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Proposed State Cuts In Health Services

Worrying hospital CEOs

Rural hospitals in Klickitat County and many others across Washington could soon lose millions of dollars in revenues if Gov. Christine Gregoire's proposed budget cuts in health services are approved.

Particularly worrisome to rural hospitals is House Bill 2130. The bill -- which was sponsored by Democratic Representatives Eileen Cody and Ross Hunter by request of the Health Care Authority -- would eliminate cost-based reimbursement for Critical Access Hospitals that rely heavily on Medicaid payments. The Office of the Governor estimates that eliminating these payments will save the state $27.2 million.

The CAH program was created by the Federal Balanced Budget Act of 1997 in order to make sure that rural hospitals were receiving adequate reimbursements from Medicaid and Medicare. In order to qualify for CAH status, the hospital must be located at least 35 miles from another hospital or can be located at least 15 miles from another hospital in mountainous terrain or in areas with only secondary roads.

There are 38 CAHs located throughout Washington including the Klickitat Valley Hospital in Goldendale and Skyline Hospital in White Salmon. Under Governor Gregoire's proposal, both hospitals would be facing cuts.

"This is going to put us in a real difficult position," said Mike Madden, CEO of Skyline Hospital. "It's a bad deal all the way around."

According to the Washington State Hospital Association's Web site, HB 2130's $27.2 million cut would slash Medicaid payments to CAHs in half. However, this bill only addresses the affects state cuts would have on the hospitals. Due to the fact that the federal government matches state funding for these payments, $27.2 million in federal Medicaid money could also disappear. This would bring the total to $54.4 million. Factor in the potential of an additional $15.5 million in state Medicaid managed care payments (which are also federally matched) and the WSHA says that Washington CAHs could be looking at losing $85 million next year.

What does this mean for Klickitat County hospitals? According to the WSHA Web site, Skyline receives 18 percent of its total revenue from Medicaid. If the proposed cuts are enacted, Skyline stands to lose 58 percent of its Medicaid payments, which would be 9 percent of its total payments, totaling a $1.6 million annual loss.

KVH is in an even worse position. The WSHA Web site shows data that 20 percent of KVH's total revenue comes from Medicaid. A whopping 73 percent of its Medicaid payments would be cut, which would be 12 percent of total payments. Dollar-wise, this means an annual $2.3 million loss for the hospital.

John White, CEO and Superintendent of KVH, says he is very concerned about how this will affect his and other facilities' dwindling revenues.

"Hospitals haven't had profit margins in years," he said. "We don't make any money."

Madden concurred and stated that Skyline only collects 65 to 70 percent of what it bills.

Scott Bond, President and CEO of the WSHA wrote in an article on the Washington Healthcare News Web site that 12 hospitals are already in debt, but with the proposed state cuts, "a full 33 of the state's 38 Critical Access Hospitals would operate in the red."

Like the state government, White may soon be forced to make his own difficult cuts to services in order keep KVH operational.

Although nothing has been set in stone, White said KVH may have to close its Golden View Terrace assisted-living facility that currently houses 17 senior residents. He also said that the KVH ambulance, which the hospital contracts out to, would also be cut. Approximately 25 of KVH's 201 employees would lose their jobs, not including the ambulance crews. White also said everyone's salaries (including his own) would be cut by 10 percent and that benefits would most likely be affected as well.

Madden will also likely face some hard decisions. He expects that the Governor's proposed budget will force him to cut 24-30 employees and said the remaining employees would likely face a reduction in salaries and benefits. Services that don't generate revenue, such as the free health classes the hospital currently offers, would be cut. One of the hospital's two staffed ambulances would be put out of service and the six or seven complete full-time crews would be cut to three. Madden warned that this would raise the current response time of the ambulance from an average of 12 minutes to a half-hour. It would also be likely that the ambulance would not be available at school football games.

Although the cuts hurt Skyline, Madden says that he feels lucky and that many other hospitals are in worse shape.

"If these cuts happen," Madden said, "probably about half of CAH hospitals would be in jeopardy of closing."

Opponents of HB 2130 argue that the hospital closures and reductions of staff that would result from the cuts would harm local economies just as much as they would the hospitals.

"Rural hospitals and the clinics and nursing homes they run," Bond wrote, "are often the largest employer in their communities. Making these cuts will lead to people losing family-wage jobs and pain in rural economies."

White agreed and said that KVH is a major employer in Goldendale and injects money into the local economy.

"Rural hospitals purchase much of their goods and services locally," White explained in an email. "Rural hospitals are also major business attractors and the anchor of local economies -- what business wants to locate in a community with no hospital?"

Madden also espoused Skyline's value to the economy, that its payroll is probably one of the highest in the community and workers often turn that money right back over into the local economy. What seems most concerning to Madden, White and other hospital heads is that though the state claims it will save money, the cost-benefit analysis is out of whack.

According to the WSHA, the $27.2 million proposed CAH cuts only amount to a three percent savings out of the state's total Medicaid budget. Madden suspects this may not even save the state money and will put a larger burden on urban hospitals, who will have to take on the patients from rural areas. He offered that most city hospitals don't want these rural low-income patients because they pay less. Transportation cost would also be higher because patients would have to travel longer distances.

"Patients will be in worse shape," Madden advised, "and it will take longer to fix them."

Although Skyline has existed long before it was tapped for CAH status in 2001, Madden said the hospital desperately needs the benefits that this designation brings.

"Before Skyline was named a CAH, it was virtually bankrupt," Madden recalled. "The CFO came in one day and said, 'Tomorrow's payday. We don't have any money."

"If it hadn't been for the cost-based reimbursal," Madden added, "we would not have been able to turn this hospital around. We would have closed in 2002."

A public hearing on HB 2130 was held by the House of Representatives Ways and Means Committee in Olympia on Dec. 2. The hearing was dominated by nurses and hospital administrators speaking out against the bill. White, who was in attendance, said that no one in the audience testified in favor of the bill. It is unknown when the bill would be voted on or what the outcome might be.

"I'm optimistic," said White, "but worried."

Madden was also concerned.

"We're asking everyone to write letters to not just state, but federal politicians," he announced. "We're asking them to please not do this to us."

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