How much does it cost to operate a clinic on Lopez Island?

  • Mon Apr 3rd, 2017 1:06pm
  • News

Submitted by Catherine Washburn Medical Association

As we get ready for the election to decide whether to form a public hospital district on Lopez Island, these questions are frequently asked:

How much money is needed?

Why can’t the clinic survive without a subsidy?

If we don’t form a public hospital district, what will happen?

After months of work, answers are finally available.

Lopez Clinic has been operating as a department of Island Hospital. It is easy to figure out how much it costs to run the department, but it is harder to know how much it costs to provide all the hospital support services that the clinic uses. For example, if four clinic staff resign, recruiters at the hospital are busy. If no one changes jobs, the recruiters help another department. The government gives hospitals a formula to allocate costs across all departments. Some of those costs are billed to the clinic, but others are absorbed by the hospital and are hard to tease out.

When the clinic negotiates with a potential new partner, such as UW Medicine, the partner has to determine how much It will cost to operate and support Lopez Clinic, based on its culture and expense base. Island Hospital was a small hospital and it had lean expenses and limited support. UW Medicine is a large system offering many more services and opportunities, but at a higher expense.

The clinic has also examined the option of operating without a partner. Several different vendors of services were contacted to learn the cost to provide payroll, billing services, electronic medical records and accounting. Consultants helped with estimates based on industry standards.

The initial numbers are in, and it looks like it will cost between $1.2 million and $1.3 million per year to operate the clinic with a partner or independently.

When the clinic changes operating partners, the way it gets paid for services also changes. Island Hospital has different contracts with insurers than Lopez Clinic would have as an independent provider of medical services or than UW Medicine would have. In addition, Island Hospital is a hospital with under fifty beds and receives extra reimbursement from government insurance programs for its rural health clinics. Loss of this special arrangement will cost the clinic approximately $350,000 in revenue if it operates independently as a rural health clinic, and as much as $500,000 if that designation is eliminated. Current estimates are that the clinic will bring in between $620,000 and $760,000 in revenue.

The shortfall between revenue and expenses is significant under all reviewed options, ranging from $440,000 to $650,000 per year. If there are no resources to cover the losses, the clinic would close. It is clear that a public hospital district with a property tax levy will be needed to keep the clinic operating.

Unless there is a major change in the way family practice clinics are reimbursed by the government, Lopez Clinic will operate at a loss. The reasons for this are threefold. First, 71 percent of Lopez patients in 2016 were covered by government-funded insurance, which does not cover the full costs of care, except under an arrangement with a small rural hospital. Second, the clinic has higher than average expenses because it is located on an island with no emergency room, and staff provide more intensive services than the average family practice clinic. Not all of these services are fully compensated. Finally, staffing costs are higher due to the limited number of trained medical personnel on the island, and the scarcity of affordable housing available to potential off-island recruits.

All of the scenarios discussed above assume that Catherine Washburn Medical Association (CWMA) will continue to contribute most of the costs of providing the land, facilities and equipment to the clinic. In addition, CWMA is helping support the transition costs in finding a new partner.

These numbers and scenarios were recently presented to the candidates running to serve as commissioners of the new public hospital district if it passes in the April election. We encourage everyone to come to the League of Women’s Voters candidate forum at Grace Church at 5 p.m. on April 4.