It is a very difficult time for many; health care is certainly not immune. We must be realistic about the changes impacting us and the importance of working together to ensure the health and vitality of our health care ministry.
Franciscan is financially strong, St. Joseph Medical Center is a viable part of our system. The fact is we are transitioning to a “new normal,” an environment fraught with extreme challenges requiring Franciscan to expertly and prudently manage care to our patients and our ministry to the community. Franciscan’s mission, which directs us to create healthier communities, is our way forward. To do good, we must do well.
Economic recovery at the national, state and local levels continues at a slow pace. This has resulted in large increases in charity care (free care and reduced-cost care for patients) and bad debt expense (patient accounts written off because patients do not pay us). Our total charity cost last fiscal year was approximately $26 million and bad debt expense exceeded $150 million. This fiscal year, we project a 7 percent increase in these amounts.
We are seeing significant reductions in state and federal reimbursement. Our state legislators continue to face declining revenues with the task of addressing unprecedented budget shortfalls. Furloughs for state workers, pay cuts for teachers and reductions in many state services have and continue to occur. As part of the efforts to close the state budget gap, the state has cut payments to hospitals; Franciscan expects reductions at minimum of $7.5 million this year. Additionally, we expect $3.5 million in cuts to federal Medicare payments this year.
Commercial insurance companies are reducing or trying to eliminate increases in rates for our services even though the costs of labor, supplies and energy continue to rise.
In addition, our patient admissions are down, particularly for elective procedures, while the cost to do business is rising. We must continue facility and system upgrades to compete, at a cost of hundreds of thousands of dollars.
Employee wages and benefits represent over 50 percent of Franciscan’s expenses. We have a responsibility to our staff, our patients and our community to position ourselves to be viable both now and in the future.