NOTE: This email was sent from Alan Levine, Ballad Health’s president and CEO, to all Ballad Health team members on Friday, June 20. Please note the call to action at the end of the message.
Good afternoon:
I wanted to provide an update to you on a fast-moving issue which we have publicly engaged on, and which you may have read about in recent days. There is an opportunity for you to weigh in, as you will see toward the end of this message.
FIRST, A LITTLE HISTORY
There are no people who know better the way hospitals have been impacted since the aftermath of COVID than each of you who were here during that period. In 2022, hospitals throughout the nation, including here at Ballad Health, experienced the worst loss of staffing in history, with turnover rates going as high as 30%. These labor shortages, made worse by supply chain disruptions, led to major challenges for hospitals and health systems like ours. As you know, at Ballad Health, as a result of these challenges, our Board of Directors made the decision to make major investments in our staffing in order to reduce turnover, and stabilize our staffing as we try to hire new nurses and other supporting positions. We nearly doubled hire-in rates for nursing and provided across the board increases throughout nursing to address the compression issues these hire-in rates created. We announced, and are executing on, plans to build as many as 13 childcare centers throughout our footprint as an added benefit for the many younger team members we have since recruited and retained. We began the Balladeer Children’s Program, which now has more than 3,000 children participating.
All of these initiatives, and others, worked. Our current nursing turnover is now below 13%, significantly below the national average. And if you look at our Google Reviews by hospital, you will see that, today, our largest hospitals are outperforming great hospitals like Vanderbilt, Duke, UVA, University of Tennessee, Carilion and many others. In short, the investments we made in stabilizing staffing, even if we are still short of where we want to be, have resulted in our own patients giving you and Ballad Health higher ratings than some of the most notable hospitals in America.
While this is all positive, it also comes with a financial cost – almost $200 million annually.
All hospitals, particularly rural ones, have faced a similar financial pressure.
Over the past two years, with the support of our local mayors and elected officials, the state legislatures in both Virginia and Tennessee understood this problem, and they took steps to help hospitals deal with this. They recognized that Medicaid, a substantial revenue source for rural hospitals like ours, had not kept up with these costs. And they wanted to help. Our own local legislative delegation went to work on our behalf, and with the support of the governors of Virginia and Tennessee, they passed legislation permitting the State of Tennessee and Virginia to enhance reimbursement to hospitals by using a legal mechanism used by 49 states to ensure federal dollars used in Medicaid helped keep up with the cost. In both Tennessee and Virginia, the use of a financing mechanism called “provider taxes” is used to generate state revenue by taxing hospitals. In turn, that state revenue is allocated to Medicaid in order to enhance reimbursement to hospitals. When appropriated, these dollars draw down a federal match under the law. This financing mechanism has been used in Tennessee for more than 20 years, and, as I said, is used by 49 states.
Some observers in Washington, led by at least one “think tank,” do not agree with the use of this particular financing mechanism. They believe some states have abused it. Tennessee and Virginia are not among the states that have abused it, and in fact, Tennessee’s cost per beneficiary for the Medicaid program is the lowest in the nation.
This year, Ballad Health’s annualized cost of labor (which is $1.3 billion) and drugs/supplies ($545 million) will be more than $150 million higher than it was last year. Once all vacancies are filled, the total incremental annual cost will be more than $200 million. To put this in perspective, before the impact of COVID, Ballad Health’s annual total cash flow was $250 million. With $90 million of that being used for paying debt service, this left around $160 million for use in capital spending. The impact of COVID required us to use more of our cash to invest in human capital – with the wage increases I referenced above, and for the increased costs of drugs and supplies due to the supply chain impacts on inflation.
Also, these cost pressures have affected physicians, as well. The losses associated with physician practices have increased for Ballad Health to nearly $300 million this year. These losses have increased primarily due to independent physicians who have found they can no longer afford to practice on their own due to ongoing Medicare CUTS at the same time they have experienced the same inflationary pressure that Ballad Health has. Thus, in order to prevent losing doctors from our region, Ballad Health agreed to employ many of these physicians, thus increasing our losses on these practices. In some cases, we have taken on entire groups of physicians because of the value of these physicians to our communities. It would certainly have been more feasible financially not to do this, but our Board of Directors and management team have prioritized ensuring that effects of the national physician shortages are mitigated in our region. Physician shortages are most prevalent in rural communities, like ours, as older physicians have retired and younger physicians are choosing mostly to locate in metropolitan areas where they can earn a more lucrative income. Thus, these subsidies to keep physicians in a rural region are necessary if we are to be competitive with metropolitan and suburban areas with substantially more people commercially insured.
To put this all in perspective relative to other health systems in Tennessee, Ballad Health’s operating cash flow this year through the first nine months has been stronger than other systems, including Baptist (Memphis), Covenant, Erlanger, Methodist Le Bonheur, University of Tennessee and West Tennessee Health. Our operating cash flow for the first nine months was the same as Vanderbilt. All this said, our operating losses through December exceeded $40 million. So, despite that our operating cash flow is stronger than most other systems in Tennessee, the impact of labor cost increases and supply cost increases is unsustainable, with operating losses mounting as these increases fully take hold.
This is why our legislatures in Virginia and Tennessee acted. And their actions would generate enough incremental cash flow to offset these new costs.
SO WHAT IS HAPPENING NOW?
