A snafu with Medicare billing has prompted Memorial Regional Health to take a series of measures to cut expenses by more than $850,000 a month as it nears a letter-of-intent agreement with Sisters of Charity of Leavenworth Health System Inc. (SCL Health).

MRH currently has a relationship with SCL Health, according to MRH CEO Andy Daniels. There’s been a long-standing primary referral transfer agreement with SCL, meaning MRH will transfer patients south to Grand Junction, rather than east to Denver like Routt County does.

On top of that referral transfer, MRH has subspecialists provided by by SCL, which includes oncology and neurology subspecialists that periodically come to MRH throughout the month to serve patients.

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MRH recently went on SCL Health’s medical records, has access to SCL’s purchasing records and access to additional resources. Now, with the possible LOI with SCL Health – which is non-binding – MRH may fall further under SCL Health’s umbrella of operations. The LOI would allow SCL Health to negotiate an intent to lease, own, operate, or a combination of things with MRH.

MRH Chief Executive Officer Andy Daniels relayed news of the cash-flow crisis in a series of letters to staff members in the last two months noting in one of them that the “bottom line message is that we have to take immediate correction until such time that our cash in begins to exceed our cash out.”

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Tuesday afternoon, Daniels confirmed with the Craig Press the LOI with SCL Health, which will be discussed at Thursday’s MRH Board of Trustees meeting. MRH’s board will have dinner with SCL Health representatives prior to the meeting.

In addition to Daniels’ announcement of the indefinite suspension of MRH’s obstetrician-gynecologist services, the CEO told employees they would see an immediate wage freeze while the organization won’t hire any employees, or fill its 13 vacant positions, in 2020 unless its financial picture significantly improves.

MRH employees and dependents also will see their office co-pay amounts increase from $15 to $25 in 2020 as the rural, 25-bed hospital attempts to stem its cash-flow crisis.

Operational changes include the elimination of continuing-education funds for staff, the elimination of two paid holidays in 2020, as well as the removal of cafeteria-meal stipends for medical workers including physicians.

Daniels provided the letters to staff and other financial records to the Craig Press.

A key metric hospitals use for their financial health helps demonstrate the fiscal plight of MRH, which operates the hospital and other medical centers in the area.

That metric, called “days cash on hand,” represents how many days a business can stay operational by paying its expenses with its existing funds.

In the case of MRH, its days of cash on hand through October were 8.9, which are “dangerously below industry norms,” hospital CFO Sam Radke reported in its Statistical & Financial Highlights for that month.

Radke was hired in the fall to replace the previous CFO under whom the errors were made. Other changes included changing its outsource billing collections to a different firm, Go-MedAssist, in June.

“I’m concerned, obviously,” Daniels said separately in an interview. “That’s why we’re doing some of the cuts that we’re doing. We have to rebuild some of the cash on hand. The cuts that we’re doing and the things we’re changing should help us rebuild that cash on hand, which will make things run smoother once we’re back on track.”

The root of MRH’s financial problems stems from 2016, when MRH began to erroneously report its bad debt to Medicare. The hospital also inaccurately documented its bad debt in 2017 and part of 2018, Daniels said.

An MRH audit in 2018 of its Medicare Cost report for 2016 revealed the hospital’s bad debt had been overstated, prompting the hospital to hire an outside accounting firm to take a second look at 2016 and the following two years.

The audit showed MRH was on the hook to Medicare for more than $2.2 million because that was the amount in bad debt it overstated to Medicare during those years. Bad debt is the amount of money Medicare patients are required to pay out-of-pocket but do not. MRH files its bad-debt claim annually with Medicare.

“Basically, we found out we were filing it incorrectly, which caused us to owe money back to Medicare for 2016,” Daniels said. “Because of that error in filing, we decided that we needed a second look at our 2016 Medicare Cost report by a different cost report company.”

