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Uncertain subsidies drive rate hikes at LBJ

Faced with serious financial woes, the LBJ Medical Center is projecting a shortfall of more than $10 million for the current fiscal year 2012, and the hospital plans to move forward with facility rate increases on Christmas Eve.

The hospital — which exhausted all its reserves in FY 2011 due to the failure of the territorial government to pay the remainder of required subsidies (about $2.5 million) — is proposing a drastic fee increase of between 200-400% effective Dec. 24, prompting meetings between the Fono leaders and Gov. Togiola Tulafono as well as two House committee hearings this week.

It was during the House Health/LBJ Hospital Committee hearing yesterday that LBJ chief executive officer Mike Gerstenberger revealed the shortfall, in response to House Vice Speaker Talia Fa’afetai Iaulualo’s question, asking if LBJ had explored other alternatives instead of imposing “drastic” rate hikes.

Gerstenberger said all options were explored by the hospital, but there is an uncertainty  as to whether the territorial government will continue to pay its subsidy in FY 2012, which is used to pay the hospital’s matching funds for Medicaid.

He said the Interior Department, which provides annual grant funding for hospital operations, is operating on a continuing resolution without a full federal budget for FY 2012.

When asked Monday about DOI funding, Gerstenberger told Samoa News that since  the U.S. Congress has not yet passed a budget for the current fiscal year, DOI “has been operating under a series of continuing resolutions. That effectively means they cannot project support beyond the term of the current resolution.”

“For budgeting purposes, we were told that we should expect the same level of support from DOI for Fiscal 2012 as we received last year - that was $7,943,000 or $661,917 per month,” he explained.

Asked how much LBJ has received so far in DOI funding for the current fiscal year, Gerstenberger said the hospital in October received $637,000; $371,000 in November; and $576,000 in December - totaling more than $1.58 million or 79.7% of the total “owed”.

“We are very grateful for the DOI support and understand the uncertainty regarding future support, if any, is not the fault of the Department but rather of the Congress,” said Gerstenberger.

Asked about Medicaid funding, he said the total available to American Samoa is about $25 million this year and the matching fund portion for FY 2012 is 45% local and 55% federal. This means American Samoa would have to come up with $20,454,545 (or $20.45 million) match for the feds to kick in the $25 million.

He also explained that the federal components of “Medicaid” include the FMAP [Federal Medical Assistance Percentage], the EAP [Employee Assistance Programs], the SCHIP [State Children’s Health Insurance Program] and the ACA [Affordable Care Act]. The $25 million covers all these components.


Gerstenberger told the committee that in this type of financial situation, in any operation  faced with a projected shortfall, the thing to do is look at reducing payroll costs, and for the hospital that would be a savings of only $2 million a year — which does not fully address the financial situation.

However, he said reduction of the workforce, which is already limited at this point—especially regarding highly qualified professionals — would not be the best option for the hospital, because it’s the only medical center in the territory and service to the community would be greatly affected.

For example, he said a workforce reduction would result in people going to the emergency room, where the waiting time would end up being around 10 hours before being seen by a physician. 

He also explained that the hospital had used up all its reserves due to the government’s failure to pay the rest of the required FY 2011 subsidies, which meant the hospital had to pay out of its pocket $8 million to cover expenses for the rest of the fiscal year.

The committee then asked if LBJ is able to recover from the executive branch the money  it failed to pay in subsidies for FY 2011. Gerstenberger said this question was raised during a recent meeting with the governor, who pointed out that there was a previous court ruling on this issue, but the governor’s office will further research the matter.

The court ruling bars the government from using funds already approved by the Fono and obligated for the current fiscal year to pay past debts and other financial obligations from a previous fiscal year.  Of the $4.7 million allocated for LBJ subsidies in FY 2011, ASG paid only 37%.

Gerstenberger informed the committee that ASG has already paid its subsidies for October and November for the current fiscal year and LBJ is now awaiting their allocation for December.

Regarding LBJ’s monthly expenses, he said the total comes to about $3.1 million while only $1 million is generated by LBJ in revenues, and therefore needs the financial assistance from the ASG subsidies, DOI funding and Medicaid.

Additionally, he noted that LBJ currently owes about $2 million to vendors, who are very cooperative about the hospital’s needs, but at the same time, vendors are now requiring prepayment from LBJ for medication — “which is very expensive”.

He said LBJ has reduced its inventory, particularly in medication. Also, they have not filled any vacant positions at this critical time. He says LBJ is still reviewing other areas where  possible cuts can be made to save money.

He told the committee that the hospital has no choice but to propose the new rates and the hospital does intend to implement the rates on Dec. 24.

Asked what could be done to delay the rate increase, LBJ board chairman Moananu Va told the committee that if the government can provide funds to cover the next three months — which is about $2.1 million— that could delay the rates.

Responding to the same question, Gerstenberger said “we would carefully take” the ASG payment proposal into consideration. “If we have assurance of continued revenue streams, we can look at a delay,” he added.

Moananu shared with the committee just a few details from the board’s meeting more than a week ago with the governor, who told the board and LBJ management to give the administration and the Fono at least 10 days to come up with a solution to assist the hospital.

Fono leaders and the governor are planning to meet this week to discuss LBJ’s financial crisis.