Based on this information, the Tennessee legislature authorized TennCare to seek federal approval to increase our states’ provider tax, and to draw down enough federal dollars to pay hospitals based on what is called the “Average Commercial Rate.” This rate is the average of all negotiated contracts in Tennessee between hospitals and insurers. Virginia has been doing this, but their legislature authorized a similar increase this year. Tennessee submitted its request last year about this time after the legislature acted and the governor approved. The Centers for Medicare and Medicaid Services initially approved Tennessee’s request for the higher provider tax and average commercial rate for the current year and for the year that begins in July, and one step remains before receiving final approval. Virginia is in the process of submitting its request for the coming year. Once approved, the Tennessee request will almost fully offset these higher labor and supply costs, creating real stability for our system. This is true across Tennessee with other hospital systems as well. Our U.S. senators from Tennessee and our congressional delegation strongly supported our state’s request, with Sen. Blackburn actively working to help get federal support for it.
As Congress has been debating the Federal Reconciliation bill, there were efforts in the House of Representatives to cut these provider tax programs. Our own delegation in Tennessee and Southwest Virginia supported our requests of the federal government, and during the deliberations in the House, successfully blocked efforts to cut our programs – basically grandfathering them in. We owe a huge debt of gratitude especially to Congressman Morgan Griffith, who has made it publicly clear that he will not tolerate hospitals in Southwest Virginia being cut, and he has stood firm on this. Ballad Health was supportive of the House bill that passed, even if there were some modifications to the Medicaid program that might result in some modest reductions. But, the biggest issue to us was to preserve the financing mechanism I’ve described to you.
THE SENATE BILL
This week, to everyone’s surprise, including to members of Congress and the U.S. Senate, the Senate leadership put forth its own bill which makes massive cuts to the provider tax program, and ties all payments to the Medicare rates we are paid. This was shocking to all of us, as there had been no indication the Senate was going to do this. If the Senate language were to become law, it would cost Ballad nearly $200 million – almost what would be our entire cash flow. We have made it clear this will lead to catastrophic failure of rural hospitals and hospitals throughout Tennessee and Virginia. Not only to Ballad Health, but to many other very important hospitals that rely on these financing mechanisms to keep their doors open.
While hospitals have had to nearly double salaries for certain professions, like nursing, due to historic shortages, the Medicare program has increased hospital payments by low single digits each of the last 3 years – taking no responsibility for helping to pay for the cost of this necessary investment. The suggestion that our payments in Medicaid should now be tied to these Medicare payments stunningly ignores how that will affect rural hospitals. The math simply doesn’t work.
WHY ARE WE ENGAGING?
It is our responsibility as leaders to make certain our elected officials understand the impact of their decisions on the healthcare safety net. The reality is that if the Senate bill passes, as drafted, it could ultimately cost Ballad Health $200 million. This comes with significant consequences. It could lead to bond rating downgrades, thus a higher cost on the interest to our debt. With 75% of our expenses being tied to labor and supplies/drugs, we would have no choice but to come up with options to make severe reductions to labor costs. Our advocacy has been that this is not at all necessary. These legal financing mechanisms are not new, have been used by 49 states, and are essential to hospital systems that rely so extensively on Medicare and Medicaid payments. When almost 70% of our payments come from Medicare and Medicaid, and these payers pay below our cost, this is not a sustainable model.
We are fortunate that our U.S. senators in Tennessee and Virginia understand this, and they have all consistently supported us. Now, they are having to fight this fight on our behalf. Our intention is to continue communicating the potential horrible consequences of this policy change, while also offering to be a part of the solution.
WHAT CAN YOU DO?
Our delegation in Tennessee and Southwest Virginia have been very supportive of our position on these issues. I think it is important to thank them and to encourage them to stand firm against these changes to the current law related to provider taxes and state directed payments. It is not easy to be contrary to leadership in the Senate on issues like this, and our senators and house members need to know we appreciate them doing so. While I do not feel it is appropriate to tell you what to say, as you each can speak for yourselves if you so choose, I do think it is important for you to know these individuals have stood by us on these difficult issues, and for them to continue to do so, and to have our back, they need to know we have their back as well.
I have taken every opportunity to thank Tennessee’s U.S. Senators Blackburn and Hagerty, and Virginia’s U.S. Senators Kaine and Warner, all of whom on a bipartisan basis have consistently been supportive of Ballad Health and our team members. Same is true for Rep. Griffith in Virginia and Rep. Harshbarger in Tennessee. Right now, we need for them to know how much we appreciate their steadfast support, and that in the coming days, we need for them to push back hard against those who want to implement these dangerous changes which would have a profoundly negative impact on the region they represent. Each of them has been in close contact with us, and they have all pledged to fight for our region. We need them do so now, full-throated, more than ever.
Here are the contacts for each of our Senators and Representatives:
Tennessee:
- Senator Marsha Blackburn: https://www.blackburn.senate.gov/email-me
- Senator Bill Hagerty: https://www.hagerty.senate.gov/email-me/
- Representative Diana Harshbarger: http://harshbarger.house.gov/contact
Virginia:
- Senator Mark Warner: https://www.warner.senate.gov/public/index.cfm?p=ContactPage
- Senator Tim Kaine: https://www.kaine.senate.gov/contact/share-your-opinion
- Congressman Morgan Griffith: https://morgangriffith.house.gov/contact/contactform.htm
Here’s an example of a message that could be personalized and emailed to our senators and representatives:
