The Seward Phoenix Log - News of the Eastern Kenai Peninsula since 1966

By Heidi Zemach
For The LOG 

State to reimburse city’s Medicaid bills


The State of Alaska recently agreed to repay Providence Seward Medical and Care Center (PSMC) an additional $402,000 for Medicaid reimbursement payments for Seward Providence Hospital and Seward Mountain Haven Long-Term Care Facility. The state’s decision was based in part on correction of an error brought to their attention by Providence staff, as well as an appeal process initiated by Providence on the City’s behalf. The hospital administration had felt that they should have received that money earlier under the state-determined “cost-based reimbursement” rate. But the state denied reimbursement of certain operational and building-expense items that Providence submitted for reimbursement. Providence had considered jointly filing a lawsuit against the state if their reimbursement rate issues could not be resolved through the appeals process, along with other small regional Alaska hospitals who would argue that neither state law, nor other regulations were modified in such a way as to warrant the sums not being reimbursed.

“Cost-based reimbursement” is based on a formula that takes into account a medical facilities’ actual operating costs (such as employee salaries, benefits, medical care), the number of qualifying patients treated, and also the repayment of the cost for constructing new buildings. Compared to older facilities, the reimbursement rate Seward receives for the new $27 million long-term care facility is generally a much higher rate per client than most facilities in the state because of the new condition of the infrastructure, said City Finance Director Kris Erchinger. But a lower-than-expected number of patients living at the facility this past year brought in fewer dollars than anticipated.

The $402,000 reimbursement will help the city to recover a good portion of the $750,000 that it gave PSMC last July from the general fund to compensate for its budget shortfalls to date. The city council agreed to pay that sum primarily to cover two separate costs PSMC incurred: to help recover losses due to the reimbursement shortfall; and $300,000 plus that PSMC paid up front to purchase and implement a new electronic medical records software and hardware system. The city expects that the new records system will be fully reimbursed through payments over the next three years with American Recovery and Reinvestment Act stimulus funds that were set aside for that very purpose, Erchinger said. The first of the three annual payments should be the largest, providing that Seward Providence meets all the federal program’s requirements, she said.

More from Erchinger on Providences’ Financial Picture

The new $27 million Seward Mountain Haven dramatically increased the state’s Medicaid reimbursement rate per-client when compared to most older facilities, however the reason Seward agreed to build the facility was in large part because co-location of the hospital and long-term care facilities would achieve significant cost-efficiencies, improving the underlying financial strength of the healthcare system, and allowing for continued 24/7 emergency room coverage. In addition, the cost-based reimbursement methodology pays the costs associated with the facility, Erchinger said. While census levels at Seward Mountain Haven have resulted in lower than hoped for reimbursements, the long-term care facility has achieved its average patient-goal of 32-34 occupants to date, despite times when it nearly met its limit of 40 clients, and times when it had fewer. The number of patients planned for during the first few years was deliberately conservative in order to give the new facility staff time to learn how to safely operate under the new Greenhouse model of care, she said. The reimbursement rates have been more than sufficient to cover the costs of the bond payments.

The future of health care reimbursement levels, overall, is uncertain due to the economy, the effects of Obama’s health care plan, and national politics in an election year in which anything can happen, she said. That’s why the city hopes to position itself to receive Federally Qualified Community Health status, which, with its higher reimbursement levels, among other things, would be beneficial.

Prior to the city hiring Providence to manage the hospital, and co-locating the two newer facilities, hospital operations had regularly been losing more than $1 million per year, and the city’s 1-percent city sales tax was used to cover operational shortfalls, Erchinger said. However once the hospital construction was completed in 1996, the sales tax revenues were re-routed to the hospital debt service to pay off its bonds. Based in large part on the cost efficiencies from (administrative) co-location of the two facilities, up to this point, PSMC has managed to stay out of the red. The current administration also has greatly improved the hospitals’ bottom line by utilizing “Swing Beds,” which means returning Seward’s patients back to the local hospital to recuperate after major medical procedures in Anchorage, where their families and their homes are, Erchinger said. The hospital has benefited by having more patients to care for.

Claims that Providence lost $1.9 million last year are inaccurate, Erchinger said. To receive a better interest rate on its long-term care facility bonds, the council borrowed that sum from the city’s Water Enterprise Fund, and placed it into a separate investment account. The sum represents the amount required to pay a full year of debt service, Erchinger said. Capital markets offer better interest rates to municipalities that set aside such funds, so while Seward pays lower interest rates on the debt service, the Water Fund receives the interest from that sum. This bond reserve was unrelated to the operations of PSMC.

The city of Seward owns the local hospital and long-term care facility, while Providence Health & Services operates them under a management agreement with the city. The city is financially responsible for the operations of the facilities, its losses as well as any potential gains. Providence preferred to manage rather than lease the healthcare facilities, once the state recommended that the hospital and long-term care facilities be co-located, under the same administration, to create efficiencies. Providence had previously leased the hospital building and they were financially responsible for any gains or losses. Under co-location however, Providence agreed to manage the facilities at which time the city began to assume any financial risks or rewards.


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