Mercy Hospital to Halt Medi-Cal Patient Care; Poor Funding Cited

Mercy Hospital, one of the largest hospitals in San Diego County and one with a long tradition of caring for the poor, has notified the state that it can no longer afford to accept inpatients under the embattled Medi-Cal health insurance program.

The decision, which could go into effect Aug. 26, would shift the several thousand Medi-Cal inpatients treated at Mercy each year to other hospitals--many of which say they, too, are already overburdened and under-funded by the Medi-Cal program.

Mercy’s move ups the ante in the growing conflict between state health-financing officials and San Diego County medical authorities, who have accused the state of hamstringing local hospitals with some of the lowest Medi-Cal reimbursement rates in the state.

Applause and Concern

“I applaud them for what they’re doing,” Fred M. Harder, chief executive officer of Paradise Valley Hospital, said late Monday. “Because all of us in San Diego are being grossly under-funded in comparison to the rest of the state.”

Sumi Kastelic, associate director of UC San Diego Medical Center, warned that her hospital would be unable to absorb Mercy’s patients and expressed concern “that the Medi-Cal patients from our . . . area will not have adequate access to services.”

Mercy officials informed the state last Wednesday of their intention to terminate their Medi-Cal inpatient contract, the individually negotiated agreement under which the hospital receives a daily rate for accepting Medi-Cal patients.

The move occurred after hospital and state officials failed to agree last month on a mutually acceptable reimbursement rate. Laura Avallone, a Mercy spokeswoman, said the California Medical Assistance Commission offered just half of the increase Mercy had asked.

No Increase Since 1983

“Since 1983, we have not received a rate increase, not even for inflation that’s increased 19%,” Mary Yarbrough, hospital executive vice president, said Monday. “We think we are being paid at a lower rate than other (equivalent) San Diego hospitals, even though we provide services equal to and sometimes greater than some of the hospitals in the area.

“What we see is that we’re competing with other hospitals for salaries, employees, money for capital equipment and new technology. . . . Over time, we can’t continue that service. We can’t provide for our employees and the public the kind of service we wanted.”

Yarbrough said the hospital expects to lose $4.5 million on Medi-Cal patients this year.

The 96-year-old Catholic hospital in Hillcrest has 523 beds--more than any other hospital in San Diego County. Avallone said Medi-Cal patients account for about 20% of all inpatient days. About 3,000 Medi-Cal patients are expected to be admitted this fiscal year.

Under the current proposal, Mercy would continue to accept Medi-Cal outpatients and serious emergency cases. All Medi-Cal inpatients in the hospital Aug. 26 would be gradually transferred to other hospitals still operating under Medi-Cal contracts. Under state law, a hospital must give the state 120 days’ notice before terminating a Medi-Cal contract.

“We do have a mission to help the poor and we still are going to serve the poor,” said Yarbrough, whose hospital was founded by the Catholic order of the Sisters of Mercy. “ . . . We probably have a $2-million program in terms of charity, for people who have no coverage at all.”

Burden on Other Hospitals

But officials at other hospitals expressed concern for the fate of the Medi-Cal patients.

“UCSD Medical Center has for more than a year experienced very high patient census, which has at times exceeded our capacity,” said Kastelic, whose hospital serves the same area as Mercy does. “Therefore we are unable to accommodate any additional patient population.”

“We will certainly evaluate what is happening at Mercy and our continued participation in the program,” said Michael Erne, chief executive officer at Grossmont Hospital, which late last year considered, but decided against, terminating its own Medi-Cal contract. “We probably will experience an increase in patient load because of Mercy’s announcement.”

“I think that any time we lose any of the hospitals because of the Medi-Cal situation, it’s going to be tragic and place a burden on all the rest of the hospitals,” said Dr. Richard Butcher, president-elect of the San Diego County Medical Society. “ . . . I think that we’re going to end up seeing several other hospitals doing this.”

Negotiating Tactic?

A few observers said Mercy’s move might be a negotiating tactic aimed at forcing the state to offer it a higher reimbursement rate. They suggested Mercy was big enough to be able to exercise some leverage over the state and to absorb the loss of its Medi-Cal contract.

“Mercy can do without it,” said Harder, whose hospital is much smaller and has a larger percentage of Medi-Cal patients. “They’re able to show that they’re willing (to forgo the contract). They have enough leverage that the commission may cough up.”

Yarbrough acknowledged that Mercy would be happy to continue with a better rate.

“We’ve told them from the very beginning: The number that we’re asking for is a very solid number, and if today they could work that out for us, we would cancel our termination and move right along with the contract,” she said.

The California Medical Assistance Commission is scheduled to meet today in Sacramento, at which time Mercy’s notice of intent to terminate is expected to come up for discussion, said James Ringrose, the senior hospital negotiator for the commission.

Ringrose said the commission may ask its staff to study the impact of termination by Mercy. He said that would include “whether we can do without Mercy or not do without Mercy, and what are the costs or impact of Medi-Cal patients going to other providers.”

Competitive Marketplace

Ringrose acknowledged that the commission’s own reports to the Legislature suggest that the reimbursement rates in San Diego are lower than the statewide average. He said those rates reflect, among other things, “the fact that San Diego County is a very competitive marketplace.”

“All I can say is that San Diego County is perhaps the most heavily over-bedded county in California, with the exception of San Francisco,” said Ringrose. He said that means that hospitals have been eager to bargain with the state for Medi-Cal patients to fill their beds.

Ringrose declined to say whether the commission makes new offers to hospitals after they submit notices of intent to terminate. He simply cited the cases of San Bernardino County Hospital, which terminated its contract and has been out of the program since December, and an Oakland hospital that remained out of the program for six months before asking to be brought back in.

The Deukmejian Administration has proposed a 10% cut in fees paid to physicians and other providers, plus a $150-million general cut in the Medi-Cal program’s $5-billion annual budget as ways of solving the program’s financial problems.