CEO Alan Levine talks about how the 21-hospital health system has navigated the pandemic and what challenges remain for rural provider organizations.
Even prior to the outbreak of coronavirus disease 2019 (COVID-19), U.S. rural hospitals and health systems faced significant financial obstacles.
A Guidehouse analysis released in April found that one quarter of rural hospitals are at high risk of closing due to financial challenges, with the pandemic likely making it worse.
Ballad Health, a rural health system that operates 21 hospitals across Tennessee, Virginia, and North Carolina, is in as good of a financial situation as they can hope for given the effects of the pandemic, according to CEO Alan Levine.
Ballad closed its fiscal year (FY) on June 30 and released its Q4 2020 and year-end financial results Wednesday. For the quarter, the system saw its emergency department visits decrease by nearly 35%, net patient revenue fell 26.8% year-over-year, and its net operating income was a loss of $48.4 million compared to an operating gain of $25.6 million this time last year.
Levine says that without additional $82.5 million in funding received through the Coronavirus Aid, Relief, and Economic Security (CARES) Act, Ballad would likely be "knocking on the door" of triggering its bond covenants.
In an interview with HealthLeaders, Levine talks about how the 21-hospital health system has navigated the pandemic and what challenges remain for rural provider organizations.
Advice for Congress
Prior to the COVID outbreak, Levine says less than one-fifth of Ballad's inpatient revenue came from commercial insurance. He adds that the leadership team acted swiftly to address Ballad's cost structure and the health system benefited from Congress' actions to push out as much money as possible to hospitals.
While federal lawmakers continue to negotiate another economic stimulus package, Levine says he is urging them to reconsider the methodology for how provider organizations are given funding.
While he acknowledges that many rural hospitals and health systems received significant funding through the CARES Act, he says that Ballad's tertiary referral centers have not received any federal dollars. He says that while some hospitals were designated as safety-net providers, other suburban tertiary facilities were left out.
"I would advise [Congress] to look at the acute care hospitals that have not benefited from distributions and identify how to best protect our tertiary hospitals that serve a large population, which is primarily Medicare and Medicaid," Levine says. "I don't fault HHS. I think they were just trying to do it simple so that they could push the money out as quickly as they could, which we appreciate. I don't want to sound like I'm ungrateful because I'm very grateful."
Another challenge facing Ballad, Levine says, is that the federal government has tied distribution of funds to Medicare fee-for-service metrics, which are based on the proportion of Medicare claims by an organization's patients compared to the national number of Medicare claims.
Levine says that Ballad's insurance market is the second-highest penetrated Medicare Advantage market in the country, which means that if it were analyzed solely due to Medicare claims, the organization looks like it's underperforming. However, he says that most of Ballad's Medicare patients, which account for 55% of the overall population, are covered by Medicare Advantage.
He also expresses concerns about Ballad's payer mix going forward, citing patients who can't pay their high deductibles as the biggest barrier to uncollectable debts. Levine says he expects the organization's payer mix will continue to deteriorate due to the economic damage caused by the pandemic, noting that even patients who still have commercial coverage may not have a comfortable financial situation.
"Using round numbers, if we negotiate a rate where we get paid $10,000 per admission, but the patient has a $6,000 deductible and they can't afford to pay it, we just took a 60% cut on top of discounting the insurance rate," Levine says. "So, when such a small percentage of your payer mix is commercial and such a large percentage of that population has high deductibles, that's a problem and, frankly, a large part of why rural hospitals are closing."
Approximating a budget
Because of "so many moving parts" related to the pandemic and deteriorating payer mix, Ballad does not currently have a budget for FY 2021, according to Levine.
He says the organization is still working on financial projections for the future and assumes that the unemployment rate will be lower than it is now, but still not at historic pre-COVID levels. That creates a question, according to Levine, about what the payer mix deterioration will mean for both the outpatient revenue side of the business and Ballad's ability to collect on inpatient revenues.
Levine says working on a hybrid rolling budget that is based off three scenarios for "worst case, realistic case, and best case" on volumes has been "the most challenging budget we've discussed."
He adds that the budget process is more comparable to a "come up with the best, most realistic assumptions" approach, saying the projections will be used as a "guide stick" for FY 2021. Levine says that if circumstances change, Ballad will adjust and look at revising its expense situation.
Staffing is the biggest variable
Prior to joining Ballad, Levine served as Secretary of State in both Louisiana and Florida, where he navigated about a dozen hurricanes as well as the BP oil spill while in office.
Levine says that through the disasters he's faced as a public official, he's learned that emergency plans rarely pan out and that organizations benefit from stress testing their operations so that minor problems don't develop into crises.
In response to COVID-19, Levine says Ballad established a centralized command structure run by COO Eric Deaton that focuses on interfacing not only with the hospitals across the enterprise but also communicating twice a week with the communities served by the system.
Above all, Levine says his greatest concern for the weeks and months ahead is whether Ballad will have enough nurses and physicians available to combat the outbreak.
"My biggest concern is just staffing; that's our biggest limitation," Levine says. "We're good with PPE, my supply chain [executive] is a Marine, he's got a logistic supply line unlike anything I've ever seen. My biggest variable is staffing and whether or we're going to face the volatility with staffing."
Jack O'Brien is the finance editor at HealthLeaders, a Simplify Compliance brand.