'Payer mix' playing role in hospital merger

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Morgan Hospital & Medical Center is on the brink of merging with Clarian Health for a variety of reasons, but one of the biggest is one that all hospitals are facing in one way or another: a declining payer mix.

Payer mix is health care jargon for the percentage of revenue coming from private insurance versus government insurance versus self-paying individuals.

The mix is important because Medicare and Medicaid pay hospitals less than what it costs to treat patients. Medicare runs about 80 percent of costs. Medicaid payments runs about 60 percent of costs.

The trouble for Morgan Hospital is that its percentages of patient bills being paid by Medicare or Medicaid is rising—sharply.

In 2006, those two programs accounted for about 48 percent of Morgan’s revenue. Last year, it was nearly 60 percent.

Revenue coming from private health insurers has fallen from 45 percent to nearly 33 percent during the same time span.

At an informational meeting Oct. 14, Morgan Hospital CEO Tom Laux said health care reform threatens to make this situation even worse, according to a story in the Reporter-Times of Martinsville.

The new law passed in March would extend insurance coverage to 32 million more people—but half of those would be covered by Medicaid, and would be money losers for the hospital.

The law also required $193 billion in cuts to hospitals.

And with the first baby boomers turning 65 in January, more and more hospital patients will be covered by Medicare.

At Clarian, 56 percent of its revenue comes from Medicare, Medicaid and other government programs.

Laux said health care reform could soon reduce government payments to Morgan and other hospitals to 70 percent or less of their direct costs.

One big benefit of joining with Clarian would be greater buying power. Clarian has 80 times more revenue than Morgan.

Laux said the hospitals think greater buying power would save Morgan about $2 million off its annual expenses of $48 million. That might be enough to help Morgan gain access to the funding needed to go forward on a planned renovation of its emergency room.

“That’s enough to access capital of around $20 million, which would allow us potentially ... (to) phase in this new facility plan,” Laux said at last week’s meeting, according to the Reporter-Times.

The paper reported that Morgan and Clarian expect to have a merger agreement drafted by Nov. 1. Morgan, a county-owned hospital, must then hold public meetings about the proposed deal.

Morgan is one of many smaller hospitals looking to merge recently. They hope such deals give them access to hard-to-find specialist physicians and to help cover the heavy cost of electronic medical-record systems, which have been effectively mandated by the federal Medicare program.


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  1. Cramer agrees...says don't buy it and sell it if you own it! Their "pay to play" cost is this issue. As long as they charge customers, they never will attain the critical mass needed to be a successful on company...Jim Cramer quote.

  2. My responses to some of the comments would include the following: 1. Our offer which included the forgiveness of debt (this is an immediate forgiveness and is not "spread over many years")represents debt that due to a reduction of interest rates in the economy arguably represents consideration together with the cash component of our offer that exceeds the $2.1 million apparently offered by another party. 2. The previous $2.1 million cash offer that was turned down by the CRC would have netted the CRC substantially less than $2.1 million. As a result even in hindsight the CRC was wise in turning down that offer. 3. With regard to "concerned Carmelite's" discussion of the previous financing Pedcor gave up $16.5 million in City debt in addition to the conveyance of the garage (appraised at $13 million)in exchange for the $22.5 million cash and debt obligations. The local media never discussed the $16.5 million in debt that we gave up which would show that we gave $29.5 million in value for the $23.5 million. 4.Pedcor would have been much happier if Brian was still operating his Deli and only made this offer as we believe that we can redevelop the building into something that will be better for the City and City Center where both Pedcor the citizens of Carmel have a large investment. Bruce Cordingley, President, Pedcor

  3. I've been looking for news on Corner Bakery, too, but there doesn't seem to be any info out there. I prefer them over Panera and Paradise so can't wait to see where they'll be!

  4. WGN actually is two channels: 1. WGN Chicago, seen only in Chicago (and parts of Canada) - this station is one of the flagship CW affiliates. 2. WGN America - a nationwide cable channel that doesn't carry any CW programming, and doesn't have local affiliates. (In addition, as WGN is owned by Tribune, just like WTTV, WTTK, and WXIN, I can't imagine they would do anything to help WISH.) In Indianapolis, CW programming is already seen on WTTV 4 and WTTK 29, and when CBS takes over those stations' main channels, the CW will move to a sub channel, such as 4.2 or 4.3 and 29.2 or 29.3. TBS is only a cable channel these days and does not affiliate with local stations. WISH could move the MyNetwork affiliation from WNDY 23 to WISH 8, but I am beginning to think they may prefer to put together their own lineup of syndicated programming instead. While much of it would be "reruns" from broadcast or cable, that's pretty much what the MyNetwork does these days anyway. So since WISH has the choice, they may want to customize their lineup by choosing programs that they feel will garner better ratings in this market.

  5. The Pedcor debt is from the CRC paying ~$23M for the Pedcor's parking garage at City Center that is apprased at $13M. Why did we pay over the top money for a private businesses parking? What did we get out of it? Pedcor got free parking for their apartment and business tenants. Pedcor now gets another building for free that taxpayers have ~$3M tied up in. This is NOT a win win for taxpayers. It is just a win for Pedcor who contributes heavily to the Friends of Jim Brainard. The campaign reports are on the Hamilton County website. http://www2.hamiltoncounty.in.gov/publicdocs/Campaign%20Finance%20Images/defaultfiles.asp?ARG1=Campaign Finance Images&ARG2=/Brainard, Jim