truth makes you free, and it has resulted in a lot of people being supportive of The Med. Most people realize what the problem is and they’re not blaming it on us. We run a fairly efficient hospital and most people know that.”
The TennCare Debate
At the center of The Med’s financial distress is TennCare. Whether discussing higher numbers of uninsured patients, delayed funding, or increased health-care costs, the state’s insurance program always comes up. It’s an insurance plan for the poor, and The Med, a hospital serving the poor, is directly affected.
As TennCare began its reverification process last year, more than 166,000 people were dropped from its rolls because they no longer qualified for the program or because they failed to respond to the agency. Since then, those dropped have been granted a grace period — until March 31, 2004 — to renew their coverage. Even so, many Tennesseans do not qualify for the program and are left with no coverage.
“It used to be that a patient would come in with an injury or illness that would make them uninsurable and TennCare would get those people on its rolls,” said Steinhauer. “From a hospital’s viewpoint it was a good thing. From TennCare’s it was not. But it was one way in which the state saved hospitals like us. Now that’s very difficult to do.”
While the problems are more evident at hospitals like The Med, TennCare restrictions and low reimbursement rates for services are even affecting private hospitals like Methodist Healthcare. Although Methodist can somewhat subsidize its costs of care for TennCare and uninsured patients with revenues from private insurers, it too has experienced some financial strain. “We’re doing 14,000 TennCare discharges at Tennessee hospitals [each year] and need to get the reimbursement right. We want to continue to serve the population, but we can’t do it and end up where The Med is now,” said Shorb.
While many of The Med’s problems are related to TennCare, program director Manny Martins said the hospital cannot use the program as a lifesaver. “We want to do what we can to help The Med within our budgetary limits, but it’s incumbent on management of The Med to realize that TennCare and essential access payments are not the sustainable answers surrounding safety-net hospitals,” he said. “The fact is that the state has what it has in terms of finances. Part of the problem with TennCare has been the use of money over a period of time that the program really didn’t have.”
“I absolutely think the reciprocal,” said Steinhauer. “TennCare can no longer think of The Med as something to bail it out. It costs us more to provide TennCare services than we are paid by TennCare, so in any sense of the word TennCare is using us to bail them out.”
But TennCare has its own problems to solve before it can pass on savings to The Med. A recent state audit of the year ended June 30, 2002, revealed several long-standing problems that have not been addressed by the program’s administration. “From [TennCare’s] inception it has had two problems,” said Methodist Healthcare’s corporate affairs vice president, Cato Johnson. (Johnson serves on the TennCare Advisory committee created last year by the general assembly.) “The first problem was that it was underfunded, and the second problem is a lack of oversight.”
Martins, who took over the program in July, says TennCare’s problems are a symptom of a larger problem: “a lack of a good strong management infrastructure.” He adds, “That lack presents itself by things not being done accurately and appropriately and things not being followed up on.”
The state attorney general’s office estimates that there are 10 pending lawsuits involving TennCare. Three of the lawsuits have influenced the way the program pays its providers and the coverage it provides. The 1998 John B. v. Menke class-action lawsuit charges the program with denying early screening, diagnosis, and treatment for TennCare children and children in state custody. After agreeing to provide the services, TennCare was found to be still in violation of the agreement in 2001. Program administrators were to work with an appointed special master to develop a plan for compliance. A second case filed in 1998 revised TennCare’s termination process of people on its rolls. Negotiations eventually led to the court requiring TennCare to grant the year-long grace period for enrollee reinstatement.
A third case, filed in 1999 on behalf of Medicaid enrollees, has directly affected prescription and pharmacy costs. The lawsuit originally covered enrollees who were not given the opportunity for appeal if the Medicaid program refused to pay for healthcare services. Appeal rights were expanded by a 2000 consent decree providing enrollees a 14-day supply of a medication during their appeal process. According to Martins, the Grier Consent Decree has had an adverse effect on program costs. “The state is unable to do some things that other states have done in an effective way, like develop preferred drug lists and enhanced rebates to try to streamline the cost of the program,” he said. “We can reduce costs that way without it affecting the quality of care to our clients and our [health-care providers].”
