?prmg?eld Hospital Spring?eld Hospital FY 2015 Budget Request Narrative A) Executive Summary In FY 2015 Spring?eld Hospital plans to continue on the path that it has followed for some time. That is, quality will remain the ?face of the organization? and access to the appropriate care in the appropriate setting for all residents of our service area is paramount in our planning and our day?to-day operations. Given our dif?cult payer mix, challenging demographics, the comparatively poor health status of our residents and the ever increasing social challenges (poverty, low educational attainment, drug use, crime, etc.), this is no easy challenge. One could assert that our service area is the veritable ?poster child? or perfect analogy for the impact of the social determinants of health on a small, rural health care delivery system. We plan to continue to improve both quality and access and will accomplish this through providing value; that is, where quality and cost?effectiveness merge. Comparing the FY 2014 to the FY 2015 budget, there are no substantial changes in programs, labor or operations. We are anticipating a decline in Adult Pediatric Patient Days; however, this is a transitional matter and inclusive of Observation Bed patients we anticipate our average daily census will increase We are budgeting for a fairly signi?cant decline in the census at our Distinct Part Unit that is consistent with the current year utilization. We do plan to continue to grow a bit in perioperative services. This will not be accomplished by expanding the clinical scope of what we do but rather by retaining a greater percentage of cases/ services that we feel it is clinically appropriate to perform in the community hospital setting and doing so in a high quality and cost?effective manner. The major components of continuing to rebuild surgical services include: The second orthopedic surgeon that joined our existing practice in the fourth quarter of FY 2013-?? a recruitment commitment that had been in place since 201 is fully acclimated to our patients and referring providers and we anticipate that productivity will continue to improve. Many of the cases we have retained in FY 2014 and will continue to retain in FY 2015 are cases that we keep as opposed to transfer out-of-state from our ED due to inadequate call coverage situation somewhat mitigated in FY 2014. Although delayed in relation to our FY 2014 budget plans, we have ?lled the void in access to Urological services in our catchment area as of May, 2014. This has been accomplished through an agreement with Dartmouth-Hitchcock Medical Center and Springfield Medical Care Systems (the FQHC parent corporation of Spring?eld Hospital) for a shared position. The provider, a returning former Spring?eld Hospital employee, will be on?site three days per week on the Hospital campus. A third Ob/Gyn provider joined our FQHC network in January of 2014. Previously based in Claremont, NH, where the local hospital has discontinued Obstetrical services, this provider brings with him an established patient panel with a favorable impact on surgery and a modest impact on Obstetrical admissions. More importantly, this is an investment in adequate access to perinatal care and the long-term health status of newborns. 25 RIDGEWOOD ROAD, P. O. Box 2003, SPRINGFIELD, VT 05156-2003 PHONE (802)885-2151 Mitigating the budgeted decline in Adult Pediatric admissions-?? caused by the increased use of Observation Bed are a modest increase in Obstetrical admissions and a very modest increase in pediatric admissions. The 2014 budget assumed that we would avoid transfers of patients that present in our Emergency Department that can and should be cared for in our facility but were transferred due to inadequate inpatient nursing staf?ng. In FY 2014 we invested in nursing FTEs to correct that situation and have accomplished our objective retaining more patients either through inpatient admissions or observations bed status. We did not and are not expanding the scope of what we do nor are we venturing out of our Critical Access Hospital (CAH) we are simply improving service to our patients many of which have let us know that we are failing them when we transfer community members for services that we can provide locally in a safe, high quality and cost-effective manner. Spring?eld Hospital was the recipient of a 2013 Clinical Excellence Award from the Voluntary Hospitals of America (VHA). The VHA has nearly 1,350 members and Spring?eld was one of ten hospitals in the CAH and Community Hospital category nationally to receive this recognition which is based on quality measures, readmission rates, the CMS Value Based Purchasing standards, and case mix adjusted charge per in other words, value. Similarly, the Hospital was recognized, based upon similar criteria, as one of the nation?s