Hospital mulls how to cut costs
February 18, 2004
Aspen Valley Hospital is in the middle of a financial crisis, and immediate action is needed to address inefficiency, according to a presentation given by the hospital’s finance committee to the hospital board last night.
The hospital had a budget shortfall of $300,000 in 2003 and if it not for funds from a local mill tax levy, the number would have been closer to $3 million.
In response, the board has acted decisively to regain financial control, hiring an efficiency expert to cut costs, addressing its billing practices and voting unanimously last night to apply to change its status to a rural hospital, a move that would insure increased federal funding.
Speaking to the Pitkin County commissioners before the hospital meeting, board President John Sarpa expressed dismay over the current state of the hospital’s finances.
“We’ve got a hospital that’s in real trouble,” he said. “We’re going to have to make some drastic changes financially.”
Hospital treasurer and board member John Jellinek echoed Sarpa’s concern. He said rising costs of employee benefits, a pension plan that includes part-time employees, high salary expenses and sloppy billing practices have all contributed to the fiscal crunch. As an example of inefficiency, board members said that over the past few years nearly $2.5 million in hospital expenses were never billed to patients.
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“It’s very hard to operate this facility with this level of loss,” Jellinek said. “To the public and to us, this is unacceptable. We’re going to have to do some serious soul-searching to right this facility.”
In response, the hospital has hired an efficiency expert, Jim Carris, as interim chief operations officer. Carris will spend 14 days a month for the next three months determining how to improve hospital efficiency. As yet it is unclear where cutbacks will take place, but the board emphasized its commitment to ensuring that patient care is not affected by any changes.
The board is also renegotiating contracts with several of its physicians in an effort to cut lucrative contracts.
Perhaps the most significant fiscal step the board announced last night was its decision to apply for status as a “critical access” hospital. Under the Balanced Budget Act of 1997, the federal government enacted a program to support isolated, rural hospitals deemed to offer critical medical access. While most hospitals receive only partial reimbursement for federal Medicare patients, critical access hospitals receive total reimbursement for services.
Approximately 23 percent of AVH’s patients are billed through Medicare. Had the hospital received full reimbursement for these patients in 2002, it would have saved $2.5 million.
It is unclear whether AVH will be granted critical access status. According to Carris, the hospital does not fit the profile of a normal rural hospital.
“Most critical access hospitals would have maybe one or two physicians in a 100-mile radius,” Carris said.
The hospital will proceed with the application process and should know of its success by July.
[Eben Harrell’s e-mail address is email@example.com]