published Sunday, March 9th, 2014

Coming days key to Erlanger health as CEO embarks on quest for cash

Chief Nursing Executive Jan Keys, left, leaves the emergency department with Erlanger CEO Kevin Spiegel during her Friday rounds.
Chief Nursing Executive Jan Keys, left, leaves the emergency department with Erlanger CEO Kevin Spiegel during her Friday rounds.
Photo by Tim Barber.
Poll
Should the city and county give $5 million each to Erlanger?

WITHIN 5 YEARS

Erlanger's final audited financials since 2009:

2009 -- $3.1 million gain

2010 -- $4.3 million gain

2011 -- $899,000 loss

2012 -- $16.7 million loss

2013 -- $14.3 million loss

Erlanger's level of uncompensated care since 2009:

2009 -- $74.1 million

2010 -- $82.2 million

2011 -- $83 million

2012 -- $85.5 million

2013-- $85.1 million

Days cash-on-hand:

Measures the number of days that the organization could continue to pay its average daily cash obligations with no new cash resources becoming available. High values imply higher liquidity, and hence are viewed more favorably by creditors.

As of February 2014 -- 66

2009 -- 117

Source: Erlanger Health System

Among public hospitals throughout the country, Erlanger Health System provides the greatest amount of safety-net care for the least amount of local government funding, a national public hospital association has determined.

"I've never seen anything quite like it -- just the lack of support versus the huge size of mission," said Dr. Bruce Siegel, the president of America's Essential Hospitals, a national advocate for public hospitals that tracks their funding.

While the average public hospital tracked by the organization receives $121 million from local governments, Erlanger's $1.5 million from Hamilton County is the only local public funding it can pit against what is expected to be $92 million in regional uncompensated care this year alone.

Most hospitals receiving minimal local funds can turn to federally backed state funds meant for safety-net care. But Tennessee lost access to those dollars at the end of last year.

"Erlanger's situation is very unique," Siegel said. "And the current situation is not sustainable."

Sudden cuts to employees' vacation benefits last month revealed just how perilous the state of finances at Erlanger -- the county's fourth-largest employer -- have become.

Instead of dampening Erlanger CEO Kevin Spiegel's energy, though, the dire outlook seems to have given it extra voltage. His voice rises and his hand motions grow more and more animated as he speaks of his mission to get more federal, state and local funding -- to which he says the hospital has been denied access for too long.

"Is it unfair to the employees? Absolutely it's unfair," Spiegel said of the vacation cuts during a lengthy editorial board meeting with the Times Free Press last week. "It's unfair that's where we got to. It's unfair that Tennessee doesn't have state DSH [funding for safety net hospitals]. ... It's unfair that employees are taking care of more and more and more indigent patients every day. It's unfair. But I don't want to sit there and not act. ... I'm not going to stop until it's done."

The fight for funding only starts with Chattanooga and Hamilton County. This week alone, Spiegel heads to both the national and state capitals on his quest to find the hospital a cash infusion.

Spiegel's calendar for the upcoming week is dizzying: Flights from Chattanooga to Washington to Nashville, all within a few days. Hourly spreadsheets jammed with meetings with everyone from the top administrator of the U.S. Centers for Medicaid and Medicare Services (CMS), to Tennessee congressmen, to lawmakers in the General Assembly. A seemingly endless stream of lunches and meet-and-greets and conferences.

But the CEO says he won't miss a single meeting or a single handshake. Each one is too important.

Each one could have an impact on Erlanger's fate at a time when the hospital is, as many describe, at a critical juncture in its history.

"It is possible for Erlanger to close. It just is," Spiegel said. "Either there's going to be legislative relief, or there's going to be dramatic changes."

After racking up three years of losses, the public hospital is running a more than $3.8 million deficit so far this fiscal year. The amount of uncompensated care it provides is expected to surge to $92 million this year -- an $11 million spike from five years ago.

This, plus roughly $14 million in cuts to state funding and reimbursements this year, has left the hospital with margins so thin that a handful of crippling snow days early this year threw the hospital's monthly financials into a nosedive.

If it lost all sources of cash income, the hospital could keep operating for just 66 days with the cash it has on hand -- a little more than half of where it was in 2009.

The thinning reserves are forcing conversations about things the hospital may need to cut.

Its community health centers, which serve some of the city's neediest areas and are funded by the hospital, are in question.

Employee layoffs aren't off the table, executives say. Neither are potential cuts to services.

And every move the hospital makes is being tracked by the unblinking gaze of Wall Street bondholders.

That's why this week could be pivotal for the hospital, as Spiegel joins other state health leaders to lobby for access to two federal pools of money that the CEO says could stabilize the hospital for now.

"We're at a tipping point," said Dr. Chris Young, the president of the Tennessee Medical Association and an anesthesiologist at Erlanger who will join Spiegel in the U.S. capital and in Nashville.

"The financial pressure is not new," said Young. "But any kind of further reductions would alter the scale and scope of services that Erlanger offers. All Tennessee hospitals are feeling the pressure of the changes in health care and the funding changes -- but Erlanger is at ground zero for the constellation of changes it's dealing with."