According to Daniels, that outside review — administered by Eide Bailly LLP of Fargo, North Dakota — turned up similarly natured filing errors for Medicare bad debt in 2017 and 2018. MRH self-reported the errors to Medicare, which resulted in Medicare taking back more than $2.2 million from the hospital and depleting its cash flow. The take back started at end of 2018 and the beginning of 2019, and was incremental, rather than in one lump sum, according to Daniels.

“We had to take immediate action to correct the cash flow issues,” Daniels said. “We have to do this until our cash in exceeds our cash out. We’re very sorry to those the mistake and the decisions affected, but we have to do what’s best to get this thing fixed and turned around.”

He added: “But we’re doing everything we can to make sure healthcare continues to thrive here in Craig; it’s important to the community, the economy, and the rest of the employees here. Could more changes happen? Sure, but we’re doing everything we can to do our best to not let that happen.”

As MRH had to pay back more than $2.2 million to Medicare for their “bad-debt” filing mistakes, MRH is waiting for reimbursement from Medicaid, which is three years behind on payments associated with Rural Health Clinics, according to Daniels. 

That payment was originally estimated by MRH as $5.1 million paid back to MRH, but in November of this year MRH reached an agreement with Medicaid to adjust the 2019 rates, resulting in a lowered rate due to MRH of $3.1 million.

That payment is expected to come to MRH sometime in 2020.

MRH, which is owned by Moffat County, is considered a “critical access hospital,” meaning it receives federal support. To receive critical access hospital designation, a medical facility must have no more than 25 inpatient beds, be located no more than 35 miles from another hospital, have an average length of stay of 96 hours or fewer for acute-care patients, and operate 24/7.

MRH’s plight isn’t unique to rural health-care providers.

“Operating a hospital in a sparsely populated area comes with special challenges,” noted the Colorado Health Institute in a May 2019 report on rural health care. “For example, small populations mean that hospitals can’t spread their fixed costs across a large volume of patients, which can raise the average cost of caring for a patient and drive up insurance premiums.”

Aspen Valley Hospital, also a critical-access hospital, was in a similar situation some 16 years ago. Because of problems with billing and collections, its days of cash on hand at one time stood at 11. Through October, however, that figure was 238, AVH officials said. The goal is to not let that number go below 180 days, said David Ressler, the CEO of the Aspen hospital.  

“That’s a fairly best practice to have six months cash on hand,” he said. “I would say that’s a fairly reasonable goal for what hospitals strive for.”

During the Aspen hospital’s dark days, “we were there for different reasons that what Andy (Daniels) is deal with,” said Ressler, who was hired to aid in the hospital’s turnaround. “But there were some common denominators, and it has to do with the revenue cycle process and getting paid for your services, and his case, Andy is very dependent on Medicare and Medicaid.”

Ressler called reporting to Medicare a “very complicated cost-reporting process,” noting that what’s transpiring at MRH is “not that farfetched. … It’s reflective of a small, rural hospital having such a larger percentage of patients that are Medicare and Medicaid.”

In 2018, MRH’s operating revenues totaled $59.13 million, roughly $400,000 short of the amount budgeted for that year, according to the organization’s financial records. Its operating expenses were $60.57 million, giving it an operational income loss of more than $1.4 million for the year.

MRH’s Board of Trustees, who are appointed by the county commissioners, are scheduled to meet Thursday.

Asked if the board planned to make any changes within MRH’s administration, secretary and treasurer Terry Carwile said nothing was imminent.

“If people want me to resign personally, I’ll do it,” said Carwile, a longtime Craig resident. “But people need to realize every single person on this board wants what’s best for this hospital and this community. No matter who is in Andy’s seat, MRH would still be facing these same difficulties. It’s good we’re looking at making changes now, rather than waiting until the last possible minute.”

“This has been agonizing for all of us,” added Trustee Kelly Hepworth. “But we’re all invested in the community, so we’re trying to do the best moving forward. You can look at our community in general: We’re kind of a little flat right now, so everyone is looking at things.”