Medicare loan “killed us”: Hospital’s books in bad shape

Delta Health down to 20 days’ cash in Feb., board member says

A hospital on Colorado’s Western Slope and its clinics are looking for a new leader after their cash funds dropped dangerously low and board members learned they didn’t know how dire their finances were.

Jean Ceriani, president of Delta Health’s board of directors, said Monday the organization will be able to pay employees and take care of other routine expenses — at least for the upcoming pay period.

The board members and new interim CEO Julie Huffman, who was Delta Health’s chief legal officer, are investigating a variety of short- and long-term options to stabilize operations at Delta County Memorial Hospital in Delta, she said.

“We have the money, it’s just encumbered,” Ceriani said at a board meeting Monday. “We need to figure out a way to make it available.”

It became clear that something was wrong when chief financial officer Larry Vincent resigned unexpectedly on March 13, Ceriani said. The board hired a consultant to assess its finances, and discovered that nearly all of its cash on hand was already committed to paying off debts, she said.

The consultants didn’t find any evidence that the “inconsistencies” in the financial statements were caused by fraud or other illegal activities, Ceriani

said. The board and former CEO Matt Heyn had agreed to part ways at a special meeting Friday.

The upheaval comes as Colorado hospitals were less profitable in 2022 than in recent years, with three out of eight major health systems in the state losing money on patient care as costs — particularly salaries — rose and investments tanked.

Lawmakers appropr iated $5 million earlier this session to stabilize Denver Health’s finances, while St. Vincent Hospital in Leadville came close to shutting down in December before state and county funds gave it a reprieve.

State Rep. Matt Soper, a Delta Republican and Delta Health board member, said during Monday’s meeting that state agencies and lawmakers are aware of Delta Health’s situation, though he didn’t outline any specific plans to get the hospital through its current crunch.

Rural hospitals have faced financial struggles for years, and it doesn’t help when insurers don’t promptly pay or pay less than the full cost of care, Ceriani said. But the biggest blow was the need to repay about $11 million in advance payments from the federal Centers for Medicare and Medicaid Services, which took at least $350,000 a month, and sometimes more than $750,000, she said.

Essentially, Medicare loaned qualifying hospitals some of the payments they would be expected to receive in the future, to tide them over during the worst points of the pandemic. If repaid on time, those loans would be interest-free. However, at the end of last year, Medicare began requiring larger payments and threatening to charge 4% interest if they didn’t pay, Ceriani said.

“Our Medicare advance payments killed us,” she said. “We’re bailing out banks, and our government is sucking pennies out of rural hospitals.”

It’s not clear why financial information provided to board members didn’t clarify how much of the hospital’s cash would have to go toward paying down debts. An audit of Delta Health’s financial performance in 2021 noted the auditors had to make corrections to financial documents prepared throughout that year. While they didn’t allege anyone intentionally misstated the hospital’s financial situation, they noted board members would be less able to make good decisions without accurate information.

The financial documents showed the hospital spent about $3.7 million in 2020 and $1.9 million in 2021 on renovations to its pharmacy and new equipment for various departments. It had about $9.7 million in debt from several bond projects still left to pay at the end of 2021.

The hospital does not have its 2022 audited numbers yet, a Delta Health representative said.

Delta Health was already in a difficult financial position. During a Feb. 27 meeting, board member Tammy Smith reported the hospital had 20 days’ cash on hand at the end of January. Cash on hand measures how many days a hospital could cover its routine expenses if no new money came in. While that’s not a realistic scenario, cash on hand gives an idea of whether a hospital could handle a disruption, such as payments coming late or needing to urgently replace major equipment.

Dr. Doug Speedie, the board’s vice chairman, said during the February meeting that he was “obviously concerned” about the cash crunch. The hospital should have about 90 days’ worth of cash on hand, but it could take years to rebuild reserves to that point, he said.

“I know that we’ve done some gymnastics to try to keep that from going down any faster, but obviously that’s a point of major concern,” he said.

Smith said the hospital was projected to have 54 days’ cash on hand by December. Then- CEO Heyn said a major expense could throw that off, though. The hospital was fortunate that a recent problem with the heating was relatively inexpensive to fix and only required delaying surgeries for a short time, he said.

“These are the things that worry me, when we look at our days of cash at 20,” he said. “If we were to have something major hit, we’re not sitting on enough cash to comfortably get it repaired in a period of time that would make sense for an organization like ours.”

The audit showed Delta Health lost $8.2 million on patient care in 2021, which was reduced to a $4 million loss with federal pandemic relief funds. It also lost about $3.1 million in 2019 and $4.4 million in 2020, even after $6.5 million in relief funds.

During Monday’s meeting, Speedie said the hospital faced a similar financial crunch in 1985, and he’s confident they can navigate through it again.

“Obviously, we’re here 38 years later,” he said. “We expect to be here in another 38 years.”