With the latest audit offering a new perspective, Jackson Health System’s long-troubled finances are looking better in some basic areas, but underlying problems linger and a precarious future lies ahead.
After losing $419 million over three years, Jackson eked out an $8.2 million surplus in its fiscal year that ended Sept. 30, according to the audit released earlier this month, and its most recent monthly report, for January, showed a $5.5 million surplus.
“What a difference a year makes,” Chief Executive Carlos Migoya gloated to Jackson’s board on Monday . “We made the tough decisions,” which included laying off a thousand employees and collecting payments more quickly.
But he didn’t try to sugarcoat the future. “We have a clear picture of our challenges.”
Those challenges include finding new ways of attracting paying patients, attempting to repair Jackson’s strained relationship with the University of Miami, finding hundreds of millions of dollars to fix up its aging facilities and adjusting to state and federal healthcare reforms that could cause Jackson’s poor and uninsured patients go to other facilities.
“We’re literally in the calm before the storm,” said Marcos Lapciuc, Jackson’s board chairman.
Up to this point, Jackson’s turn-around has been funded by cost-cutting. That has resulted in “positive results,” said Sal Barbera, a veteran hospital administrator who now teaches at Florida International University, but it’s “unsustainable, as expense cutting has a limit and will not bring prosperity to the organization. Revenue growth will not be easy.”
Even the present remains tenuous. At the end of January, Jackson’s cash on hand — a basic measurement of money in the bank — remains a low 14.5 days, far below the 175 days of cash that executives want to have to ensure smooth operations. “We’re not going to solve that cash problem in one or two years,” Migoya said.
What’s more, the recently announced audit revealed a profound weakness in one often-ignored sets of figures: In fiscal 2012, Jackson’s current assets were $450 million, while its liabilities were $495 million. In accounting terms, Jackson doesn’t have enough money to pay its bills.
That’s why Joshua Nemzoff, a Philadelphia hospital consultant who used to live in Miami, says, “They continue to be in very serious trouble. My opinion is they’re insolvent. Anyone else who had financials look like this would have declared bankruptcy a long time ago.”
Lapciuc acknowledges that the discrepancy between assets and liabilities is a problem, but the $45 million shortfall in 2012 is considerably better than the $112 million assets discrepancy in fiscal 2011. “Although we’re not in a healthy status, we seem to be on the mend,” he said.
Part of that mending has come with improvements in the economy. Duane Fitch, a Chicago hospital consultant who advises Jackson’s unions, points out that the increase in local tax revenue last year was $8.6 million — more than the audited surplus.
Fitch wonders how much longer that local tax revenue — in property taxes and a half-penny sales tax — will be available for Jackson. It amounted to $335 million last year, while Jackson provides services to fewer patients: In the past four years, in-patient admissions have dropped 21 percent.
“They’re kind of providing less services with the same amount of county money,” said Fitch. “At some point, that equation has to be addressed.” That discussion could lead in a direction that Gov. Rick Scott has urged: tax dollars following the poor and uninsured patients, flowing to whatever facility they use, rather than going solely to government hospitals.
Michael Bileca, a state representative and Jackson board member, said he disagrees with Fitch. He believes county leaders will be happy that “Jackson is no longer a ticking time bomb,” which could overwhelm county finances if it couldn’t meet payroll. “I think they would take that trade-off — lower services for same taxes — all day long.”
Bileca and many others believe that Jackson’s main problem is reversing the trend of declining admissions. Jackson’s patient numbers have been steadily declining since 2007, the year that UM bought Cedars Medical Center, just across Northwest 12th Avenue from Jackson Memorial.
Since UM doctors represent more than 90 percent of the staff at Jackson Memorial, some believe that the timing of Jackson’s patient decline and UM’s purchase was not coincidental. Lapciuc said Jackson has an “almost unsustainable relationship with the university.” He listed several service areas — including urology, oncology, pulmonology, cardiology and orthopedics that “the University of Miami has basically plundered those lines out of Jackson … and taken them across the street.” Lapciuc has urged Jackson’s leadership to consider other academic alternatives to UM.
UM Dean Pascal Goldschmidt responded: “We are disappointed that Mr. Lapciuc does not realize the extraordinary opportunity that Jackson and the University of Miami bring to the community in all disciplines of medicine. … Together we have created lines of service second to none, and together we have trained legions of outstanding physicians who are caring for hundreds of thousands of patients in South Florida and beyond. We intend to continue our partnership of excellence in the decades to come.”
