By Emanuela Leaf
Each year, Connecticut hospitals provide care for approximately 409,000 admitted patients, accounting for more than 2 million days of inpatient care. Welcome more than 35,000 babies into the world. Treat more than 1.6 million patients in their emergency departments. Serve nearly 2.6 million people through community benefit programs and activities.
Connecticut has 28 nonprofit hospitals and one for-profit.
A “nonprofit” is a corporation without stockholders, and profits are put back into the organization, while a for-profit has stockholders who split the profits among themselves.
Nonprofits must still operate profitably — what they make must exceed what they spend — or they will go out of business. Both types of hospitals generally face the same economic and regulatory conditions, and both must manage and sometimes reduce expenses, including personnel costs.
In 2011, hospitals in Connecticut agreed to a new state tax as a way to bring in more federal money. By taxing hospitals and then giving them back the money to cover the cost of unreimbursed care, the state would capture hundreds of millions of dollars in federal matching funds.
According to Stephen Frayne, senior vice president for health care policy at the Connecticut Hospital Association (CHA), that happened only during the first year. Since then, the hospitals have remained responsible for the tax, while the amount they’ve received from the state has steadily declined.
He said the hospitals have since shed more than 1,000 jobs, forgone hiring and scaled back services because of the tax, which now totals $556 million.
Last month, Gov. Dannel P. Malloy used his limited executive authority to order $103 million in cuts from the current budget. Nearly $64 million of those cuts were to come in Medicaid payments for hospitals, which would cause the loss of $128 million in matching federal funds, for a total reduction of more than $190 million.
Malloy has been adamant about his cuts to hospital funding, stating that non-profit hospitals are making large profits and are able to absorb the cuts, and that its CEOs are paid high salaries.
A Quinnipiac University poll released in the beginning of October found that the approval rating for Malloy, a Democrat in the midst of defending unpopular mid-year budget cuts in the first year of his second term, hit an all-time low of 32 percent.
“Malloy is getting hammered on the critical pocketbook issues: taxes, the budget and the economy and jobs,” said Douglas Schwartz, the poll’s director, told the CT Mirror. “Only 36 percent of voters are satisfied with the way things are going in the state, one of the lowest scores since Quinnipiac University started asking this question in 1997.”
HOSPITAL PROFITS & SALARIES
Tribuna reached out to the Malloy administration. According to Gian-Carl Casa, undersecretary for the Legislative Affairs Office of Policy and Management for the state, hospitals, with high cost structures and high executive salaries, are now disputing the validity of their own filings with the state in an attempt to “defend themselves.”
“Connecticut hospitals had one of their best years on record in 2014, when hospital health systems saw total revenue in excess of expenses of $916.4 million – a $186.2 million (or 26 percent) increase from the previous fiscal year” said Casa.
But, to CHA, the numbers tell a different story. In a statement refuting that hospitals made such profits, the association says the numbers presented by the governor fail to disclose that a substantial portion of the $916 million relates to extraordinary accounting transactions.
“In 2014, the entire University of Connecticut Health Center recorded in non-operating income $459 million in state appropriations, including its academic and research institutions not related to patient care. In addition, (Western Connecticut Health Network) recorded an addition to non-operating income of $297 million related to Norwalk Hospital and its related organizations becoming part of the network. These transactions are one-time events. Removing them, the picture for 2014 is half as rosy as the governor portrays,” the statement said.
Dr. John Murphy, the president of the Western Connecticut Health Network, which includes Danbury Hospital, held a joint press conference with the CHA. Murphy, a physician who once a month still sees patients, most of whom are Medicaid patients, shared his perspective.
“The problem in running a system like ours, [for] any of the CEOs, is [that] these are complex environments,” Murphy said. “We operate 365 days a year, 24 hours a day. Lots of people are counting on us to be there. We kid ourselves if we think we’re really saving money, because what happens is their hypertension is left untreated, so they show up with a hemorrhagic stroke in their brain. They spend a couple of weeks in the ICU, and then they go to a rehab home maybe. Or they go into renal failure, because their kidneys shut down, so they go on dialysis, which is probably the single most expensive way to provide care for these people. Or they have a heart attack and die. You’re not going to see it, you’re not going to hear about it, because they carry their burdens quietly, and they suffer in silence.”