PAYMENT POOLS and POLITICS

Spiegel, who will mark his first year with the hospital in April, didn't waste much time shaking things up.

Acknowledging that many of the moves would be unpopular with employees, he insisted they would be necessary for the hospital's viability amidst a slew of state and federal budget cuts -- some of which went to help fund the Affordable Care Act implementation.

Spiegel pushed to replace pension plans with 401(k)-like accounts. He dramatically increased what retirees would have to pay toward their health insurance. He called for changes in how employees' paid leave is approved and structured.

"You keep making all these cuts, and then you're expected to dance faster, quicker, cut more," he said.

Through it all, one of Spiegel's biggest initiatives since his start has been his push for access to what's called the Public Hospital Supplemental Payment Pool.

The mechanism allows public hospitals to transfer money they get from local government entities, and have that money nearly tripled through a series of federal and state exchanges.

The Regional Medical Center in Memphis and Nashville General Hospital already divide about $70 million from this pool.

"At some point, people are going to ask -- why wasn't this done four years ago?" he said, questioning everyone from state leaders to former hospital executives. "It is not new that Erlanger has financial problems."

Gov. Bill Haslam has already signed off on a waiver that allows the hospital to access this pool, but CMS approval still is needed.

That's why Tuesday's meeting with CMS Administrator Marilyn Tavenner is so critical, Spiegel says.

He hopes the fund can be increased by $30 million to allow Erlanger access to the extra money. But at the very least, he hopes the existing pool could be divided up.

The group going to D.C. also will be meeting about having a key fund for safety net health care restored to Tennessee.

State "disproportionate share" money provides millions that hospitals split to help cover care for the uninsured.

Tennessee is the only state that did not have that fund restored this year. Because of the way its fund is structured, it must be approved each year by Congress -- a requirement the vast majority of states do not need.

The deadline to have the funding renewed, Young said, sailed by as the government was shutting down last fall.

That translated to an $8.5 million loss for Erlanger this fiscal year.

"Tennessee can't be the only state in the country without a state DSH. There's got to be some kind of compromise," Spiegel said.

But the problems with DSH would not be so critical if TennCare, Tennessee's Medicaid service, had been expanded, argued Young.

"We weren't supposed to be relying so fully on DSH. We were supposed to be relying on Medicaid. Because of politics, we're not participating in it either," he said.

Politics, both Young and Spiegel said, is also the key complication in the discussion about these funds with federal health officials.

Those officials, they say, aren't jumping to hear requests from a state where congressional leaders have repeatedly voted for the repeal of the Affordable Care Act; where the governor and legislators have not expanded Medicaid, and where U.S. Sen. Lamar Alexander, R-Tenn., has formally called for the resignation of U.S. Health and Human Services Secretary Kathleen Sebelius.

Beyond that, local congressional and state leaders were largely no-shows at President Barack Obama's two recent visits to Tennessee. And when Sebelius visited Memphis in November, a state senator handed her a copy of the book "Websites for Dummies."

"I think it's clear that the relationship between Tennessee and [federal health officials] has not been going well," Spiegel said.

Still, he has spoken with Tavenner before -- and he's optimistic that her office will empathize with Erlanger's situation.

"We are speaking to the person who can get it done," he said. "The question is will we allow politics to interfere with common sense."

Young said he believes federal officials may be reluctant to do favors for a "state where the safest place to be politically is to be critical of the federal government," but he also said the hospital's request is "modest" in the grand scheme of things.

"I think [Spiegel's] done everything he can do," he said. "Depending on their answer, we will know the state of affairs between Tennessee and CMS."

HIGH STAKES

Spiegel's barrage of meetings will not stop when he returns to Chattanooga next week. That's when the local lobbying will begin in earnest.

The hospital will be requesting $5 million each from the city and the county in upcoming budget hearings this spring. Before that goes to a vote, the CEO says he plans to meet with every single City Council member and county commissioner.

The city stopped contributing to the hospital three years ago. And while the county still gives its $1.5 million allotment, costs for Erlanger's care of Hamilton County prisoners has risen to more than $5 million annually.

"I'm asking for the money because it's the right thing to do," Spiegel said. "I'm not willing for the hospital to just sit back and complain about it anymore. If they're going to refuse, then let it go to a vote."

Siegel, of America's Essential Hospitals, compared the public hospital to a utility. He said a marked increase in local support will be critical for Erlanger's long-term sustainability.

"The community needs to understand what is at risk here," he said. "Erlanger is essential to the economic and physical health of Chattanooga. It is vital to the health of several states. It is providing services to a huge region. It will undermine the economy if one of the area's largest employers, that many people depend on for health care, is in peril."

Spiegel prefers not to talk about what would happen if Erlanger walks away from this quest empty-handed, but he said cuts to staff and cuts to services are on the table.

He said the hospital is doing everything possible -- including the vacation cuts -- to make sure it meets its covenants with bondholders by June.

If not, consultant firms could be assigned to start managing affairs at the hospital, he says.

"People may think we've been crying wolf a lot," he said. "But you can't really have all these cuts, and uncompensated care go up ... and expect it to continue and think we're crying wolf. It's not logical."

Contact staff writer Kate Harrison at kharrison@timesfreepress.com or 423-757-6673.

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