Delta Health 9.03.21

Delta Health experienced $11.5 million in operating loses in 2020.

Like numerous rural hospitals and clinics across the nation, Delta Health continues to face critical financial concerns which have been exacerbated by the COVID-19 pandemic.

Prior to the COVID-19 outbreak, the hospital was already experiencing financial loss. In 2018 the hospital’s net operating loss was roughly $741,000 a trend that has continued over the ensuing years at an alarming rate.

Recently the county-wide healthcare system consisting of a 49 bed hospital and 13 clinics was forced to shift gears resulting in staff reduction and the consolidation of clinics.

Layoffs or “right-sizing” has resulted in roughly 30 employees (less than 5% of overall staff) losing their jobs while two clinics were absorbed into the system to reduce costs.

“We have providers that can absorb (those services). For example, we shut down our urgent care. We now have walk-in clinics at our family practice locations, internal medicine and pediatric locations,” said CEO Matt Heyn, adding that the number of walk-in patients is up significantly.

While the finance woes at Delta Health are concerning, the trend in rural hospitals across the nation losing money isn’t unusual. It’s been estimated that nearly 900 rural hospitals, or over 40% of all rural hospitals, are at risk of closing in the near future. At least 11 rural hospitals in Colorado are in the high risk category.

Among the problems facing rural healthcare is the lack of population to bring in more patient volume and rural facilities typically receive lower reimbursement rates compared to their urban counterparts.

“Our payer mix is 75% Medicare/Medicaid so, we don’t have the luxury of having big commercial payers, insurance companies that pay a percentage of bill charges. We’re on capitated reimbursement,” said Heyn.

Designated as a general acute care hospital hasn’t made the road easy for Delta Health. In recent months Heyn has been petitioning CMS for a change in status.

“We are trying so hard to become a Sole Community Hospital but to date we haven’t made any headway in that aspect,” said Heyn, adding that the hospital would welcome any “grass roots” efforts on its behalf.

“Let the legislators and the regulators know that we take care of a very rural community and we deserve Sole Community Hospital status just because we’re a mile too close to Montrose shouldn’t mean that we have to suffer from a financial standpoint. Regulators and lawmakers wrote that into law which means they can change that law and make exceptions for organizations like ours that really need to be designated as a Sole Community Hospital,” Heyn said.

Another possible solution could be an increase in sales taxes or increasing the hospital’s mill levy.

“Either one of those would help some and all that stuff is being evaluated to see what the potential opportunities look like, but nothing’s been decided,” said Heyn.

In its most recent financial audit released in May, Delta Health’s net position decreased by $4.4 million compared to roughly $2.6 million in 2019.

Last year, Delta Health and its clinics recorded an operating loss of $11.5 million, roughly $1 million per month. In 2019 the operating loss was nearly half that amount at $4.1 million.

“One thing to note on the $11.5 million loss is it doesn’t include the COVID stimulus dollars from the CARES Act so, that would bring our loss closer to about $5 million on the year which is still not great from an operating standpoint,” Heyn said.

Delta Health received $6.5 million in CARES Act money which it does not have to repay provided they followed all the rules set down by the Department of Health and Human Resources (HHS).

In addition to the CARE Act funds, the hospital also received $11 million in advanced payments from Centers for Medicare and Medicaid Services (CMS) which must be repaid this year.

“The irony in all that is right now COVID is probably as bad as it was when they were making these decisions. So, having to pay back accelerated payments that were put in place to help us absorb COVID patients in a time when COVID infections are as high as they’ve ever been puts a significant strain on the organization. It feels like a double whammy,” Heyn said, adding that the CMS advance payments were probably a ‘one and done’ deal.

The hospital has 29 months beginning this month to pay back the advancement. Heyn said if they fail to do so, CMS will simply recoup its money by withholding future Medicaid and Medicare payments.

According to auditors, one way to look at the hospital’s financial health is to look at its net position calculated as the difference between assets, liabilities, and deferred inflows of resources. Over time, increases or decreases in the hospital’s net position are one indicator of whether its financial health is improving or deteriorating.

“We do carry a lot of depreciation on our books which does affect our operating margin so a non-cash entry would be depreciation. Even though we’re posting operating losses, our cash is dwindling, but keeping up better than it has historically with the organization. We still have a good solid day’s cash on hand and that’s allowing us to continue to operate the organization,” Heyn said.

The CEO isn’t predicting any additional staff layoffs nor has the hospital instituted a “hiring freeze.” Currently, the hospital is hiring key positions as needed.

“We’re going to continue to really keep an eye on the ball to make sure that we’re not going to have ‘creepage’ or an increase in our employees now that we’ve actually done the reduction in workforce and cut or staff where we feel like we need to be from a right sizing perspective,” Heyn said. “We’re seeing a decrease in our payroll expense which is our single greatest expense as an organization. That decrease will hopefully allow us to stabilize as an organization.”

Under Heyn’s leadership, the hospital hired accounting firm BKD to complete a financial, operational, and strategic assessment to help reduce expenses.

“It’s been extremely helpful. We anticipate that we’re going to see a 5-to-1 return on the expense that we have with them. And that return is going to come by way of more efficient operations, doing a better job of coding and collecting,” he said.

At the recommendation of BKD the hospital is changing its Group Purchasing Organization (GPO), a move that should net $1.2 million in savings. Also at the BKD’s suggestion, the hospital is updating its current collection payments system as well as collecting copays, deductibles, and out-of-pocket funds from the patient before a procedure is done.

“When you go through a drive-through to get something to eat you have to pay for it before you get it, healthcare has lagged in that, but we’re finally catching up to the rest of the marketplace,” said Heyn.

In February 2021, the hospital began an ambitious rebranding project expected to cost half a million dollars. That project has been put on hold due to the current financial crisis. To date, Delta Health has spent less than $20,000 on rebranding.

“We have halted all of those activities. So, if you’ve noticed our signage has not changed. We’re still ‘Delta Health’ and that’s how we think of ourselves. But the expensive stuff like changing out signs, so on and so forth, we’ve halted all of that,” Heyn said.

At the time of the rebranding, the new CEO set two lofty goals in the areas of patient safety and satisfaction. The first goal was to become a Center Medicaid and Medicare Services (CMS) Five Star Hospital. The second goal was to obtain Leapfrog grade “A” status.

“We are a four star CMS so, we’re inching closer to that five star status and we anticipate that we’re going to be a Leapfrog grade “B” when the next status is reported later this month,” Heyn said.

Leapfrog and CMS both look at the quality of care at an organization based on measurable metrics over time. The hospital has been making incremental improvements.

“The way we’re building up confidence from a community perspective is by having these scores go up very significantly. It’s a lot of the stuff taking place behind the scenes, making sure we have the right staffing ratios in place and we’re doing the right things as far as patient safety and patient quality are concerned,” Heyn said, “I feel like we can rebuild that community trust by providing a quality patient care outcome.”

While the 2020 Delta Health audit reveals a hospital in financial crisis, auditors EideBailly, stated in its report that it’s important to “consider other non financial factors, such as changes in the hospital’s patient base and measures of the quality of service it provides to the community, as well as local economic factors to assess the overall health of the hospital.”

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