Blaming the Medicare spending restrictions of the Balanced Budget Act of 1997, many healthcare providers across the country have been closing or threatening to close services because of loss of revenue.
The latest example of this phenomenon has occurred in Idaho Falls, Idaho, a town of 48,079 residents. Evangelical Lutheran Good Samaritan Society last month shut down a hospice there, citing losses from Medicare and other payers.
The hospice and its affiliated home health agency, which will not close, lost $12,000 in the first three months of the year. There was no breakdown of the loss between the hospice and the home health agency.
Evangelical Lutheran, with corporate headquarters in Sioux Falls, S.D., is the largest not-for-profit long-term-care chain in the U.S., with more than 200 nursing homes and about 70 independent-living facilities in 25 states. Last year it posted its first operating loss ever, $4.7 million on revenue of $662.5 million. It blamed those losses largely on Medicare spending reductions that went into effect last year for skilled-nursing homes. But investment income enabled the chain to post an overall profit of $18.3 million. The company retains investment-grade ratings on its debt.
The Idaho Falls hospice will keep its license in hopes that it can be reopened later in the year, spokesman Mark Dickerson said. Meanwhile, the affiliated home health agency will continue to accept patients.
"We're suspending admissions (to the hospice) to evaluate and see which side (hospice or home health) we need to restructure," he said.
The closure of the Idaho Falls hospice, which opened in 1983, displaced 20 terminally ill patients. All are now under the care of other local providers.
Idaho Falls cancer doctors said that, for now, they would provide care for potential hospice patients out of their offices.
The Idaho Falls hospice closure stands in stark contrast to the company's decision to keep open a Minneapolis-area nursing home that's losing $400,000 a year.
That home, in Anoka, Minn., was one of four area facilities originally slated for closure earlier this year. Evangelical closed the other three, which lost a total of $2.5 million last year, Dickerson said. The company plans to keep the Anoka facility open for at least a year because there aren't enough nursing home beds in the immediate area, he said.
"There wasn't any place to go. If they can be taken care of in other places, then it could be closed," he said. By contrast, alternative placements for the hospice patients in Idaho Falls have been readily available, he said.
"[Evangelical Lutheran] is in there for the mission. But we have to pay our bills. We do need to break even," he said.
That a healthcare company would close one service losing $12,000 a quarter and keep open another that's losing eight times as much a quarter doesn't surprise Standard & Poor's analyst Susan Hill.
"It's tough because they have to weigh loss of profits against loss of mission," she said. "Long-term care is a pretty local market. If by looking at facility-by-facility figures they can pull themselves out of their operating loss quicker, then it obviously works for them."
Many factors weigh into decisions to close or retain money-losing operations, according to Moody's Investors Service analyst Bruce Gordon. Among them are mission, the effect of the closure on the reputation and patient base of other area facilities, and the ease with which the problem could be fixed. In Anoka, for instance, the company has tentative plans to build a replacement facility that could be staffed more efficiently.
Many of Evangelical's cost-saving measures focus on reducing therapy and drug costs rather than on closing underperforming services, Gordon said. This year, the company expects an additional $10 million in Medicare revenue from budget-law relief legislation passed last year.