Getting By
Mild scarring is still visible at the end of Dan Harshbarger’s knee. Luckily, the pain is gone, his residual limb has healed, and with the help of a below-the-knee prosthesis, he’s almost as good as new. Harshbarger, a Med patient, was working at Federal Express when a plane got loose from its tether and began rolling up his right leg. He was thrown to the ground with the plane resting on his leg below his knee.
After an initial attempt at wearing a prosthesis failed, Harshbarger was sent to The Med’s Firefighters Regional Burn Center and Dr. Stephen King to undergo new skin-grafting techniques. King has worked with the burn unit since 1991 and took over as its medical director more than a year ago. “We’re a 14-bed unit and the only burn center in 150 miles,” he said. “We recommend what we think is best for the patient, but they always have the final say. You’d be surprised by how many of our patients tell us how their quality of life has improved [after going through procedures here].”
Specialized care has been a part of The Med’s history since its opening. While none of the hospital’s programs has had to be cut yet, administrators are considering options to reduce costs, including layoffs. Shelby County mayor A C Wharton recently called for a collaborative review by the health department and the hospital to prepare a contingency plan in a worst-case scenario — of continually declining revenues and a reduction of services. “We don’t have many nonessential programs. You need the trauma center; you need [obstetrics]; you need the nursery; and you need a prison unit,” said Steinhauer. “I go over those things every day and try to decide what is not needed and can’t come up with a single thing that can be done away with.”
Spurred by Governor Bredesen’s proposed budget, which calls for a 9 percent decrease in spending across the board by state agencies, Med administrators plan to reduce spending by $6 to $8 million. Those cuts will come from reducing overtime pay for hospital staff, possibly decreasing the number of employees, and reducing supply and equipment costs. A concerted bill-collection effort within the past two months has netted the hospital almost $2 million in outstanding bills. To control supply costs, the hospital has entered into a purchasing coalition with Methodist Healthcare to receive discounts on some items.
For The Med’s financial situation to improve, these savings measures must be accompanied by higher revenues. One piece of tort reform legislation, proposed by state Senator John Ford and state Representative Kathryn Bowers, was put off last week after successfully passing through both chambers. The bill would place a limit on the amount of compensation available to victims of medical malpractice, and updates the Governmental Tort Liability Act. It would designate The Med as a “governmental entity,” the same classification as school and utility districts that receive funding from county government. The bill adds hospitals in counties with a population of more than 800,000, whose boards of directors are appointed or elected by the county legislative body, and that use or lease property from the county. Inclusion in the “governmental entity” classification would limit liability claims against The Med to $250,000. Steinhauer estimates that passage of this bill would save The Med $2.5 million each year. The bill was sidelined last week by an amendment to limit the “governmental entity” to a three-year classification. A decision is expected early this week.
Also at issue is the hospital’s service to residents of surrounding counties in Mississippi and Arkansas. As the only trauma, burn, and critical-care unit in a 150-mile radius, The Med sees many out-of-state, indigent patients. The daily self/no-pay patient study included 14 other-state residents of the 60 surveyed — from nine Arkansas and four Mississippi counties. Legislators from both of those states have pledged reimbursement for health-care services, but actual transactions have been slow, with payment amounts well below actual costs.
Although The Med has received short-term reprieves to temporarily stabilize its funding problems, the crisis could arise again in July, the beginning of another fiscal year. Buffeted by TennCare’s instability, questionable reimbursement from neighboring states, and a foundering economy, the hospital is still in trouble. But Steinhauer is somewhat optimistic. “I think things will turn around by early fall,” he said. “If they don’t, we’ll have the cash crisis again. We’re not going to let ourselves get distracted from our main mission, which is to continue to take care of patients. We’ve got a good track record of doing that. We’ve got to be like the Japanese industries after World War II and consistently try to improve our product. The fundamentals have to improve — and that’s what we’re working on.”
