Reimbursement changes hurting Children’s Hospital’s bottom line

University Medical Center says recent changes in Medicaid reimbursement structure play a large part in El Paso Children’s Hospital not living up to cash-flow forecasts in a 2007 feasibility report.

That report helped convince voters to pass a $120 million bond issuance to build Children’s.

ABC-7 is still waiting on the hospital’s financial disclosure Form 990 from fiscal 2011, so there are no specific numbers to be discussed yet.

Children’s still owes UMC an estimated $59 million for rent space in the UMC tower — plus various other support services.

This week Children’s CEO Larry Duncan told ABC-7 that the hospital’s financial woes are the result of under-budgeting for those services, low patient volumes and changing Medicaid reimbursement.

“What’s transpired between 2007 and now has been some changes primarily in three areas of Medicaid reimbursement,” said UMC CFO Michael Nunez.

First, Children’s is no longer reimbursed based on its costs to provide care.

“It’s a different payment system that is now based upon several factors: Severity of illness, resource utilization, mortality risk factors,” Nunez said.

For example, that change has cut UMC’s Medicaid reimbursements from 60 percent of costs to 50 percent — a roughly $3 million annual hit.

“Where they were previously reimbursed almost all their costs, now it’s going to be a fraction of their costs,” Nunez said.

Second, Children’s isn’t as highly rewarded for treating a disproportionate share of indigent patients. Nunez said those rule changes cost Children’s about $9 million a year.

Third, a new Medicaid supplement waiver program.

“Them being a new hospital were not able to take full advantage of the DSRIP program, so their participation on the second component of the waiver is almost nothing,” Nunez said.

Nunez said the component Children’s can’t tap into, for UMC accounts for roughly 30 percent of the previous waiver system.

The 2007 feasibility report didn’t factor in any of these changes.

“Based upon the data that was provided back then, and upon the payment reimbursement system that was made back then, that was the reasonable best effort as to what it would be, if it continued going forward under those payment systems,” Nunez said.

Kurt Salmon Associates — the firm that performed the 2007 feasibility study — wouldn’t comment Thursday on work it does with clients.

ABC-7 couldn’t reach the only then-Thomason Hospital board member who voted against putting the $120 million bond proposition before voters in 2007.

Children’s Hospital’s new CFO — who spent seven years at Dallas Children’s Hospital — will start work Monday.

A committee of UMC, Children’s and El Paso First reps is convening to ensure the financial viability of Children’s Hospital. They’ll start meeting April 23.