SCHENECTADY — After years of economic hardship that culminated in more than $40 million in operational losses, Ellis Medicine is struggling to negotiate a new contract with a major Capital Region insurance provider.
The situation involving Empire Blue Cross could lead to increased costs for thousands of potential patients and threatens to exacerbate the hospital’s economic difficulties that have caught the attention of state policymakers as the hospital continues to to consider a possible merger with St. Peter’s Health Partners. Between 2019 and 2022, Ellis Medicine saw its revenue decline by $65 million, according to data provided by the hospital.
A spokesperson for the state Department of Health said the department is aware of Ellis Medicine’s financial situation and that the state has provided the hospital with $10 million to cover operating costs. over the past year.
But hospital officials are now warning that if an agreement with Empire Blue Cross is not reached by May 1, all services at Ellis, including emergency, primary and specialist care, will become out of service. network for what is probably thousands of patients insured by the company throughout the capital region.
Ellis faced a similar situation involving the CDPHP, which covers 287,939 Capital Region residents, including 50,967 in Schenectady County, but the two sides were able to reach a preliminary agreement in recent days ahead of the date. June 1 deadline.
But a failure to reach a new deal with Empire Blue Cross would result in higher expenses for patients who continue to seek services at Ellis and a potential drop in hospital revenue as patients seek new providers to avoid pay the additional charges. costs, according to Paul Milton, president and CEO of Ellis Medicine.
Milton encourages Empire Blue Cross members to contact the supplier directly.
“We want to take care of their members,” he said. “We are simply asking for a responsible rate given our financial situation.”
Negotiations with Empire Blue Cross date back to last year, but have stalled due to a disagreement over reimbursement rates the insurance company would pay when a patient obtains services from Ellis. It is unclear how many patients would be affected if a deal was not reached, although Milton said the number would be “not insignificant”.
Empire Blue Cross, which does not disclose membership information, is the insurance provider for state employees.
Milton said the rate hike is necessary because of low Medicare and Medicaid reimbursement rates, as well as declining incomes and soaring expenses that have only worsened since the emergence of the coronavirus pandemic three years ago and the inflation that followed.
The hospital, he said, is currently losing money under the current contract with the insurance company.
“We’re not trying to rip off the system or anything,” Milton said. “We are looking to break even. We still have, under this calendar year, a budgeted loss. We are counting on reasonable rate increases for the future.
Neither Ellis nor Empire Blue Cross would say what the proposed rate increase would look like, but CDPHP spokeswoman Natalia Burkart said the hospital was seeking a 25% increase for in-network services and 45% for those off the grid. before agreeing on a “fair and equitable agreement for both parties”.
“Collaboration was key,” she said. “We both came in understanding that we needed each other in this community.”
Burkart said the exact terms of the agreement between the CDPHP and Ellis Medicine have yet to be finalized, but members will not experience any disruption of service or immediate price increases, although that may change. next year. Any rate adjustment by the insurance company must be approved by the State.
Meanwhile, negotiations continue between the hospital and Empire Blue Cross. The insurance company, however, has begun encouraging members to reschedule appointments at Ellis Medicine and seek out new service providers before the May 1 deadline.
The company said the proposed tariffs “would place a significant increased financial burden on the businesses and people we serve.”
“We recognize that our current agreement with Ellis expires in a few weeks and given their continued insistence on egregious cost increases, we recommend that our members defer or seek elective health services from one of the many other care providers from our extensive network,” the insurer said. “That’s because if Ellis were to leave our network, those services would be billed by the hospital at a much higher rate.”
Lower income
The loss of patients would have serious consequences for Ellis Medicine, which has struggled with rising expenses and declining revenues for years — a situation made worse by the emergence of COVID-19 in 2020.
Hospital revenue fell by more than $65 million between 2019 and 2022, from $445.9 million to $380 million, the equivalent of 14.5%, according to hospital data.
Milton said the drop in revenue stems from a drop in the number of patients visiting the hospital, including the emergency room and hospital admissions.
“General business is down overall, and that’s income for us,” he said.
Milton said the hospital is still committed to reaching an agreement with Empire Blue Cross, but acknowledged that if an agreement is not reached, hospital visits could decrease further, which would likely force the hospital to reconsider how it provides its services in the future.