CEO Migoya, speaking recently to The Miami Herald editorial board, praised UM doctors working at Jackson, “It’s great to have some of the best doctors in the country,” but it’s hard “when the guy that owns a Burger King is running a McDonald’s across the street.”
Last year, Migoya sought a clear split to define doctors’ loyalties, so that some UM faculty would either be hired or leased by Jackson and owe all their loyalty to Jackson Memorial. That idea has gone nowhere, and Migoya is now establishing programs that UM and Jackson can work on together, such as organ transplants.
Fitch, the union consultant, believes Jackson has to find a way to work with UM. “The relationship with UM is probably the most complex and potentially concerning long-term issue facing Jackson.” FIU’s medical school is too young to offer a real alternative to UM’s depth of faculty specialists, Fitch said.
“It is critical that Jackson and UM find a pathway to work together to meet the community’s needs. … There are no viable alternatives for Jackson,” Fitch said.
Bileca, the board member who is also an executive with a healthcare company, said Jackson has to make the UM relationship work. He notes that both the UM Hospital and Jackson have been losing market share to the powerful Baptist Health system which has four hospitals in South Miami-Dade. “I think we can be stronger together.”
Barbera, the former hospital administrator, thinks Jackson needs to explore other options. “This will not be an easy fix but Jackson has no choice and must aggressively pursue and develop new relationships with FIU, [Florida Atlantic University], Nova Southeastern, and even the University of Florida.”
Bileca notes that in January net patient revenue reversed a long-standing trend, and was up $10 million from a year ago, although admissions were still below January 2012, a disparity caused by Jackson being more aggressive in collecting from insurers and doing better in enrolling the uninsured in Medicaid.
Like his three CEO predecessors, Migoya has been trying to recruit more doctors to Jackson, either as employees or as community physicians who admit patients to Jackson facilities so that there is not much reliance on UM doctors. One issue has been lack of medical office space. Jackson is now converting part of an underused building on the central campus for doctors’ use.
But Migoya admits that many doctors will be hard to attract as long as the facilities, some of them now a half-century old, don’t get brought up to modern standards. He has built into the present budget a surplus of $35 million, hoping to use the money for capital improvements.
That would be just the start. Migoya projects that Jackson needs $600 million in capital improvements. “And $120 million of that is in stuff you’d never see — elevators, electrical wiring.”
Some board members have tentatively started talking about asking voters to approve a $300-million plus bond issue. Lapciuc could envision that as happening as early as next fall’s election, but Bileca believes that Jackson first needs to show a longer record of surpluses before it asks voters for support.
“We need hundreds of millions to compete effectively,” Bileca said. “We can’t succeed unless we can get significant capital.”
Before Jackson gets that capital, it will have to adjust to Medicaid reform, which could start next year, forcing almost all of the three million recipients statewide into managed care organizations. That is likely to mean considerably lower reimbursement rates, a crucial issue for Jackson since Medicaid is its dominant insurer. Jackson will be setting up a provider service network to compete with health maintenance organizations for patients.
Bileca thinks it can be done. Costs at Jackson have come down in the past two years, he said, which means “we’re in a position in which we can be competitive for those contracts.”
Medicaid expansion — extending coverage to about a million more Floridians, as provided in the federal Affordable Care Act — could also be a big help to Jackson. But Bileca doubts that it’s going to happen. Though Governor Scott and Senate leaders have endorsed expansion, Bileca, a Republican representing Kendall, said on Monday “I do think it’s a long shot for the House to go along with Medicaid expansion.”
Next year, when millions more Americans get insurance through federal healthcare reform, the issue is whether the newly insured will keep going to Jackson. “Many of those indigents are going to have a choice in the future,” Migoya said. “So if you mistreat them at Jackson, they’re not going to come to Jackson.”
Fitch, the unions’ consultant, noted that federal reforms emphasize primary care, an area in which “Jackson has been far behind the curve.” He said the system has had some recent improvements in primary care clinics, but needs to do a lot more. “Jackson will need to very quickly reengineer its patient-delivery model to focus on primary care services.”
Lapciuc has another concern. If Jackson’s trajectory toward prosperity continues, its $1.7 billion in annual revenue is likely to grow, attract new contractors and raise new dangers of corruption. “The vultures will be circling,” he warned.
“Jackson’s future is critical to the community, not only to the consumers,” said Fitch, the unions’ hospital consultant, “in terms of availability and cost and access, but it also plays a significant role as an employer and contributor to the local economy.”