Financial losses mount at Wake Forest Baptist Medical Center

Wake Forest Baptist Medical Center

WINSTON-SALEM, N.C. — A decision by Wake Forest Baptist Medical Center to write off $103.8 million in uncollectable payments contributed to a $154.7 million core operating loss through three quarters of fiscal 2013-14, according to the Winston-Salem Journal.

When factoring in $37.7 million in investment income, the overall loss was reduced to $116.7 million. Not for-profit hospitals depend significantly on investment income to bolster their bottom line and to help pay for capital investments.

By comparison, the overall current fiscal year loss was $4.06 million through Dec. 31, which included $18.5 million in investment income. For the same three-quarter period in fiscal 2012-13, the center had an overall loss of $3.2 million, which included $54.6 million in investment income.

The center’s fiscal year ends June 30. It is Forsyth County’s largest employer, with a combined 14,686 employees in the Triad when including Davie and Lexington medical centers.

Wake Forest Baptist said in a statement Thursday it took funds out of its reserves as part of an adjustment for patient accounts receivables. The move was made “based on management’s assessment of the collectability of aged receivables.”

In its quarterly financial disclosure to bondholders on the Municipal Securities Rulemaking Board’s website – www.emma.mrsb.org – the center said the adjustment “is predominantly related to the revised valuation of prior fiscal year receivables.”

Michael Rutherford, the center’s recently hired chief financial officer, said the center “is assuming the $103.8 million in prior revenue is no longer collectible. We’re actually now taking the expense against it. It is tied to care previously delivered.”

When asked how much of the uncollected payments were connected to Medicare and Medicaid, Rutherford said, “We provide robust narrative disclosures on a quarterly basis on EMMA, so we are not able to provide material comments beyond what is provided in those disclosures.”

Wake Forest Baptist showed some progress made with its finances during the quarter.

The center reported net patient revenue up 2.7 percent to $1.27 billion. Excluding the reserve amount, the provision for bad debt for the current fiscal year dropped from $67.8 million to $40.8 million.

When excluding the $103.8 million in reserve adjustment, the center’s loss from core operations was $50.9 million as of March 31.

However, that represents more than a doubling of the $23.5 million in losses it reported as of Dec. 31.

The center said it “continues to aggressively implement strategies toward a value-based academic health care model with emphasis on safety, service and quality.”

The center announced May 1 a continuation of cost restructuring efforts that began in November 2012. The first restructuring phase featured the elimination of 950 job positions, affecting 420 current employees.

The latest phase includes cutting 350 jobs across all of its locations, including nine jobs at Lexington Medical Center.

Wake Forest Baptist said May 1 the latest move is aimed at helping “close the increasing gap between growing expenses and declining reimbursement from federal and state health insurance and other revenue sources.”

Like most of its peers, whether academic medical centers or regional hospitals, Wake Forest Baptist reported a decrease in inpatient admission (down 7.5 percent to 29,285 patients) and an increase in outpatient procedures (up 6.9 percent to 19,995).

The center says it “continues to feel the negative financial pressures experienced throughout the health-care industry in response to federal health reform readiness requirements, coupled with localized decreased demand for inpatient hospitalization.”

The center also cited reduced revenue “related to the implementation of CMS “two-midnight rule.”

Before Medicare approved the policy, inpatient status was determined by a physician based on the severity of illness and level of treatment required.

With the policy, a patient whose hospital stay does not span over two midnights will be considered as receiving outpatient services, and the hospital will be reimbursed at the lower rate.

Typically, inpatient services are reimbursed at a higher rate level than outpatient. “The rule could decrease revenue on average by $3,000 to $4,000 per case,” Moody’s Investors Service analyst Daniel Steingart said.

David Meyer, a senior partner with Keystone Planning Group of Durham, said “health-care industry reform, government reimbursement declines and the decreased demand for inpatient hospitalization, plus the focus on reducing hospital readmissions, are all common issues” for North Carolina hospitals.

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