Medicine & Health

COVID-19 mandates, reimbursement woes challenge Michigan’s rural hospitals

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Brian Long, Memorial’s president and CEO, said the hospital and others like it are taking a bath from private insurers because they simply do not have the negotiating power of larger systems like Ascension or Beaumont.

“We receive typically lower reimbursement than urban systems,” Long said. “We’ve been going through negotiations with a number of payers and we simply cannot get clear and unambiguous information from them. We know our reimbursement is being impacted every day. We’re seeing unilateral changes from Blue Cross every day it seems. The private insurers used to be where we’d make 75 percent of our money, but we’re starting to lose now.”

Blue Cross Blue Shield of Michigan accounts for 25.4 percent of Memorial’s revenue and other insurers make up 11.5 percent.

BCBSM, however, said in a statement to Crain’s that the Detroit-based insurer supported health systems and physicians offices with $687 million in advance payments through June 2020 to ensure the organizations could continue operations and investments with predictable revenue.

And the insurer denies it’s underpaying Memorial.

“We are currently in good faith negotiations with Memorial Hospital about reimbursement,” the statement said. “Blue Cross’s approach is not to air differences in the news media, but rather address them with the local health system during our negotiations. Our objective, as always, is to arrive at fair and reasonable reimbursement that promotes affordable, quality care for our members.”

On the second-floor inpatient department, Nemeth demonstrated how easily hospitals lose money from lower insurer reimbursements by asking a registered nurse to describe the patient in bed 46: A patient with severe cellulitis, a bacterial skin infection, from a cat bite. The patient required an inpatient stay for prescription antibiotics to ensure the infection subsided and the patient didn’t lose their arm.

For the cat bite patient, Memorial would receive the “observation” rate, which pays about half as much as the traditional inpatient rate, Nemeth said.

“This patient met with an orthopedic surgeon and is receiving two days of antibiotics,” Nemeth said. “They are receiving the same level of care as the patient in the next bed, but we get half the price.”

The most recent changes to observation versus inpatient reimbursement came in August for BCBSM.

The reason the margins from BCBSM are so important is because that government programs that account for the majority of Memorial’s revenue — Medicare made up 45.7 percent of its $219.1 million in revenue last year and Medicaid contributed 16 percent — are perennial money losers.

Of the $26.7 million Memorial netted from Medicare last year, it lost $8.3 million. Of the $28.3 million from Medicaid, Memorial recorded a $9.9 million loss.

Brian Peters, CEO of Okemos-based Michigan Health and Hospital Association said rural Michigan is aging and becoming poorer, putting more pressure on rural hospitals like Memorial.

“For Memorial, it’s very difficult if not impossible to generate a positive margin on Medicare,” Peters said. “This wasn’t a problem 30 years ago when Medicare was a smaller population of your patient volume, but Medicare funding hasn’t kept pace with the older and sicker rural communities.”


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