Central Peninsula Hospital ends fiscal year with approximately 93% decline in net income

Central Peninsula Hospital saw a sharp decrease in its net income in the last year, but the hospital administration says the trend is already turning around.

In the third quarter of fiscal year 2017, Central Peninsula Hospital reported an approximately 91 percent drop in its income. That trend continued into the fourth quarter — up through June 30, 2017, the hospital brought in approximately $1.5 million in net income, as compared to approximately $24 million in the previous year, according to an update from Central Peninsula Hospital CEO Rick Davis presented to the Kenai Peninsula Borough Assembly on Aug. 15.

It doesn’t mean disaster for the hospital. The board of Central Peninsula General Hospital Inc., the nonprofit entity that operates the hospital under contract from the borough, anticipated the revenue drop, and it’s not all due to fewer people using the hospital, Davis explained.

The hospital updated its electronic health record system to meet requirements in the Affordable Care Act, an expensive IT update that was partially paid for by the federal government. The reimbursement from the federal government was reflected in the hospital’s net income and was a one-time payment, pushing up the numbers for that year. It had other effects as well, Davis said.

“As you remember, we had an electronic health record transition that started in September,” he said. “We had about six to eight weeks in which we weren’t able to bill a lot of our supplies, so we ended up losing quite a bit of revenue during that process.”

Patient volumes are down, which Davis attributed in part to patients choosing not to use the health care system as much because their deductibles and copays are now higher and more people may not have insurance due to job losses.

However, the biggest contributor is declining reimbursements from the Center for Medicare and Medicaid Services for patients on Medicare and from the state of Alaska for Medicaid patients, Davis said. Reimbursement rates for patients on public insurance policies is always lower than private insurance companies, but in recent years, it has declined, leaving the hospital to either raise prices or find other places to make up for the declines.

“Medicaid, we just took a 5 percent deduction for this year,” he said. “Medicaid’s been flat now for three years. And the physicians are taking a 12 percent decrease effective July 1. Medicare is stingy — the health insurance plans are getting more aggressive on their discounts and making it more difficult for patients to get procedures authorized and pre-certified, so we’ve got a lot of pressures on us. But we’re responding accordingly and things are turning around for us.”

Charity care and bad debt at the hospital — lumped into a category called uncompensated care, which is when the hospital provides services and patients cannot pay, leaving the hospital with the bills — have declined in the past two years, in large part because of the state’s expansion of Medicaid. Between fiscal year 2016 and 2017, charity care and bad debt at the hospital fell nearly 40 percent. Since fiscal year 2014, that number has fallen more than half, from a high of about $20.5 million, according to Davis’ report.

The hospital is also in the midst of several expansion projects. At the beginning of August, the hospital’s medical detox facility opened in Soldotna, with a planned opening for a transitional living facility for those who come out of the Serenity House 30-day substance abuse recovery program planned this fall.

The biggest project is the planned renovation of the hospital’s obstetrics and gynecology wing and the construction of a new catheterization lab. The project, estimated at approximately $40 million, will be funded by bonds approved by the borough assembly in October 2016. Davis said the state has deemed the hospital’s application for a Certificate of Need, a document allowing the hospital to move forward with a medical facility expansion, as complete and plans to hold a public hearing on the issuance on Sept. 7 at 4:30 p.m. at the hospital.

Some commenters at the assembly meetings have expressed concern about the hospital’s capital projects amid a tightening health care industry and the downturn in net income. Assembly member Paul Fischer asked Davis at the meeting if the hospital administration planned to ask for an increase in the Central Kenai Peninsula Hospital Service Area mill rate if the downward trend continues.

Davis said the hospital administration had no plans to ask for a mill rate increase. The hospital put cash back into its Plant Replacement and Expansion Fund and saw an approximately 8 percent increase in its cash on hand in the last fiscal year, he said.

“The trend has turned around already,” he said. “… We’re still doing fine. We’re not anywhere near that.”

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.

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