top CAHs in 2012 by iVantage Health Analytics. More recently, Spring?eld Hospital was recognized by iVantage Health Analytics in conjunction with the Federal Of?ce of Rural Health Policy as one of the nation?s top 100 rural hospitals in 2013. This designation is based upon clinical risk, value and performance with our lowest score being in the Financial Strength indicators. In other words, we are providing quality and value to a high risk population and unfortunately current payment mechanisms do not reward such accomplishments. Given this track record we plan to continue to extend value to more patients that present for services that we can and should provide. On a micro basis this will bene?t our patients, better meet community needs and expectations, and also on a macro basis contribute more value to the broader transferring patients out-of-state that can and should be cared for at Spring?eld Hospital is more costly and eliminates the State?s ability to collect the 6% Health Care Provider tax levied on in-state hospitals. Lastly, in FY 2014 our Executive Summary described in detail the ongoing challenges of caring for Level 1 patients in our Emergency Department. To address the matter in the current year we instituted a ?Fast Track? component in our ED, increased on? site contracted security to 24/7, (0) improved the collaboration with our FQHC and other local Mental Health providers by providing consults in the ED and instituting daily rounding on Mental Health patients housed in the department, and have made substantial expenditures in relation to staff training in dealing with involuntary mental health patients. There has been no sustained improvement with this situation and the problems persist. We have, however, with the investment of additional resources, improved our ability to manage through these occurrences. Currently we are in the midst of an ED ?decompression project? whereby we are expanding the department for a long over-due increase in beds and to create a holding/ isolation area which will decrease the amount of undue stimulus to which these patients are exposed. This will improve the safety and care delivered to these and our ED patients and visitors. We have received a CON non-jurisdictional determination letter for this project. B) C) Health Reform Investments Spring?eld Medical Care Systems (SMCS) is an integrated community health system consisting of the SMCS FQHC Network and Spring?eld Hospital. We are not seeking recognition of any exceptional expenditures relating to health reform in the Spring?eld Hospital FY 2015 budget nor did we in FY 2014. Seeking to positively impact the health status of our residents and prepare for health reform are daily activities within our system and the functions are imbedded in our operations and associated budgets. Our health reform initiatives are predominantly housed within our network all locations of which have obtained the highest level advanced practice medical home certi?cation. The SMCS Community Health Team (CHT) works seamlessly with Spring?eld Hospital and other service providers with our community to manage and coordinate care, develop and implement systems of care that support population health as opposed to episodic treatment of illness while still managing individual cases and ensuring that access to appropriate services is unfettered. The CHT coordinates with our ED to connect patients that present that have no identi?ed primary care relationship with one of our primary care physicians and our medical home. The CHT is also integrally involved with the discharge planning process at the Hospital to ensure appropriate follow up as needed and successful transitions from the acute side of the continuum to community-based outpatient services. This coordination has had a noticeable impact on our readmissions rates and was critical to the receipt by Springfield Hospital of the aforementioned VHA recognition for Clinical Excellence. These efforts, which once again are spear headed by our primary care network, are certame not without cost. Over the last several years we have invested substantially in care coordinators imbedded in our CHC practices and also our centrally located CHT. Unfortunately, many of the associated costs are at best only partially reimbursed under current payment mechanisms. We continue to invest and expand these capacities based upon philosophical commitment but are also highly cognizant of the financial strain placed on our delivery system over the last several years. Given that many of the activities are actually counter intuitive under current reimbursement systems we look forward eagerly to payment mechanisms that are aligned with health reform and properly value and reimburse for these efforts. Both the Hospital and the FQHC participate in the OneCare ACO for attributed Medicare patients. The