SOUTH HILL — For the second time in its 60-year history, Community Memorial Healthcenter is looking at a budget this year that’s going to be written in red ink.
The hospital isn’t ready to release those numbers for the fiscal year that ends June 30. “It’s not going to be pretty,” said W. Scott Burnette, its president and chief executive officer.
With an aging population, declining volume and shrinking reimbursements for patient care, Community Memorial is taking the path that many independent hospitals have taken increasingly over the past 20 years — it’s seeking shelter in a much bigger enterprise, the Virginia Commonwealth University Health System.
“It is impossible to be a stand-alone rural hospital depending on Medicare, Medicaid and uninsured patients,” Burnette said in an interview last week.
The affiliation agreement announced earlier this month between Community Memorial and VCU will help the local hospital improve its bottom line and access to quality health care in the region, but it won’t solve the problem of how to make a profit at an institution with patients that are predominantly elderly, poor or uninsured.
For Burnette and other hospital administrators, one obvious solution is for Virginia to accept billions of dollars in federal funds to expand health coverage of uninsured patients, either through Medicaid or a private insurance alternative, under the Affordable Care Act.
“The expansion is real important to hospitals in Virginia,” said Peter F. Bastone, president and chief executive officer of Chesapeake Regional Medical Center, the last remaining Virginia hospital owned by a municipal authority. “We’ve already taken the hit in terms of money to pay for it.”
However, Bastone acknowledged the legitimacy of concerns about the long-term sustainability of Virginia’s $8 billion Medicaid program, now deep in the throes of reforms aimed at reducing its cost and improving its quality of care.
“It’s OK to be socially conscious … and also fiscally responsible,” he said.
Hospitals are on the front line of a pitched legislative battle over expanding coverage under a federal law that is politically unpopular in parts of rural Virginia that need help in paying for care of uninsured people — the working poor, people who have lost their jobs, as well as childless adults who don’t qualify for Medicaid no matter how little money they earn.
“It’s very, very difficult for independent hospitals nationwide, especially in rural areas, given the financial situation in health care,” said Sheryl Garland, vice president of health policy and community relations at VCU.
About 10 percent of the patients at Community Memorial have no insurance. Another 10 percent are covered by Medicaid, and a whopping 67 percent rely on Medicare, the federal health care program primarily for the elderly. Neither of the government programs fully reimburses the cost of care, which is a concern for opponents of expansion.
The hospital is allying with an academic health system that is the biggest health safety-net provider in Virginia. About half the patients at VCU are uninsured or covered by Medicaid. VCU depends on federal and state subsidies to provide a “disproportionate share” of care to the uninsured, but the federal government will begin cutting its share of those payments in 2017 on the premise that expanded Medicaid programs will make the subsidies less necessary.
For VCU and the University of Virginia Medical Center, another major provider of care to the uninsured, the cuts are expected to total $386 million though 2022.
“There is no question the safety-net hospitals are going to struggle,” said Dr. Thomas A. Massaro, a retired pediatrician at U.Va. who teaches health policy at the university’s law school and the Darden School of Business.
The affiliation between Community Memorial and VCU is the latest example of what Massaro called “an irreversible trend toward consolidation” in the state’s health system that began long before passage of the Affordable Care Act in 2010.
The Virginia Hospital & Healthcare Association had about 100 acute care hospitals as members 15 years ago. The number of hospitals stayed the same, but they became part of 75 member health systems. Now, there are 27 member systems.
Hospital officials say the trend is driven in part by hospitals’ need for access to capital and economies of scale, the increased complexity of regulation, technology and accountability for quality care, and a major shift in business model from charging fees for services to people who are ill to taking responsibility for keeping them well and avoiding the need for hospitalization.
In some cases, these changes help drive down inpatient admissions and revenue.
“It’s almost a double whammy … fewer clicks through the turnstiles and less revenue per click,” said J. Kevin K. Holloran, an analyst at Standard & Poor’s, one of three national bond-rating agencies.
Holloran was co-author of an S&P report that changed the outlook for nonprofit health care providers from stable to negative at the end of last year. The report suggests that “the sector is finally at the tipping point — where an increasing number of organizations will find themselves weighed down by issues that outstrip their ability to implement sufficiently robust positive countermeasures.”
The challenges are likely to be greater in states that do not expand their Medicaid programs, according to a report by Fitch Ratings last fall that also underscored the threat to economically struggling areas within those states.
