By threatening to terminate its contracts with six managed-care organizations covering TennCare patients, Memphis, Tenn.-based Le Bonheur Children's Medical Center is making a strong statement about the cash-strapped state-run program.
"This is not managed care," said Eugene K. Cashman Jr., president and chief executive officer at Le Bonheur. At best, TennCare is "evolution toward managed care," he said.
The National Association of Children's Hospitals and Related Institutions is calling Le Bonheur's situation a harbinger for children's hospitals under Medicaid managed-care programs and block grants of Medicaid funds proposed by federal lawmakers.
The association is using Le Bonheur as its TennCare poster child, much like the National Association of Public Hospitals is using the Regional Medical Center at Memphis (See related story, p. 28).
Le Bonheur gave the managed-care plans until April 13 to resolve the accounts receivable problems. Cashman describes the 204-bed hospital's statement as a "response to the marketplace.......at the same time, recognizing that it's very important that (TennCare-covered) children don't get lost in that response."
The six managed-care organizations owe the hospital $11.5 million for treating TennCare patients. They are Access MedPlus, Blue Cross and Blue Shield of Tennessee, Phoenix Health Care, Prudential Community Care, OmniCare Health Plan and TLC Health Plan.
Since Jan. 1, Le Bonheur's reimbursement under TennCare has fallen to 67% of cost from 91%.
Medicaid covers a significantly higher percentage of patients in children's hospitals than in other acute-care facilities.
"In our case, 40% of our business is with TennCare," Cashman said. "One can't continue to operate at 67% of cost on 40% of our business."
Le Bonheur will have to recover those costs or reduce its volume of TennCare admissions, Cashman said. He called both options "extremely difficult to negotiate."
Le Bonheur also lost $8.4 million in annual supplemental funds in January, including disproportionate-share funds And graduate medical education funds.
In 1993, the hospital had a net loss of $1.9 million on total revenues of $99.6 million, according to HCIA, a Baltimore-based healthcare information company. That year, the hospital had 13,767 total acute-care admissions.
A NACHRI spokesman described Le Bonheur's current situation under TennCare as critical. "It is only in a crisis that a children's hospital would take this step," said Peters Willson, vice president for government relations.
Beyond that, from NACHRI's perspective, Le Bonheur's case foreshadows the potential effects of state-managed block grants of Medicaid funds, Willson said.
However, Cashman said he is optimistic that the hospital will work out the accounts receivable situation before the deadline. "Le Bonheur has a strong position within the delivery network," he added.
"Our threat is long-term viability," he said. For TennCare to work for Le Bonheur "there would have to be significant changes in our delivery and organization of care," he added.
"It's still premature to see what parts of it will work and which ones won't," Cashman said. "The impact has yet to be measured."
Willson said NACHRI is calling attention to the debate over increasing states' flexibility in managing Medicaid funds, comparing TennCare to a block grant.
Under block grants, chunks of federal money are distributed to the states to administer. The theory is that local officials can use the money more efficiently than federal bureaucrats. But when a state in a fiscal crisis is suddenly given freedom in managing Medicaid funds, the population covered by Medicaid may be enrolled in managed-care organizations lacking experience, according to Willson.
Alexandria, Va.-based NACHRI has long held that children may fall through the cracks under managed care. About 70% of patients in children's hospitals have chronic or congenital conditions and require more specialized care and resources such as nursing care.
Le Bonheur will not deny emergency services to children covered by TennCare, Cashman said, regardless of whether the managed-care organization contracts are terminated.