Health care model relies on reimbursement

PORT ANGELES — Olympic Medical Center is unlike almost any other business on the North Olympic Peninsula.

It can’t turn away any customer — paying, not paying, under the influence of drugs or alcohol, diagnosed with mental disorder — who shows up at its doors.

It doesn’t know when it will get paid for providing services. It often doesn’t know exactly how much it will get paid for doing so, and the customer who receives the service hands over just 80 percent of what it costs OMC to deliver the service in the first place.

That model of health care, followed by just about every hospital in the United States, doesn’t pencil out.

So, when OMC’s board of commissioners announced Wednesday it would enter a process to explore the possibility of entering into a partnership with another provider, it came as a reluctant decision, acknowledging a fundamental change is needed in the way the hospital conducts its operations if it intends to continue delivering health care to the community.

OMC lost a combined $45.7 million in 2022 and 2023, and it is forecast to lose money in 2024 and 2025.

During the past 18 months, OMC has made a concerted effort to maximize is revenues and reduce expenses.

It improved its medical coding and billing operations to capture more income, cut back overtime, kept a tight lid on expenses and reduced the number of travelers and other contract workers.

It has not been enough the stop or even slow its losses.

“The board is doing this partner process because we have to see what else is out there,” OMC CEO Darryl Wolfe said. “There may be some affiliation, some partnership that will help us meet our objectives: keep jobs, keep services and keep access for everybody like we have now. That’s really what we’re trying to do.”

The goal is a solution that will see OMC well into the future.

“We can muddle along for a couple more years, but this isn’t just about the next couple of years, it’s about the next 10 years, the next 20 years,” Wolfe said. “We’re at a really unsustainable position right now.”

OMC’s operating revenue has increased 9 percent since 2019, but its expenses have increased 27 percent over the same time period, according to an audit report prepared by the accounting firm Moss Adams.

Everything is more expensive than it was 10 years ago: salaries and benefits for employees, technology, equipment.

The amount of charity care and bad debt it must write off is increasing.

In 2023, charity care cost OMC $4.5 million, and its bad debt came to $3.1 million. This year is predicting $5 million in charity care and $4.5 million in bad debt — both higher than anticipated.

Charity care is an obligation OMC cannot avoid. State law requires all hospitals provide financial assistance to anyone who meets certain income requirements. (Federal law mandates nonprofit hospitals like OMC offer charity care to anyone unable to pay their medical bills.)

OMC also has received some relief.

Almost 55 percent of voters in the August primary approved a measure that increased its levy rate from 31 cents to 75 cents per $1,000 of assessed property value that will generate about $12 million a year — about twice the amount it had been collecting.

In 2023, the state Legislature approved increasing funding for the hospital safety net assessment program (SNAP) that reduces the gap between what it costs OMC to deliver care and what it is paid for Medicaid services.

Also in 2023, OMC applied for and received a $458,000 distressed hospital grant from the Washington Health Care Authority.

As Wolfe has continually stressed — to the Legislature, to Congress, to the community — the only solution to OMC’s financial situation is boosting Medicare reimbursements.

The percent of OMC patients relying on Medicare is continually increasing, rising from 60 percent in 2023 to 64 percent this year. At the same time, the number of patients who have commercial — or private — insurance that pays at significantly higher rates than Medicare has fallen.

According to a 2024 Rand study, commercial insurers in 2022 paid an average of 254 percent of what Medicare would have paid for the same services at the same hospital or hospital system.

In the same study, it reported the price paid by commercial insurance for drugs administered in a hospital setting averaged 278 percent of the average sales price compared with 106 percent of the average sales price paid by Medicare for the same drugs.

Hospitals across the state lost a cumulative $3.8 billion in 2022 and 2023, according to the Washington State Hospital Association.

But Medicare reimburses critical access hospitals such as Jefferson Healthcare and Forks Community Hospital at 101 percent of reasonable costs. Large hospital systems such as Providence can absorb Medicare costs much easier than OMC.

Wolfe said he had been visiting Washington, D.C., since 2015 with the same message, but only Rep. Derek Kilmer has been helpful.

“He has gone above and beyond to try to help us,” Wolfe said. “He has tried to make things happen. He’s been fully committed.”

Among Kilmer’s accomplishments was securing $1.2 million for OMC to expand its telehealth services and helping lead the effort to repeal the Centers for Medicare and Medicaid Services’ site-neutral reimbursement policy that will save OMC about $50 million over 10 years. He also pushed for the Rural Hospital Technical Assistance Program Act; legislation to expand a CMS demonstration project, providing cost-based reimbursement for inpatient services at rural hospitals; and legislation to provide sole community hospitals and Medicare-dependent hospitals with updated payments based on real costs.

“Despite all the help we’ve gotten, and despite all the improvements that we’ve made, it’s just not enough to keep up with the rising costs to take care of patients,” Wolfe said.

The trend in the consolidation in hospital systems across the country has been mirrored in Washington state.

In 2010, Stevens Hospital in Edmonds merged with Swedish Health Services. Two years later, Providence Health and Services and Swedish Health Services created a partnership to deliver health care in the Seattle area.

In October, MultiCare Health System in Seattle merged with Overlake Medical Center & Clinics, based in Tacoma.

Some of the moves generated concerns. Partnerships and mergers between Catholic healthcare systems and secular ones, like Providence and Swedish, and CHI Franciscan and Virginia Mason Health System in 2021, raised apprehensions about church doctrine that forbids certain kinds of services, such as physician aid in dying, birth control and abortion.

Wolfe said strategic partnership is not a foregone conclusion. At any point in the process, the board could choose not to proceed. It is also possible no health care organization would have an interest in becoming a partner.

“It’s not a sure thing,” Wolfe said. “At least we can say we’ve tried everything else. It’s our responsibility to find out.”

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Reporter Paula Hunt can be reached by email at paula.hunt@peninsula dailynews.com.