UNION COUNTY — The county may have no other choice but to sell Runnells Specialized Hospital. But, regardless of what they decide, it will still cost $17 million to keep the facility afloat this year.
Recently, the Union County Freeholder Board heard the results of a study undertaken by Complete HealthCare Resources who made it clear “doing nothing is not an option.” According to the report, “the only sure way to fully eliminate the county subsidy is through an alternative ownership transition.”
Should the county decide that selling, or finding “alternative ownership,” is the only financially feasible option, the sale actually could generate $22.4 to $25.8 million in revenue.
The mission of CHR was not to make a recommendation one way or another. The goal was to present a cost analysis that specifically looked into revenue enhancement, expense reduction or “alternative ownership” opportunities for Runnels.
The current subsidy the county will have to hand over in 2013 in order for Runnells to maintain operations was projected at $13.1 million, but because the facility operates at a deficit and has for several years, that number actually is expected to climb as high as $17 million.
Although county officials avoided making a decision about the hospital the last several years, it has been apparent recently that the financial burden is weighing heavily on them.
CHR, though, recommended that even if Runnells’ long-term care facility is sold, the county should retain the license for the psychiatric unit because it is a revenue producer.
According to figures presented by CHR, the county is reimbursed 85 percent for county residents and 100 percent for non-residents. Based on census results, in 2011 the net reimbursement averaged 94 percent.
The county has been subsidizing the 100-year-old, 300-bed long-term facility and 44 in-patient psychiatric unit in Berkeley Heights for the last ten years, but hearing the cost could climb to $19 million next year was cause for action. What that action will be, however, is still under consideration by the freeholder board.
The hospital has been a major financial headache to the county for more than ten years, but even in 2011 when the deficit hit $11.3 million, officials opted for employee layoffs and privatizing housekeeping, dietary and laundry services, rather than putting the facility up for sale. But that may no longer be an option because the move only saved the county $2 million over a 16-month contract.
Todd Wagner, Vice President of Financial Management and Business Development, explained during the presentation Feb. 7 that even if the county decided to lease the facility for $1.3 to $2.1 million annually, it would not help ease the financial burden.
“The impact would be nominal,” Wagner noted, adding that the county could look into an alternative ownership arrangement where bed licenses are sold to a new operator until a future date when the new owner relocates to a replacement facility.
Even if the county decides to sell Runnells while retaining licensure of the psychiatric unit, taxpayers would see minimal financial relief this year.
Wagner said it typically takes nine months to a year to complete the sale of a hospital, at a minimum. But the sale of the hospital would not be impossible, nor, for that matter, difficult. He pointed out that last year alone four counties, including Sussex, Burlington, Cumberland and Salem, sold similar facilities.
For example, in Sussex a 102-bed facility sold for $7.8 million, while in Cumberland county a 196-bed facility sold for $14 million. Prior to that there were sales in Essex, Hudson and Mercer. Wagner did mention, though, that these facilities were only losing a few million dollar each year, not $17 million.
The problem with county-owned facilities, Wagner said, is that revenues, in general, are flat and not expected to rise. He also predicted that even these revenues will drop further in the next few years.
At issue is that the financial reimbursement Medicaid pays the county per bed dropped significantly in the last ten years, but has remained relatively flat in recent years.
Presently the county receives around $220 per bed from Medicaid to offset the cost of operations, but that number is expected to drop to $190 per bed. According to Wagner, in order to operate the 100-bed facility, it is costing the county $300 per bed, per day. Because of the difference, the county has to put in the remainder of the money, which accounts for the subsidy required to keep the hospital afloat.
After the presentation, the freeholders had an opportunity to question Wagner about their findings and to further define the options open to the county.
Freeholder Al Mirabella asked Wagner about the procedure for determining a sale price for Runnells. Specifically, the longtime freeholder wanted to know if CHR had the expertise to provide an accurate evaluation of what Runnels would bring if put up for sale.
“Our values are based on economic numbers,” the CHR vice-president said, explaining the county would have to speak with a realtor in order to get into comparables and a sale price.
Freeholder Dan Sullivan inquired whether declining Medicaid reimbursement in the last five years was the “cost driver” of the problems the county was having at Runnells. Al Pino, who handled the financial end for the report, agreed it had been a major factor.
Over the last six years, he pointed out, reimbursement went from $223 a day to around $220 this year.
“It’s been relatively flat the last six years,” he said, adding “the bad news is that it will be dropping to $190.” That drop, he said, could come as early as July, or as late as January 2014.
“It costs $275 to $300 for the county to break even,” Pino told the board, adding that other counties had to close their facilities for the same reason. He also mentioned that the county continues to lose money when it comes to private pay patients.
“This is a very tough situation with very high fringe benefits,” he said, adding that with holiday and overtime pay, the county cannot compete with the private sector. CHR found private pay long-term care facilities manage their overhead at $185 to $190 per bed. He did not explain why the county cost is so high or how it could be reduced.
Freeholder B.J. Kowalski was not happy about Runnells being sold and expressed that sentiment in her comments.
“It’s not an alternative I would have welcomed, but we are facing serious, serious deficits, or we would not be looking into this,” the Cranford freeholder said.
Freeholder Angel Estrada also questioned if there was a viable market for facilities like Runnells and Pino said according to the research they did, there was indeed.
In 2010 prior to the November election, both Sullivan and Kowalski defended keeping Runnells, maintaining the facility was “self-sustaining.” At the annual freeholder debate, their Republican challengers suggested Runnells was a financial drain on taxpayers, but Sullivan, who was running for re-election, begged to differ.
“Don’t be misled by what you are hearing tonight. When you hear ‘we’re going to examine this, we’re going to look at it, they have a plan to get rid of it,’” Sullivan said, adding that with the county losing both Muhlenberg and Union hospitals, this left no local facility for seniors to seek medical help in an emergency. At the same debate Kowalski backed Sullivan, assuring the Democratic freeholder board “had made sure Runnells’ is self-sustaining economically and is moving very solidly into the future.”
Kowalski’s statement was true according to the last fiscal statements available at the time of the debate. However, this was the same year Runnells’ ran a $14 million deficit, which was not known until two months later.
Neither Sullivan or Kowalski offered any cost saving measures as a solution to making the hospital more self-supporting or proposed a means to operate the facility at a profit.
At the 2010 debate, Republican challengers Ellen Dickson, now mayor of Summit, along with Brian Flanagan, suggested that while they would not like to see Runnells sold, they did think a study was definitely in order to examine what was causing the hospital to operate at such a huge deficit. Sullivan, however, bristled at this, shooting back exactly how he felt about the suggestion.
“They have a plan and that plan is to get rid of it,” he said of Runnells.
Kowalski, on the other hand, despite being on the board for many years, seemed unaware the hospital was running at a $14 million deficit.
“It is an extremely successful institution,” she said at the debate.
According to Union County Communications Director Sebastian D’Elia, the freeholder board has taken the CHR report under advisement and is expected to make a decision about the fate of Runnells in the coming months.