Increased bad debts, charity care, cuts in Medicare reimbursements and rising salary costs affected Lawrence Memorial Hospital's operating income in 1998.
Lawrence Memorial Hospital on Wednesday reported a $1.13 million loss in 1998 -- due in large part to about $4.8 million in unpaid debts and an 18.4 percent increase in expenses.
The numbers, discussed during an audit review at Wednesday's monthly board meeting, don't signal financially hard times for the hospital, auditors and LMH administrators said. But there are changes in store because of the bad debts, lower Medicare reimbursements and charity care write-offs.
The $4.8 million in bad debt -- a $2.48 million increase from 1997 -- refers to patient and other bills that remain unpaid. That doesn't mean, however, that the hospital will not recover some of the money, said Gene Meyer, LMH president and chief executive officer.
With a new chief financial officer on board -- Simon Scholtz started in March -- the hospital plans to be more aggressive in pursuing past due accounts. That includes sending late-bill notifications sooner and more often, and working with insurance companies to resolve confusion over covered treatments. Meyer didn't have an estimate on how much the hospital could benefit from the efforts.
Meyer said the actual bad debt hasn't doubled, but that the hospital did an extensive search of accounts and has classified many more as bad debt.
"It was felt those hadn't been allocated as an expense before, but it was necessary to do that this year," Meyer said. "When you reserve an amount for bad debt, many times it's an estimated amount that comes from a thorough, comprehensive review of the accounts out there. As a result of problems this organization has experienced in our collection efforts over the years, this is a time where we're saying, 'Whoa, let's catch up.' We want the accounts on our books to accurately reflect that."
Auditors with Baird, Kurtz & Dobson also pointed to three other significant factors affecting the declining 1998 operating income: salary increases, charity care and the federal Balanced Budget Act.
Salaries, which accounted for about half of the hospital's $57.8 million in operating expenses last year, increased $3.19 million. Meyer said increased hospital visits, most notably in the radiology and emergency departments, as well as additional manpower in the Management Information Systems to prepare for the "Y2K" computer, necessitated new hires.
Charity care in 1998 grew to $962,000, an increase of 161 percent over the prior year. Charity care refers to procedures for patients who meet federally set poverty guidelines and who can't pay for needed medical care. By law, the hospital is required to accept patients regardless of ability to pay.
Bad debt and charity care are different in that bad debtors usually can pay, but don't, Meyer said.
The Balanced Budget Act of 1997 marks the most significant change to Medicare since the system was created in 1966, said auditor Phil Brummel.
Congress passed the act to cut the federal budget over a period of five years, and it includes $116 billion in Medicare cuts over the next five years.
Meyer said the effect on LMH alone is estimated at $4.7 million -- of which $750,000 came from the 1998 budget.
Meyer said next year's cuts will be bigger, because Medicare reimbursements for the Skilled Nursing Facility and outpatient rehabilitation services also will shrink.
Despite the shortfalls, the hospital saw an increase of 7.7 percent in patient days and an increase from $49.41 million to $54.98 million in net patient service revenue. Meyer said those increases are unusual.
"As CEO of the hospital, I'm very sensitive to any kind of loss that occurs, as well I should be," Meyer said. "But I believe you'll see in this year's financial statements a truer indication of our bad debt and charity care expenses."
-- Chris Koger's phone message number is 832-7126. His e-mail address is firstname.lastname@example.org.