MIDDLEBURY — An unanticipated infusion of Medicare reimbursement money, elimination of several vacant positions and some additional cost-cutting measures have helped Porter Medical Center (PMC) escape a $4 million budget setback, officials confirmed last week.
During the first quarter of its current fiscal year (October through December of 2018), PMC went through a financially difficult stretch.
“The first quarter was atrocious; it was the worst first quarter in five or six years,” PMC President Dr. Fred Kniffin said during a recent interview. “It was really challenging for us.”
Here are some of the things that went wrong:
•A drop in out-patient visits.
“We don’t really know why,” Kniffin said.
•A reduction in fixed payments from the Accountable Care Organization (ACO) of which Porter is a member. An ACO is a group of healthcare providers and hospitals that work together with the goal of delivering better care at a lower cost. And ACOs receive financial incentives for providing superior care at a lower cost.
•Unforeseen events that added to expenses.
Vermont hospitals must submit their budgets in June for a fiscal year that doesn’t begin until the ensuing October. So there’s an intervening three-plus months during which spending plans can go askew.
“It means if you make any decisions in June, July, August or September for the next fiscal year, it’s a variance; it’s something you decided after ‘pencils were down,’” Porter spokesman Ron Hallman said. “In many years, it’s not a big deal. You do your best estimating, and nothing major happens.”
Last year was not a typical one for PMC. For example, general surgery specialist Dr. Brad Fuller died.
“We had to figure out how to sustain the general surgery practice for the people of Addison County,” Hallman said. “The only way to sustain it was to take it on, or it wouldn’t exist. That’s an example of a type of decision we made after pencils were down and we said, ‘This is going to create a variance next year, but it’s a variance we’re going to have to accept and deal with, because not having general surgery is not an option.”
All of these events prompted Porter leaders to meet to make budget adjustments.
“The good news is, our team did really nice work,” Kniffin said. “Our goals were to claw back some expense and not cut people or programs.”
And that’s just what they did.
They identified $1.3 million in expense savings, including such things as eliminating consultants and negotiating better insurance rates.
Porter officials then agreed on a second batch of reductions totaling around $350,000. These largely involved cutting around six vacant, full-time-equivalent positions spread throughout the organization. The jobs were all in the “non-clinical, support staff” category, according to Hallman. The loss of those positions will be softened by personnel support PMC receives as an affiliate of the University of Vermont Health Network, Kniffin noted.
“We recognize that eliminating a posted position creates additional work for those who remain, and we appreciate everyone’s willingness to step up and do the necessary hard work,” Kniffin stated in a recent letter to the PMC community explaining the financial challenge.
The health care industry in Vermont more broadly has faced some financial challenges. Springfield Hospital recently announced more than 20 layoffs and other deep cuts.
MEDICARE WINDFALL
At Porter other keys in the financial turnaround were enhanced revenues through the federal 340B Drug Discount Program, and an unexpected windfall in Medicare-related reimbursements, according to PMC officials.
Porter’s financial officers had predicted the organization would owe roughly $350,000 when it came to reconciling the Medicare ledger following fiscal year 2018. But instead of owing $350,000, the feds handed PMC a check for approximately $850,000, Hallman said.
The Medicare account reconciliation, Kniffin explained, represents a reassessment of related expenses at the end of the fiscal year. As a Critical Access hospital, Porter gets reimbursed for true cost for Medicare patients.
“I sort of view the (Medicare) report as analogous to your tax return,” Hallman said. “Basically, you have money taken out of your paycheck throughout the year, and come April, Uncle Sam settles up with you.”
Porter’s financial officers have typically done a good job estimating Medicare revenues and expenses to the extent there’s usually only a small deviation (compared to the total Porter Medical Center budget) at the end of the year.
“Every once in a while you get a refund, every once in a while you have to pay,” Hallman said. “You try to have your deductions throughout the year close enough so it’s not a big windfall or expenditure come April.”
But this year was different, as Porter’s reimbursement was calculated based on its status as an ACO member.
“Because we are part of an ACO, the math was completely different, and we received money,” Kniffin said. “The good news is, that helps us in this fiscal year; the bad news is, it’s not year-to-year. It’s a one-time deal.”
Hallman also commented on the new reimbursement wrinkle.
“Under the new ACO system, a lot of the world has changed and things have been flipped on their head,” he said. “So we have to re-learn a lot of this. Fortunately, in the relearning process, this time we ended up on the good side of the ledger.”
Relearning and change have become the norm in health care, both on the national and state levels, as new reforms are implemented to control costs and improve patient outcomes. Many hospitals are operating on razor-thin margins.
“The winds of reimbursement in health care don’t blow steadily or in the same direction,” Hallman said. “We are in a business that’s highly volatile, and our revenues and expenses are subject to many factors — some of which are in our control, some of which aren’t in our control. We have to be eternally vigilant on a quarter-to-quarter basis … to recognize a problem early on, identify possible solutions and make some mid-course changes.
“The worst thing is, if you find you have a little problem at the end of the first quarter and do nothing about it, and then it multiplies times four,” he added.
Kniffin believes PMC is now back on a stable financial path.
“We had a good January and beat the budget (target) by $136,000,” he said. “That was good news.”
Reporter John Flowers is at [email protected].