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Kaleida seeks buyer for HighPointe in bid to cut costs and stem bleeding

Faced with stagnant revenues overall, rising costs and the threat of further cuts to Medicaid, Kaleida Health is putting its HighPointe on Michigan long-term care facility up for sale in a bid to stem the losses.

The region's largest hospital system is looking to sell HighPointe after suffering $80 million in losses since the facility opened in December 2011, CEO Jody Lomeo told employees in a memo sent last week.

Lomeo – who last month announced plans to step down at the end of 2020 – noted that long-term care represents less than 3% of the system's overall revenues, but it poses "a significant financial, legal and risk burden" that is not justified by the benefits to Kaleida.

Kaleida Chief of Staff Michael P. Hughes said the company is seeking "someone who does this as their core business," but no buyer has come forward yet and no deal is in place. There is also no current impact on the facility's operations, staff or residents.

But the move is part of the company's broader effort to reduce its expenses by examining its programs and services and eliminating any duplication.

Lomeo warned in his memo that the state is seeking $2.5 billion in Medicaid savings for the upcoming fiscal year to help close the $6 billion budget gap, which – if spread across the board – could lead to a 10% cut in payments to "every hospital, nursing home, home care agency, clinic, physician and managed care plan in New York State."

“This is our complete transparency with the entire Kaleida Health workforce about all of the challenges that we, and hospitals across Western New York and the State, face," Hughes said in a statement. It's "not just long-term care."

Employees responded with anger, as the union that represents Kaleida workers – CWA Local 1168 – immediately delivered a letter last week to Lomeo with 10 demands, including their insistence that Kaleida not sell HighPointe.

About 50 workers showed up at Kaleida's executive offices in Larkinville, to speak to the system's leaders about how previous cuts over the last six months have already impacted both patients and employees because of job eliminations, reduced staffing and supply shortages. They also stressed the importance of long-term care facilities and clinics.

According to the union, more than 300 jobs have been cut since August 2019, and the union demanded that they be restored along with staffing levels at both Buffalo General Medical Center and Millard Fillmore Suburban Hospital. The union also insisted that DeGraff Memorial Hospital – which Kaleida is consolidating into primarily an emergency department while putting the hospital tower up for sale – be preserved and properly staffed.

"Kaleida has been leading with finance by making cuts across the system at the bedside that will negatively impact, not only us, but our ability to deliver high-quality patient care," the union wrote in a bulletin posted on its website.

Lomeo was not present, but the union filmed the encounter with Hughes, Chief Operating Officer Donald Boyd and Chief Human Resource Officer Mary Lou Klee and posted it on Facebook.

Kaleida and other hospitals around the state have been struggling for years with reduced reimbursements from both the government and insurers, even as costs continue to rise and medical care shifts increasingly to community-based clinics and outpatient services. That's forced significant adjustments throughout the industry, and driven smaller hospitals to downsize and affiliate with the larger systems in order to stay afloat.

Adding to the pressure this year is the state's bleak financial picture, with an enormous budget gap, along with pressures from the federal government. Gov. Andrew M. Cuomo proposed a Medicaid Redesign Team and tasked the new panel with finding the savings in the next two months, by the April 1 budget deadline.

"New York State is facing a huge challenge," Lomeo wrote to employees. "A large portion of that gap will come in the form of Medicaid cuts and changes," on top of nearly $330 million in state and federal reimbursement cuts already imposed for 2019-2020.

"So, as you can see, the upcoming action in the State capital will directly impact our organization in a major way," he added. "I believe it is important that we are all on the same page as to what is happening in 2020."

Locally, Lomeo wrote, hospital revenues are stagnant because the Western New York market is not growing, and outpatient visits are increasing. Reimbursements are already lower in the Buffalo Niagara region than elsewhere in the state and nation, he added, and "more payments are being denied or delayed," costing Kaleida millions in revenue. About 10% of claims are denied.

On the other side, Kaleida expects more than $40 million in additional labor, pension, health insurance, workers compensation and medical malpractice expenses in 2020, he said. That doesn't include $11 million in higher salaries from union contracts, $23 million in higher benefits, $7 million in additional supply costs and $4.5 million for depreciation.

Lomeo said hospital trade groups expect the Medicaid Redesign Team to recommend increasing the reduction in Medicaid payments to 1.875%, on top of a 1% cut that went into effect Jan. 1. They also expect the elimination of some financial incentives for quality of care and delivery reforms, a reduction in payments for "patient-centered medical homes and health homes" and other services, and major changes and rate reforms for long-term care.

"Clearly, hospital and health systems are facing tremendous challenges moving forward. So, we are not alone in this fight," Lomeo write. "Our ability to take care of patients and deliver world-class care is under attack."

That's what led to the decision to sell HighPointe.

"We need to continue to make changes, react to the forces around us and position the organization for the future," Lomeo added. "Organizations like ours must embrace new ways of doing things or we risk being left behind. We need to be bold on how we approach our challenges. We must continue to be nimble in all that we do, while making difficult choices, in order for us to continue to deliver great care for this community."

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