Murphy then asked for the $200 million to be restored to these communities, and for a conversation to take place to re-engage the legislators to think once again “whether it’s fair to take it out on the poor who need us most.”
WHAT DOES THIS MEAN TO YOU
Steve Rosenberg is the chief financial officer for Western Connecticut Health Network, which includes the Milford, Danbury and Norwalk areas.
According to Rosenberg, through 11 months of the fiscal year, the network was $9 million behind budget because it hasn’t been able to find enough reductions to match the level of funding cuts.
In preparing the budget for 2016, which the WCHN board recently approved, it had anticipated the level of cuts and taxes from the government would be $37 million a year.
“The day after we had the budget approved by the board, the governor announced his latest cuts. That added another $14 million to our tax burden and cuts. For the year starting this Oct. 1, WCHN is paying $51 million in taxes and cuts,” Rosenberg said.
Tribuna sat down with Rosenberg and Andrea Rynn, WCHN Director for Public and Government Relations, to understand the impact these cuts and tax increases will have on the organization’s ability to serve the communities where its hospitals are located.
Tribuna: Mr. Rosenberg, if you were the CFO of a for-profit corporation in Connecticut, what do you think the estimated tax liability would be?
Rosenberg: We’d be paying about 20 percent on whatever margins you were able to earn. If you look at our system’s history, we saw that our revenue base is about a billion dollars. If we earn $30 million on that billion, a 3 percent margin, we’d be in paying 20 percent of the $30 million, or $6 million in taxes.
Instead, we are paying $51 million and to close that gap, for the last three years, we’ve had layoffs and benefit reductions.
Tribuna: Tax-wise, the hospital is not treated as a not-for-profit and at the same time, it’s not treated as a corporation. As a result, do hospitals actually pay more?
Rosenberg: Yes, substantially more. Again, anything that we earn doesn’t go back to shareholders. We’re not for-profit. We’re a community good and we reinvest in our employees and capital, paying our debt and funding our employees’ pension plans. That’s where the money goes. We’re trying not to cry wolf, but the cuts went so far that we’re going to have to lay off so many people, cut so many services, that they actually won’t get what they expect when they come to the hospital.
Tribuna: How many jobs would you have to cut in order to make up for the cuts?
Rosenberg: We’re trying not to alarm our employees in the meantime as we do this. The numbers, if we had to find another $14 million, which is the additional cut on top of that, we’re talking about 300-plus jobs. If we tried to layoff or cut enough costs to match the governor’s cuts, we wouldn’t just impact services to the poor. We’d impact services to everybody because there’s no one program that we can find that much money in. We were talking about going across every single thing we do in the hospital, and cutting back on a percentage of what we do.
We’ve been pretty good stewards of our resources to date, but there’s no other answer to these cuts. If you look at the hospital industry in Connecticut, compared to the rest of the country, no other state has the structure and does what we do here, taking all the money from the hospitals and using it to make up the deficit in a general fund in the state.
Tribuna: What’s the action plan for the hospital to try to reverse this situation?
Rynn: We’re trying to create public awareness because there’s an associated risk of loss of services with what’s being proposed by the governor. It has the potential to directly affect the health of this community. What happens if the community clinic goes away? What happens if flu clinics or health screenings, colon cancer screenings, go away? What about mental and behavioral health services?
We are using a tool called The Care You Can Count On e-portal – www.carewecancounton.org. We would encourage readers that are online to go to that portal. You put in your zip code and it sends a letter to the governor. It’s already pre-typed in there. It sends a letter to the governor and also the legislative delegates associated with that zip code. It asks to reopen the discussion. That’s what we need, a dialogue.