“If a certain number of patients decided not to come here, we would not be able to collect this income and then we had to adjust our financial model according to the evolution of the visits that would come to Ellis,” he said. he declares.
The drop in revenue comes as Ellis Medicine continues to examine the possibility of merging with St. Peter’s Health Partners in Albany. Ellis is currently operating under a “provided services agreement” with St. Peter’s which is in place until the end of the year. The goal of the deal is to improve Ellis’ efficiency before moving forward with the merger.
Milton said Ellis and St. Peter’s are continuing to discuss the merger and nothing will move forward until the deal expires.
Between 2017 and 2021, Ellis Medicine recorded more than $42.2 million in operating losses, according to a review of the hospital’s financial statements.
Much of the loss, $32.9 million, was seen in 2020, the first year of the pandemic, when hospitals had to stop performing non-essential surgeries to preserve beds for COVID patients, and many have suspended medical care for fear of the virus.
But the hospital was suffering losses even before the pandemic. In 2019, operational losses reached $2.8 million, according to financial records.
Burkart said hospital officials reached out to the CDPHP in late 2021 for a $9 million grant to stay “financially solvent,” but the request — which she said had not been made. through a formal grant application – had been rejected. The hospital recorded $8.6 million in operating losses in the same year, according to financial records.
Ellis did not respond to questions about the funding request.
Increases in the middle of lower rates
But as revenues have fallen, expenses have risen sharply as the hospital faces inflationary and labor pressures.
Like many hospitals, Ellis struggled to find nurses, forcing the hospital to rely on outside vendors, which led to a 400% increase in contract labor expenses.
On top of that, inflation has driven up the price of everything from pharmaceuticals to basic cleaning supplies.
Medical inflation peaked at 6% last September, but has been falling every month since, according to recent analysis by the Kaiser Family Foundation, a non-profit organization focused on health issues. The number has since fallen to 2.3% in February, but the consumer price index for other goods remains at 6%, according to the report.
Compounding the hospital’s financial difficulties are current reimbursement rates for Medicaid and Medicare, which account for the bulk of the hospital’s patients, Milton said.
Currently, Medicaid reimburses the hospital 75 cents on every dollar, while Medicare reimburses 90 cents on every dollar spent.
“We don’t negotiate those rates, and those rates don’t pay for the cost of care,” Milton said. So there is a displacement of costs. We rely on private insurance companies to make up for what government payers don’t pay.
Milton said the healthcare industry is at an “inflection point” and needs systemic change to ensure hospitals can remain financially viable as they emerge from the pandemic.
“I think after the pandemic, the financial situation of hospitals is now at an inflection point,” he said.
Governor Kathy Hochul has proposed raising rates by 5% as part of her budget proposal, which state lawmakers continue to negotiate. The increase would mean an additional $425 million for public hospitals, according to the Department of Health.
“The Department is committed to ensuring hospitals are equipped to continue to provide high quality service to its patients,” the department said.
Community concerns
The situation between Ellis and Empire Blue Shield has raised concerns among community stakeholders who are calling on the insurer to reach an agreement with the hospital to avoid impacts to patient care and avoid further financial loss to the hospital. ‘hospital.
Michelle Ostrelich, a Schenectady County legislator who chairs the county’s health, housing and human services committee, said a failure to reach an agreement would be disastrous for many who may not be able to. to travel to other communities for care.
“Schenectady needs a community hospital,” she said. “There are many residents who are unable or unwilling to travel to Albany for care. If we don’t have a community hospital, people will go without the medical care they need, and that’s not acceptable.
Ostrelich, a member of the Schenectady Coalition for Access to Health Care, a group that has raised concerns about access to reproductive care amid the merger talks, said she heard from community members , including medical professionals, who had raised concerns about the situation.
Falling into medical debt due to failed contract negotiations is an unacceptable outcome, she said.
“Ellis is struggling financially,” Ostrelich said. “We must, in my view, including state and federal governments and private insurers, step up and pay the true cost of care.”
Contact journalist Chad Arnold at: (email protected) or by calling 518-395-3120.
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