Aspen Valley Hospital gives pay increases, braces for what’s next
June 27, 2011
ASPEN – Aspen Valley Hospital will give its employees an average pay increase of 2.4 percent this month, while the Vail Valley Medical Center laid off 22 people less than two weeks ago.
The difference in fortunes between the two facilities illustrates the challenges in an industry that is grappling not only with the effects of a recession, but looming changes posed by national health-care reforms.
In Vail, hospital administrators cited a drop in Medicare and Medicaid reimbursements coupled with an increase in the number of patients in those two programs for the need to cut staff. In addition, the medical center has seen a 27 percent drop in births this year, another revenue source, according to a report in The Vail Daily. The layoffs and other moves trimmed $4.2 million from the Vail facility’s budget.
In Aspen, it’s a different story on several fronts, and not just because births are up so far this year.
The resort hospital has not been forced to cut positions during the recession, and has managed to give its workforce – currently about 275 full-time employees – annual pay raises that are based what’s happening in the regional and national market. Pay within the hospital industry is closely scrutinized so the hospital can remain in a position to recruit and retain its specialized staff, according to Aspen hospital CEO David Ressler.
The average 2.4 percent increase means some employees will receive a larger increase (merit is a factor) and some will see less, he said, but overall, the salary package matches what’s happening to salaries in the broader industry.
“The market is 2.4 [percent],” Ressler said. “It’s not 2.3, not 2.5, but 2.4.”
Though AVH avoided layoffs when the recession hit, it was prepared to freeze wages.
“We actually told everybody we were going to do that. As it turns out, we didn’t need to,” said Terry Collins, chief financial officer at AVH.
By foregoing the hiring of about 20 seasonal workers for the 2008-09 ski season, asking regular full-time employees to cover those shifts instead, the hospital was able to give pay hikes averaging about 2 percent in June 2009, Ressler said.
The hospital budgeted for a 10 percent decline in revenues in 2009 and trimmed $2.1 million in expenses. The anticipated 10 percent drop was right on target, he said.
In 2010, AVH budgeted about $59 million in revenues and collected about 4.5 percent more than that, Collins said.
This year, with six months on the books, AVH is meeting its budgeted revenue projections of roughly $35 million to $40 million for the first half of year, according to Collins.
It implemented a 5 percent rate increase this year, but remains competitive with the industry, Ressler added. An appendectomy costs less at AVH than it would at a Denver hospital, he said.
As a nonprofit, independent entity, Aspen Valley Hospital is self-contained – a status that works to the community’s advantage, according to Collins. It does not have to pay shareholders or a parent system.
“Every dollar that comes in is in some way put to use to make sure this hospital serves its mission,” Ressler said.
In addition, AVH is supported by a property tax that produces about $3.5 million in annual revenue. That’s about 4.1 percent of the hospital’s overall revenues, but it’s important, Collins said.
“Obviously, if it weren’t for that, somehow we’d have to make up for that,” he said. “It makes a big difference.”
And, AVH has not been hit by the reduction in Medicare payments that is affecting Vail’s bottom line. While Vail is also a nonprofit, the Aspen facility is a “critical access hospital,” a designation it has held since 2004. Because it has no more than 25 beds, sees relatively short patient stays and is a certain distance from the next closest hospital, AVH is considered a small hospital that serves a community with no other options. As such, it’s not expected to compensate for low reimbursements from Medicare, Ressler explained.
While Vail’s Medicare reimbursement has dropped to one-quarter of its actual costs, according to The Vail Daily, AVH is reimbursed at about 97 percent of its costs because it is a critical access hospital, Ressler said.
The hospital also has Medicaid patients – typically low-income individuals. The state/federal program only covers about half of the costs incurred by the hospital to serve those patients.
Future changes involving both programs, and changes at AVH, could spell a drop in the reimbursement Aspen receives, according to Ressler.
The hospital is currently constructing the second of a four-phase, $73 million expansion that will, among various upgrades, add patient rooms. The expansion would put it over the 25-room threshold for the critical access designation.
Though it will have the capacity for more than its existing 25 rooms, the hospital won’t actually finish out the rooms until they’re needed, Ressler said, protecting its critical access status until then.
When community needs dictate additional beds, the extra rooms will be finished, producing revenue even though the hospital’s Medicare funding would presumably drop – a $2 million to $3 million reduction, Ressler estimated.
“We’ll make it work,” he said.
In the meantime, AVH is bracing for reduced Medicare funding as a result of reimbursement rates that rise more slowly than they have in the past. The program, which provides insurance to the elderly, aims to cut $150 billion to $160 billion in expenses over the next decade, starting in 2012, Collins said.
While both Medicare and Medicaid reimbursements are expected to erode over time, hospital administrators are also pondering the impact of health-insurance exchanges – a health-care reform measure that will begin in 2014. Then, patients without insurance can compare health-insurance policies through the exchange – a sort of one-stop shopping for health insurance – and see if they qualify for federal subsidies. Employers can drop health-care plans for their workers, letting them seek their own policy, but must pay a penalty to do so, Collins said.
It is anticipated the approach will provide access to insurance to the uninsured and result in more competitively priced premiums, but it’s also likely to reduce reimbursements from insurers to doctors and hospitals.
“It almost certainly says they’ll pay hospitals less for their services,” Collins said.
For now, hospital administrators can only watch and wait, Ressler said.
“These aren’t Aspen Valley Hospital issues,” he said. “These are hospital issues across the country.”