Facing a financial crisis that threatens Grays Harbor Hospital’s ability to stay afloat, hospital officials are going back to the Legislature and the governor’s office to ask for higher reimbursement rates for the Medicaid patients it treats.

Briefing reporters on Jan. 31, hospital CEO Tom Jensen said the hospital faces losses for 2017 in excess of $8 million. That comes after a loss of $3.6 million for 2016. Final numbers for 2017 won’t be available until next month, but Jensen said “this last year was really bad.” The fourth quarter is usually the strongest in terms of revenue but this time, “it was dismal, the worst I’ve seen,” he said.

The hospital’s major debt is about $30 million, held by Key Bank. The year-end numbers will show that the hospital is out of compliance with the terms of its loan, said Jensen, which require that certain financial measures be met. At that point, the bank could call in the loan and ask for all its money. Jensen said the hospital has talked to the bank and doesn’t expect that will happen, but the bank does want its money and will push for options that lead to a payout.

The overwhelming problem, says Jensen, is the dismal economic condition of the community. Last year about 35 percent of those receiving in-patient treatment at the hospital were on Medicaid insurance. Medicaid, which is a state and federal program for people with low incomes, establishes rates it will pay for services. The hospital’s cost to provide the service is more than what is reimbursed to the hospital, so the hospital loses money, the CEO said.

Under similar circumstances about four years ago, the Legislature agreed to pay the hospital 125 percent of the normal reimbursement rate — not 125 percent of what it costs the hospital, but 125 percent of the set rate. Jensen said the hospital still loses money at the higher rate.

Now he is asking the Legislature for a bill increasing it to 150 percent of the reimbursement rate. The bill would apply to Community Hospital and Olympic Medical Center hospital in Port Angeles, which also operated in the red last year.

On Wednesday, the hospitals and the state Health Care Authority were still working to determine what a higher reimbursement rate would cost the state. Legislators will need that information before a bill is considered.

Jensen said Medicaid patients seem to be increasing as a percentage of the overall patient mix and given the local economy, he expects that trend to continue. He estimated that from 46 to 48 percent of the hospital’s patients receive Medicare, government insurance that reimburses at a higher rate than Medicaid, but still not enough to cover the hospital’s cost to provide the service, he said. That means more than 80 percent of the hospital’s in-patients are on some form of government subsidized insurance.

Many people on Medicare also pay for a supplement to cover what Medicare doesn’t and Jensen said he believes that in this community a lower percentage of patients have the supplement, which means reduced payments to the hospital.

One of the options the bank might push for is to bring in an outside health provider to acquire the hospital. Jensen sees that as unlikely. First, there’s the debt, which would likely scare off a buyer and then there’s the high percentage of Medicaid patients. “People don’t usually buy hospitals that aren’t critical access hospitals, with this payer mix,” he said.

Critical access hospitals, such as Summit Pacific in Elma, are reimbursed at cost, Jensen said, meaning the full amount it costs the hospital to provide the service.

Community Hospital is too big to be eligible for that option, Jensen said.

Harbor Medical Group, is a subsidiary of the hospital. It’s a collection of physicians, many of them specialists, who actually are employed by the hospital and operate at offices and clinics away from the hospital. The 2018 budget predicts that the medical group will operate at a loss of just over $5 million.

Jensen said the hospital formed the medical group to keep physicians in town at a time when many were leaving the area. The losses, he said, are also due to the number of Medicaid patients. Most independent physicians probably wouldn’t accept the Medicaid patients, he said, but the association with the hospital requires them to.

If the medical group didn’t exist, those doctors would likely leave for more prosperous communities, he said.

The hospital is implementing another strategy that would mean the government would reimburse Harbor Medical Group at cost for Medicaid patients treated by the physicians at clinics and locations away from the hospital and that could mean up to $3 million in increased revenue annually, Jensen said.

A few years ago the hospital hired consultants to look for ways to improve the financial picture. Jensen said they have instituted those suggestions already. Lenders have suggested they bring in more consultants and Jensen said he’s willing to do that, but it could cost $500,000 or more.

The last consultants recommended that the hospital establish productivity standards consistent with other hospitals and the hospital has been doing that for about a year. It was those measurements that led to 21 people being laid off from the billing office last month.