“Hospitals in service areas with higher uninsured rates, lower wealth levels, and higher uncompensated care rates are most likely to experience financial challenges and rating pressure,” Fitch said.
Welcome to Southside Virginia, which has struggled with high unemployment and uninsured rates with the loss or decline of major industries, such as textiles, tobacco and furniture.
Hospitals in Danville and Martinsville have joined LifePoint Hospitals Inc., a national company based in Tennessee. Halifax Regional Health System in South Boston merged with Sentara Healthcare, based in Norfolk, last year.
Elsewhere in rural Virginia, Rappahannock General Hospital in Kilmarnock, on the Northern Neck, announced in February that it will be purchased by Bon Secours Virginia Health System. The same month, the University of Virginia Health System said it will become majority owner of Culpeper Regional Hospital.
“Obviously, community hospitals are challenged,” said Sen. Frank M. Ruff Jr., R-Mecklenburg, who represents South Hill. “We’ve seen them dwindle.”
Ruff welcomed the new affiliation with VCU, which has promised to build a $75 million hospital to replace the aging Community Memorial facility and expand access to specialized physician care in the area.
“The new affiliation will help them over the tough times,” he said.
Ruff does not support the Marketplace Virginia plan the Senate approved to extend health coverage to hundreds of thousands of uninsured Virginians and provide critical revenue to hospitals that are absorbing deep cuts in Medicare reimbursements.
“I don’t see the expansion of Medicaid as it exists today as the right solution,” he said.
The issue has become divisive in communities that rely on hospitals such as Community Memorial, which has more than 800 employees and is the largest private employer in South Hill.
The South Hill Chamber of Commerce wrote a letter in support of the Senate Marketplace Virginia plan, but chamber leaders deferred requests for comment on the issue to town officials.
Mayor Earl Horne praised the VCU affiliation but dodged questions about the insurance coverage issue. “I’m in favor of people getting the health care that is needed,” he said.
Del. Thomas C. Wright Jr., R-Lunenburg, is caught in the middle. He’s part of the Republican majority in the House of Delegates that overwhelmingly opposes any form of Medicaid expansion and favors reforms of the existing program first.
But Wright also recognizes how critical Community Memorial is to the people he represents and the economic vitality of the region.
“In a rural area like ours, the local hospital is more than just a place to get medical services,” he said. “We depend on it as far as being the largest employer in the community. It’s also an economic development tool or driver.”
“The bottom line for me is CMH is very important to the community,” he said. “We have to do anything we can to protect it.”
Burnette said the failure to expand coverage will hurt hospitals and uninsured people who need health insurance for a better quality of life. “Basically, what they’re telling those people is, ‘You’re not important to me. Your quality of life is not important to me,’ ” he said.
For hospitals, the quandary is simple math. They are counting on the addition of federal funds for expanding coverage to offset cuts in Medicare reimbursements under the Affordable Care Act, budget sequestration, and other cuts coming in the next two fiscal years.
Community Memorial faces net Medicare cuts of about $2.7 million next year and $2.9 million in 2016. It projects about $974,000 in new revenue under expansion next year and almost $2 million in 2016, according to the hospital association.
At Chesapeake Regional, expanded coverage would bring an additional $5.6 million in revenue in 2015 and $11.4 million in 2016, partially offsetting Medicare cuts the first year and resulting in a net gain of $2.6 million in the second.
The hospital is not nearly as reliant as Community on Medicare and Medicaid, which account for about 51 percent of the patient mix. About 7 percent of patients are uninsured.
Stephen Rodriguez, secretary of the Chesapeake Hospital Authority, still is not convinced that expanding Medicaid will help the hospital financially because the program doesn’t come close to paying the full cost of care.
“From a profit perspective, I don’t see it as a gain,” Rodriguez said. “From an ability to help those in need, it is a gain.”
Bastone has a different take. “If they have Medicaid coverage, we may lose, but we don’t lose as much,” he said. “It will contribute something.”
Without the federal money for expanded coverage, hospital administrators warn that efforts to revitalize rural hospitals could be undermined.
Bill Downey, CEO of the Riverside Health System in Newport News, told the Senate Finance Committee that failure to expand Medicaid in some fashion could threaten the planned replacement of the aged Shore Memorial Hospital in Nassawadox. The hospital merged with the health system in 2009.
“It is not only a health issue; it’s an economic and jobs issue,” Downey said at a hearing April 1 on the proposed Senate budget.