FQHC is a founding member of the Community Health Accountable Care ACO and will attribute Medicaid and Commercially insured patients enrolled in exchange insurance products. Overall Budget to Budget Net Patient Revenue Increase For FY 2015 we are requesting a weighted overall rate increase of 5.57%. The weighted increase is derived by applying a 6% across the board increase to Hospital Inpatient and Outpatient services with no increase proposed for Professional Services (Hospital Specialty Provider practices). From FY 2014 Budget to FY 2015 Budget our requested Net Patient Service Revenue (NPSR) increase is The components of this increase are as follows: 1.94% attributable to the increase in our Disproportionate Share Hospital (DSH) payment 1.83% resulting from utilization increases 1.43% derived from our rate increase (net of increase in uncompensated care) Simply stated the NPSR increase is necessary to improve our ?nancial position, which deteriorated signi?cantly in FY 2013 after a few years of improved stability and now has rebounded modestly in FY 2014 with a budgeted Operating Margin of which we hope to obtain by year end. For Budget 2015 we are targeting an Operating Margin of We are adamant that this margin is essential to restoring our ?nancial health including rebuilding cash reserves and refortifying our balance sheet which has been eroding over the last several years. The requested NPSR increase is essential to obtaining the 2.0% Operating Margin target. The Operating Margin is needed in order to continue to provide quality services, fund capital acquisitions, and recruit and retain high quality providers, clinicians and other professionals. We are seeking only a 2% Operating Margin prior to the addition of any increases in Medicaid reimbursement which will, based upon noti?cation received, be added to our budget by GMCB subsequent to submission. We wish the GMCB to consider allowing any increase in Medicaid reimbursement to supplement our requested NPSR increase so that any increase would improve upon our targeted Operating Margin. ?fall to the bottom line?). We continue to be extremely active in cost containment seeking supply chain savings through our group purchasing arrangement with the New England Alliance for Health (NEAH). We will also push forward identifying savings through the Lean/PI process. We have not included any in?ationary factor in our budget. We are challenging our managers to hedge against in?ationary pressures by pushing forward with savings that we have obtained through the ?Lean? process and improvements in supply chain management. 1) Signi?cant changes from the FY 2014 Budget. As mentioned previously in the Executive Summary we have not budgeted for any signi?cant operational changes in FY 2015. In comparison to FY 2014 budget we are anticipating growth in surgical services and a modest increase in inpatient utilization related to Obstetrics. 2) Cost Saving Initiatives. In FY 2015 we will continue with the Lean re-engineering process to seek to eliminate waste from our system, will also enter our third year as a NEAH member where we anticipate continuing to find new savings or at the very least hedge against in?ationary pressures and hope to do the same with outpatient drugs through the 340B discount pharmacy program. On a budget-to-budget basis there are no large savings on any particular line item; rather, consistent cost- containment across our continuum. 3) Increase in Net Patient Service Revenue by Payer Source. We are anticipating a decline in Adult Pediatric Patient Days; however, this is a transitional matter and inclusive of Observation Bed patients we anticipate our average daily census will increase We are budgeting for a fairly signi?cant decline in the census at our Distinct Part Unit that is consistent with the current year utilization. We do plan to continue to grow a bit in perioperative services. This will be not be accomplished by expanding the clinical scope of what we do but rather by retaining a greater percentage of cases/ services that we feel it is clinically appropriate to perform in the community hospital setting and doing so in a high quality and cost?effective manner. As it pertains to NPSR, our payments as a percentage of our charges still continue to deteriorate as payment updates do not keep pace with our rate increases. We are anticipating a very modest modi?cation in our payer mix attributable to ACA provisions. We anticipate some expansion of Medicaid utilization and a very modest increase in patients covered by commercial products sold on the exchange. We anticipate Bad Debt will increase due to higher patient ?nancial responsibilities with products sold on the exchange. Revenue Assumptions: Medicare. The FY 2015budget assumes that we will continue to be reimbursed at cost plus 1% by the Medicare