The Union Hospital District incurred approximately $6 million in write offs in the first eight months of fiscal 2011-2012 due to the inability of unemployed patients to pay for the medical care they received during that time.
In his monthly report to the Union Hospital District Board of Trustees, CFO Richard Hogan stated that in the month of May, the district as a whole lost $281,912. Hogan stated that Wallace Thomson Hospital lost $276,000 in May while Carolinas Health Associates lost $221,000. Ellen Sagar Nursing Home, however, showed a profit of $209,000 in May while the Union County EMS showed a profit of $6,300.
The district’s fiscal year runs from Oct. 1-Sept. 30 and Hogan said that as of May 31, the district had lost approximately $1.5 million. Wallace Thomson showed a year-to-day profit of $185,000 while Ellen Sagar showed a profit of $418,000. The Union County EMS showed a loss of $137,000 and Carolinas Health Associates showed a loss of $2 million.
Hogan said that Thursday that as of May 31, the district had written off $6 million in bad debt for the first eight months of the fiscal year. He said the district incurred this bad debt by providing medical services to patients who were unable to pay. Hogan attributed this to the high level of unemployment in Union County which has left many patients unable to pay for medical services they receive at Wallace Thomson, at the Carolinas Health Associates clinics, and through EMS. While the district always incurs a certain amount of bad debt each year due to indigent care, Hogan said this year has seen a dramatic increase in the percentage of bad debt versus patient revenue.
“The biggest issue facing us is increasing bad debt write-off due to unemployment,” Hogan said. “For the first eight months of this year we had bad debt write-offs totalling $6 million. That amounts roughly to 6.5 percent of our gross patient service revenue. That’s up from approximately 4 percent the prior year. We attribute this primarily to the high unemployment rate in the county.”
In May, Union County’s unemployment rate stood at 14.3 percent, up from 13.5 percent in April. May was the first time the county’s unemployment rate had increased since January when it hit a post holiday season high of 15.3 percent.
Hogan added that had the district’s bad debt write off as of May 31 been the same as it was the same time the previous year, the district would have been in a break even position.
“If our bad debt write off had been roughly equivalent to the same percentage as the previous year, then the district would be at break even for the first eight months of the year,” Hogan said.
CEO Tim Merritt pointed out that if someone comes to the hospital emergency room, or calls EMS for transport, or goes to one of the CHA clinics seeking medical treatment, they receive it regardless of whether or not they can pay for those services.
“We have an emergency room and people can walk in and we take care of them, regardless of their ability to pay,” Merrit said. “Unemployment has left many people without insurance but they still have to have health care and we provide them with it.”
Hogan said this is especially true of the emergency room and EMS and to lesser degree of the CHA clinics.
“This is absolutely true for the emergency room and EMS,” Hogan said. “If a patient requests services from either of those we have to provide them regardless of the patient’s ability to pay. With the physicians’ clinics it’s slight different, because those services are neither urgent nor emergent, and the law doesn’t require us to provide those services in each case. However, we do provide a significant amount of charity care services through our physicians’s clinics.”
The district has also experienced a $500,000 increase in labor costs due to the implementation of a full integrated information system at Wallace Thomson. The district is implementing the new system in advance of an expected federal mandate that will require hospitals to switch to a largely paperless electronic medical record system.The implementation of the system is projected to cost the district $3.5 million.
“The other issue we’ve been dealing with is the computer systems conversion which has been costly,” Hogan said. “The conversion has caused an increase in our man-hours and a corresponding increase in labor costs.”
Merritt said the increase in costs has been due to the staff training on the new system for the past year. Hogan said that once staff has completed this training and becomes fully familiar with the system, the additional personnel costs will decrease.
“The $500,000 increased labor costs represents costs that will gradually decrease as staff becomes more effective at using the new system,” Hogan said. “As we improve our utilization of the new system our labor costs will begin to come back down.”
Union County has issued a $2 million bond to help pay for the implementation of the new system. While the district will repay this with federal incentive funds, it is seeking a line of credit to deal with the costs of the conversion as well as the costs of establishing an in-house billing and collection system for the CHA clinics. Currently, the district contracts the clinics’ billing and collection services to an outside agency, but Hogan said the company’s performance has not been satisfactory. To rectify this, the district is in the process of setting up the in-house billing and collections system which will require an upfront capital investment of $250,000 and operating costs of $300,000 a year.
To pay for the cost of the conversion process and the setting up of the billing and collection service, the district is seeking a line of credit of between $3.5 million and $7 million from MidCap Financial, LLC, a health care specialty lender that focuses primarily on providing financing for community hospitals. The exact amount of the line of credit obtained and how much is used will depend on the final cost of the development of the billing and collection service and how much the computer conversion impacts the district’s cash flow.
Hogan described the line of a credit as a “revolver” on which the district will not be required to repay the principal for 24 months but will make monthly interest payments on. The interest payments will be 6 percent per annum of the amount borrowed and the payments will be made out of operating revenue.