Struggling in the red, Denver Health cuts 170 jobs

By Katie Kerwin McCrimmon

A loss of $7 million so far this year and fewer hospital patients have prompted Denver Health to cut 170 jobs.

Often cited as a national leader in providing top-notch, low-cost health care for the poor, Denver Health also now faces a new penalty under the Affordable Care Act. Denver Health managers are calculating exactly how big that hit will be perhaps around $375,000 but federal Medicare managers are penalizing 1,500 hospitals across the country for not meeting various new quality measures, including low marks from patients. (Click here to read more.)

Until this spring, Denver Health proudly had been operating in the black since 1997 when the city spun the hospital system off as an independent authority. Then this year, the safety net system started bleeding cash. Earlier this year, hospital officials projected operating losses as high as $18 million for 2013 and said that other for-profit and nonprofit hospitals were sending the sickest patients to them, essentially dumping costly patients on Denver Health. Chief Financial Officer Peg Burnette declined to discuss dumping, but aggressive cost-cutting measures have improved Denver Healths financial outlook. If Denver Health remains in the red at years end, the annual loss could be closer to $5 million, not the earlier feared $18 million.

The causes for the losses are complex. Denver Health has lost millions due to the federal cuts known as the sequester. Other payments from both the federal government and the state have declined as well. And Denver Health is getting fewer dollars from tobacco taxes to help cover primary care. Together all the cuts create a financial storm.

You hardly wonder why were struggling, Burnette said.

The challenges come at a time when Denver Health must achieve two disparate goals: cutting hospital costs while simultaneously preparing for a wave of patients who will have Medicaid thanks to the Affordable Care Act. Denver Health is expecting about 81,000 newly qualified Medicaid patients in Denver alone. Many may be uninsured people who are already receiving care through the Denver Health system. Others will be new patients, prompting Denver Health to beef up staffing at clinics and to add a ninth clinic in the southwestern part of the city. Its slated to open by mid-2015.

To reverse losses this year, managers brought in a productivity consultant, Envigorate Healthcare Solutions, and launched an aggressive plan to save cash. In all, managers decided that they had to cut 170 jobs. Of those, 120 were vacant or employees had recently left and managers didnt replace them. Another 34 people received layoff notices. Several other employees went part time, cutting the equivalent of eight more jobs. And Denver Health offered early retirement to qualified employees, prompting savings through eight retirements. In all 69 people took early retirement packages, but some of those jobs will be filled.

Its hard, Burnette said. But people here understood that thats what needed to be done. The alternative was to keep going into the red and drain our cash balance until it was gone.

Im really heartened by the fact that even though we had to do this quickly and at first people were struggling with the concept of the productivity system now everyone has stepped up, Burnette said.

Department heads had to decide which positions they could live without. And if the number of patients in the hospital was low, managers had to schedule fewer employees. Managers try to anticipate how many staffers will be needed each shift, but in some cases, nurses are sent home if there arent enough patients.

Hospital admissions are down by about 5 percent from 2012 and Burnette expects the trend of fewer hospitalized patients to continue.

Nationwide, theres a movement toward more outpatient care, Burnette said.

Denver Health is working to cut costs as fewer patients are now being hospitalized. A new short stay unit helps providers treat patients who are on observation and get them released faster. (Photo courtesy Denver Health.)

On average, about 66 people are hospitalized a day at Denver Health, bringing this years admissions through September to about 18,000 people.

Complicating matters is that Denver Health must observe more patients rather than admitting them for care after the hospital system settled a whistle-blower lawsuit in 2012 and had to give back $6.3 million in payments. Reimbursements from the federal government through Medicaid and Medicare are far lower for patients on observation than for those who are admitted. And hospitals can be audited after the fact. So, if they dont make the correct call on whether a patient should be admitted or merely observed, hospitals can face retroactive penalties.

Denver Health used to mix patients on observation with others throughout the hospital. Burnette said that made it difficult for providers to determine which had been admitted and which were being observed.

To help avoid confusion and release patients faster, Denver Health recently created a short stay unit where they now keep all patients on observation.

We want to take care of the patients at the right level at the right time. We received a federal grant to work on that. We do want to manage more care in the outpatient settings, in clinics, on the phone and over the Internet, whatever is needed for the patient, Burnette said.

She said shes projecting lower-cost care in future years as care models evolve.

Burnette also has aggressively renegotiated contracts with vendors such as billing contractors essentially hunting for savings in every nook and cranny of the Denver Health System.

Its like if you switch that cell phone company, can you save? said Julie Lonborg, a spokeswoman for Denver Health.

The systems finances could improve by years end depending on how big a payment Denver Health receives from the state. Under a reimbursement program known as the provider fee, hospitals that care for a high percentage of uninsured patients get payments back at the end of the year to help cover patients who couldnt pay.

As Colorado struggled during the economic downturn, lawmakers shifted some funds away from Medicaid and provider fee reimbursements. Now that state budget projections are improving, more money intended to pay for the uninsured care may flow back to hospitals like Denver Health.

The payments apply retroactively and Denver Health could see as much as a $10 million annual increase, about $4 million of which would apply in 2013, thus helping to cover losses.

I feel like weve got a handle on our costs, Burnette said. At some point, you can only do so much cost-cutting.

Now managers are focusing on appealing to more customers with insurance, especially those who now will have Medicaid. For Denver Health, that means advertising their clinics, language translation services and additional social services.

While sign-ups through Colorados health exchange were low in October for private insurance, thousands of new Medicaid patients are qualifying each month.

From our perspective, the Medicaid sign-ups are working, Burnette said. Were excited about health reform.

Correction: An earlier version of this story stated that Denver Health is projecting annual operating losses for 2013 of $18 million. Managers at Denver Health earlier this year had projected an $18 million loss, but say cost-cutting measures have now reduced projected losses to about $5 million for 2013.