program for inpatient and outpatient services. However, we have also factored in continued 2% sequestration. We are not budgeting for Medicare Meaningful Use reimbursement in FY 2015. Our FY 2015 Budget does not include the impact of any prior year Medicare settlement activity. However, it should be noted that we very recently received proposed audit adjustments for FY 2011 pertaining to the disallowance of the Vermont Medicaid provider tax as an allowable expense. We plan to appeal this adjustment with the Medicare Provider Reimbursement Review Board, if necessary. If we are unsuccessful in defending this adjustment, which would be applied from FY 2010 forward, it will have a devastating impact on our operating results and cash flow. b) Revenue Assumptions: Medicaid. We were not provided a Medicaid payment increase amount from DVHA and, in accordance with instructions from GMCB staff, have not included a payment increase estimate in our Budget. The amount when determined will be added to our budget by GMCB and will improve our payment percentages and Operating Margin accordingly. We have incorporated the DVHA provided payment for Disproportionate Share Hospital (DSH) payments in our budget. As referenced previously the increase in our DSH payment is signi?cant in terms of our overall budgeted Net Revenue increase. Historically, Springfield has had one the highest, if not the highest, Medicaid Inpatient Utilization Rates (MIUR) in the State of Vermont. In the current year we became the first provider in the history of the State?s DSH program to be classified as Low Income Utilization Rate (LIUR) hospital. In other words, we feel that this increase was long overdue. c) Revenue Assumptions: Commercial/Self Pay/Other. As more payment mechanisms are moved to prospective methodologies which do not recognize the full amount of our rate increase, our collection percentages will continue to decline. Although we expect that we will have less ?pure? Self Pay due to Medicaid expansion and the launch of the commercial exchange products we feel that our exposure to bad debt will increase as the ?nancial responsibilities of patients increase. D) Rate Request We have submitted the GMCB provided Rate Increase Schedule which details the components of our rate request and the payer specific impact. For FY 2015 we are requesting a weighted overall rate increase of 5.57%. The weighted increase is derived by applying a 6% across the board increase to Hospital Inpatient and Outpatient services with no increase proposed for Professional Services (Hospital Specialty Provider practices). This request, when applied to budgeted volume and our payment mechanisms and a substantial increase in our DSH payment, yields an NPSR increase of Our budget process includes developing a targeted operating margin. An operating margin is essential in order to maintain quality, provide funding for capital and to recruit and maintain top quality providers and professionals. The budgeted operating margin of 1% for FY 2014?? - which once again we hope to obtain--? has proven inadequate to rebuild cash and fortify our balance sheet. Cash flow has not been adequate to support operations. We feel it is essential to strive for a 2% Operating Margin in 2015 which is before consideration of the yet to be E) D) supplied Medicaid payment increase. Once again, we hope that this increase once computed can be utilized to increase our Operating Margin as opposed to reducing our rate request. Given our payment mechanisms, our net to gross yield for each percent of rate increase is very low. That is because we are paid on a cost basis by Medicare, prospectively by Medicaid and some insurers and have an ever dwindling percentage of payments based upon our actual charges and even those methodologies cap our allowable rate increases. Spring?eld Hospital has a horrible payer which is the primary determinant of poor ?nancial health according to industry experts and bond rating agencies. Capital Budget Investments Our FY 2015 Budget is very modest with no single item or projects in excess of nor do we currently anticipate major additions between 2016 and 2018. We are in the process of completing a Emergency Department ?decompression? project in the current year. We have obtained a CON non-jurisdictional determination letter for this project. We have no CONS in the works or in the pipeline. Technical Concerns Apart from items already mentioned, we have no additional ?technical? concerns. Our concerns are more global and systemic in nature and revolve around the ongoing challenges of striving to meet community needs in an environment with so much uncertainty with the only certainty being the seemingly unending need to do more for our patients with fewer resources; that is, maintaining if not improving access, quality and the patient experience.