Central Peninsula Hospital sees sharp drop in net income

Central Peninsula Hospital’s revenue dropped 91 percent the third quarter of fiscal year 2017 as compared to the year before.


The Soldotna-based hospital’s board and administrators have been expecting a decline in revenue for the past several years, since the passage of the Affordable Care Act — also known as Obamacare — in 2010. However, the hospital’s administrators did not expect such a significant drop at once, said Chief Financial Officer Lance Spindler in a presentation to the Kenai Peninsula Borough Assembly on Tuesday.

“We actually didn’t see that until the first few months of this current year,” he said.

In the first three quarters of FY2016, up through March 31, the hospital brought in about $20.2 million in net income. In the first three quarters of FY2017, it only brought in $1.75 million, according to Spindler’s presentation to the assembly.

The hospital, operated by nonprofit Central Peninsula General Hospital, Inc. under a lease and operating agreement through the Kenai Peninsula Borough, draws funding from both its patient charges and from a small mill levy on the approximately 35,000 people in the Central Kenai Peninsula Hospital Service Area, as well as from grants and municipal revenue for capital projects.

A number of factors play into the decline in revenue. A major one is declining reimbursements for services through Medicare and Medicaid, Spindler said. Medicare and Medicaid pay doctors for services at fixed percentages of total charges, called physician fee schedules, which are adjusted annually and vary depending on the service provided. In recent years, in an attempt to get a cap on escalating costs, the federal Center for Medicare and Medicaid Services has been declining to increase reimbursement percentages, and so has the state through its Medicaid reimbursement schedule. Historically, Alaska has had one of the highest Medicaid reimbursement rates in the country, according to nonprofit health research organization the Kaiser Family Foundation. That will likely change as the state continues to cut budgets and policies change, Spindler said. The hospital is still financially healthy but the declines will probably continue, he said.

“When we’re doing this year’s fiscal projections, for fiscal year (2018), we’re trying to take as many of those things into account as possible,” he said. “We’ve said several times internally and to other folks that last year … was probably our high water mark.”

The hospital has also experienced a decline in inpatient surgeries, a major source of revenue, and an increase in “swing bed” patients. Swing beds, also known as skilled nursing, are used when a patient is well enough to leave the acute care of inpatient hospital services but not yet well enough to go home. Spindler said the hospital receives lower reimbursement rates for the patients in swing beds than in traditional inpatient beds.

More people may be declining to take elective surgeries as well. As the economy declines in the state, people will be hanging onto money they might have spent on elective surgery. The number of people with employer-based private insurance through high-paying oil industry jobs is declining as well as oil companies contract and cut costs, which costs the hospital because the private insurers pay more for services than public insurers, said Bruce Richards, the external and government affairs managers for the hospital.

“People lost half of their (Permanent Fund Dividend checks) last year — you lose that much out of the economy … people are lot more concerned about where they’re spending their money,” he said.

“You mix in … the higher deductible plans, the higher co-pays, the health care plans kind of ratcheting down on their copays and all of that, and our expenses keep going up.”

Central Peninsula Hospital has been preparing itself for the past several years for the compression in the market as health care reform presses down on revenues, Richards said. The hospital has used funds to build a specialty clinics building, redesign its imaging wing and is currently working on plans to redesign its obstetrics wing and build a catheterization lab.

The hospital is also looking ahead to what services will be necessary in the future, as well as what its revenues might be. The Kenai Peninsula is one of the fastest-aging areas of Alaska, with the average age at 40.6 years old, more than 3 years ahead of the U.S. average of 37.2 years old, according to the most recent quarterly economic overview from the Kenai Peninsula Borough. As more people age into qualification for Medicare and need access to more medical services, the hospital will likely feel the pressure there as well.

“The whole thing in general, it’s serious,” Richards said. “We’ve been planning for it for years and years and years, and it’s something that we certainly are cognizant of and going to have to work on the expense side of things and get more efficient.”

Hospitals around Alaska are experiencing similar revenue compressions. Providence Health and Services Alaska in Anchorage experienced flat patient service revenue from 2015 to 2016, and its year-to-date revenue in 2017 has been flat and is expected to drop as a result of the Medicaid price reduction effective July 1, 2017, according to an email from Mikal Canfield with Providence Health and Services Alaska’s communications office.

Reach Elizabeth Earl at elizabeth.earl@peninsulaclarion.com.