LRGH hit by state budget cuts

LRGHeathcare stands to lose $500,000 in operating income the first six months of the year if Governor John Lynch accepts a set of measures negotiated by Commissioner of Health and Human Services Nick Toumpas and the New Hampshire Hospital Association that is designed to close the mounting state budget deficit.

In February, the Joint Legislative Fiscal Committee approved Toumpas's proposal to trim reimbursements to hospital for treating Medicaid patients by $7-million. Since the state contribution to Medicaid is matched by federal funds, the cut would have left an equal amount on the table in Washington. Henry Lipman, executive vice-president and chief financial officer of LRGH, estimated the the cuts could cost his non-profit company as much as $750,000 before the end of the state fiscal year on June 30.

The hospital association countered with a package of equivalent savings that would spare reducing Medicaid reimbursement rates. Pending settlements of outpatient costs, or interim payments for services to hospitals by Medicaid and Medicare in 2005, 2006 and 2007, that exceeded actual costs, would yield approximately $5-million. Some $500,000 in "disproportionate share" payments, or monies paid by Medicaid to the state to defray the high costs of hospitals serving a large number of low-income patients, which exceeded what the state budgeted, could also be added to the mix. Finally, the association recommended that the balance of the reductions could be met with $1.2-million of unexpended Medicaid funding for pediatric specialty services in fiscal year 2008.

However, Leslie Melby, vice-president of state government relations for the association, said yesterday that Toumpas accepted $1.2-million of unspent funds for pediatric specialty services, but only $2.5-million of the outstanding settlements and has recommended reducing the Medicaid reimbursement rate for out-patients by 23-percent, from 81 cents to 62 cents on the dollar. Moreover, the reduction would be retroactive to January 1, 2008. Melby said that the rate reduction will cost the hospitals $6.6-million, $3.3-million in state funding and an equal amount in federal matching money.

Lipman said that the cuts would cost LRGH at least $500,000. "That is a pretty significant number," he said, "twice our net income in the first quarter of (fiscal year) 2008, which began November 1, and 16-percent of our operating margin of 2.4-percent in 2007." He said that it appears that as a "critical care hospital," Franklin Regional Hospital would be spared the rate reduction, but if it is not LRGH would incur another $235,000 in cuts, bringing the total impact to near $750,000. Moreover, Lipman stressed that "this is not just a one-year issue. We are anticipating further and probably deeper cuts in 2009."

Already Lynch has begun planning further reductions in the biennial budget to offset revenue shortfalls that could drive the deficit to nearly $200-million in fiscal year 2009, which begins in July. Meanwhile, the 2009 federal budget President Bush presented to Congress earlier this month includes reductions in Medicare funding that Lipman estimated would shrink LRGH's revenues by $12.6-million over the next five years, or by more than $2.5-million annually.

Last week the Heath Planning and Review Board approved LRGH's plans for a nearly $52-million expansion program that would include the construction of a five-story 90,000-square-foot addition to its Lakes Region General Hospital campus and the acquisition of 32,000-square-feet of condominium space in a new building at the Hillside Medical Park in Gilford. Lipman acknowledged that the budget cuts proposed in Concord and Washington "could affect the timing of the project. The reductions are much bigger than what we factored into our planning process."