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Banner, other Arizona hospitals brace for state cuts

by Ken Alltucker - Dec. 9, 2010 12:00 AM

The Arizona Republic

Banner Health said state cuts to the Medicaid program for the poor will prompt it to eliminate pay raises next year for more than 28,000 Banner employees in Arizona, the latest evidence that the state Legislature's budget cuts are hurting the state's health-care industry.

Banner Health, Arizona's largest hospital system and second-largest private employer behind Walmart, said scheduled cuts in Medicaid reimbursements for treatment will cost the hospital system more than $100 million next year.

Since 2008, Arizona hospitals have absorbed about $500 million in cuts and payment freezes from the Arizona Health Care Cost Containment System, the state's Medicaid program.

AHCCCS provides health insurance for more than 1.3 million low-income and disabled Arizonans - about 20 percent of the state's population - and it is a major source of revenue for Arizona hospital systems such as Banner Health.

With an additional 5 percent cut for hospitals scheduled to begin in April, hospital executives are searching for ways to further rein in expenses. Those cuts could result in layoffs or reduced medical services for Arizonans.

John C. Lincoln Health Network plans to eliminate a baby-delivery unit beginning early next year. St. Joseph's Hospital and Medical Center has sought to divert some emergency-room patients to less expensive outpatient health clinics.

Hospitals acknowledge that they must share the pain of the state's budget crisis, but they worry that more Medicaid cuts could undermine the financial stability of an industry that has sustained jobs in an otherwise bleak economy. In addition, Arizona has received national attention for its decision to discontinue funding for some organ transplants as part of the latest round of cuts, a move doctors say puts patients' lives at risk.

"We're very concerned," said Suzanne Pfister, St. Joseph's vice president of external affairs. "This is not just about indigent care. This is about an industry that has kept the economy strong and stable."

Arizona hospitals are bracing for more cuts next year and are making changes in anticipation of tougher times ahead. Gov. Jan Brewer's administration says that AHCCCS will face a $1 billion budget gap next year because of rising demand for services and declining state revenue and that there have been no credible ideas on how to find ways to close that deficit.

"So far, there has not been a single proposal that would address it," said Paul Senseman, Brewer's spokesman. "Because of the size of it and because of the inflexibility of it, this is the biggest concern of all in our state budget crisis."

Banner Health told employees this week that it will attempt to preserve as many jobs as possible. The health-care system expects to save about $30 million by eliminating merit-pay increases next year. The hospital system also will seek to save an additional $10 million through other belt-tightening measures.

Banner Health spokesman Bill Byron said the hospital system is cutting costs due to known and anticipated cuts to AHCCCS.

"We are going to do everything possible that we can to preserve jobs," Byron said. "We believe acting sooner rather than later is prudent because it does help preserve existing jobs."

About two years ago, Banner Health spearheaded two rounds of cost cutting in response to pressures stemming from the financial crisis.

Those cost-saving measures included layoffs of more than 300 employees, reducing employee mileage reimbursement and discontinuing payments to employees for smartphones or other digital devices.

Banner Health recovered to once again expand its network of Phoenix-area hospitals with a new Banner-MD Anderson Cancer Center now under construction on the campus of Banner Gateway in Gilbert.

Byron said although there are no plans for job reductions next year, Banner will closely monitor whether the Arizona Legislature pursues additional cuts to AHCCCS. About 27 percent of Banner Health's patients in Arizona receive health insurance through the program.

St. Joseph's Hospital representatives also are worried about the prospect of further cuts. So far, St. Joseph's and its sister hospitals, Chandler Regional Medical Center and Mercy Gilbert Medical Center, have absorbed about $30 million in Medicaid cuts during the past two fiscal years.

St. Joseph's estimates it laid off just one dozen or so employees from a staff of 5,300 at the beginning of the recession. With about 44 percent of St. Joseph's patients who require inpatient care on AHCCCS, hospital officials said it will be a struggle to absorb more cuts.

"Our commitment to our employees is to do everything possible to minimize layoffs," Pfister said.

St. Joseph's has sought to both grow revenue from non-Medicaid programs and reduce costs. For example, St. Joseph's struck a pact with CVS Caremark's MinuteClinic chain.

These retail clinics offer basic health care for people with minor ailments such a sinus infections or fevers. St. Joseph's has encouraged some patients seeking care at its emergency room for minor illnesses to get care instead at MinuteClinic retail locations.

St. Joseph's also has sought to reduce unneeded hospital stays by launching a medical home-pilot project through its Medicaid insurance plan, Mercy Care.

The medical home pilot seeks to make sure patients stay in close contact with their primary-care physician so they can take care of medical issues before they become acute and require a hospital stay.

Smaller health systems such as the two-hospital John C. Lincoln Health Network are resorting to other measures in response to the state's Medicaid-funding troubles. Last week, Lincoln's board of directors voted to eliminate the birthing center at Lincoln's North Mountain Hospital in the Sunnyslope area.

It is likely some of the birthing center's 99 full-time, part-time and on-call nurses and medical workers will lose their jobs.

It could be the beginning of many more job losses at Arizona hospitals next year.