Shannon's Exposure to Texas Budget Cuts

Medicaid is taking the biggest hit from the Texas legislature's bone crushing budget cuts.  Hospitals will receive 8% less in funding from Texas Medicaid.  Shannon Medical Center, the area's safety net provider, provides care for people regardless of ability to pay.  Fitch Ratings cited Medicaid as comprising 10.6% of Shannon's patients.  For the year ended 2010 Shannon had roughly $230 million in revenue, with $24.4 million Medicaid related.  An 8% decrease in reimbursement would cost Shannon $2 million over a two year period.The hospital's $4.4 million profit margin would be dinged, but Shannon could survive this cut.

Fitch cited a deeper concern, Shannon's Disproportionate Share (DSH) and Upper Payment Limit (UPL) payments.

Shannon Health System anticipates that a constrained state budget will negatively impact Medicaid reimbursement, and could also impact DSH/UPL payments. SHS received $15.5 million in DSH/UPL payments in fiscal 2010, equating to approximately 4.9% of net patient revenues. SHS's future profitability is extremely vulnerable to changes in state and federal reimbursement methodology given the hospital's exposure to governmental payors.

DSH/UPL payments are funneled through the state for federal matching funds.  Tom Green County Commissioners recently pushed forward $1 million in UPL payments to ensure a higher match. 

The devil is in how Texas cuts DSH/UPL and how much they choke from Washington, D.C.  Let's say those funds are cut a third.  Shannon's two year hit grows from $2 million to $12 million.

Shannon's profit margin of $4.4 million comes after Trust funding of $6.2 million.  A major cut in DSH/UPL could push Shannon Medical Center to shop for a buyer.  For-profit hospitals are salivating over the current environment.  For-profiteers are cold calling and e-mailing hospital CEO's.  The last time health care had such uncertainty, Community Medical Center sold out to Columbia/HCA.  Health reform is back to the future in more ways than one.

The Texas Legislature's budget will have second order effects that could swamp Shannon.  The City of San Angelo sent over 200 people to the ranks of the uninsured from City budget moves.  State cuts could cause thousands of Concho Valley residents to lose health insurance.

ASU communicated with its 767 employees on future job loss, although it's not clear how many positions will be cut through direct layoff or contract non-renewal.  SAISD is playing the same word game.  Both hospitals will likely cut staff due to Medicaid cuts.  Four major employers will drop positions with health insurance benefit.  How many dependents will lose coverage as well?  The spinoff will smack Shannon's payor mix.  Watch "self pays" rise from 8.9% to what, 12%, 15% of patients?  That's another $9 million to $18 million hit.  Will price increases to Shannon's remaining paying patients fill the holes?   Maybe, maybe not.

Throw in beds stacked with patients ready for discharge to a nursing home bed, yet none are available and Shannon's cost per case rises.  Fleeting revenue, costs exploding?  A sickly green storm is brewing over Shannon, courtesy of the Texas Legislature.  I hope Shannon survives as a nonprofit community hospital.

Update 5-24-11:  HCA's provision for doubtful accounts rose to 8.1% of revenue, up from 7.5% a year ago.   A recent SEC filing stated "Same facility uninsured admissions increased 4.7 percent in the first quarter compared to the prior year and comprised 6.5 percent of total admissions compared to 6.3 percent of total admissions in the first quarter of 2010."  PPACA's foot dragging is even hurting For-Profiteers.  HCA's investor presentation cites low unemployment in their hospital service areas and an improving acquisition environment.