Amid deep financial concerns, Ellis Medicine seeking to negotiate new insurance rates

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SCHENECTADY — Following years of economic distress that have culminated in more than $40 million in operational losses, Ellis Medicine is struggling to negotiate a new contract with a major Capital Region insurance provider. 

The situation involving Empire Blue Cross could result in increased costs for thousands of potential patients and threatens to exacerbate the hospital’s economic woes that have drawn the attention of state policy makers as the hospital continues to examine a potential merger with St. Peter’s Health Partners. Between 2019 and 2022, Ellis Medicine has seen a $65 million drop in revenue, according to data provided by the hospital.

A spokesperson for the state’s Department of Health said that the department is aware of Ellis Medicine’s financial situation and that the state has provided the hospital with $10 million to support operating costs over the past year. 

But hospital officials are now warning that if a deal with Empire Blue Cross is not reached by May 1, all Ellis services, including emergency, primary and specialty care, would become out-of-network for what is likely thousands of patients insured by the company throughout the Capital Region.

Ellis faced a similar situation involving CDPHP, which provides coverage for 287,939 Capital Region residents, including 50,967 in Schenectady County, but both sides were able to reach a preliminary agreement in recent days ahead of a June 1 deadline. 

But a failure to reach a new agreement with Empire Blue Cross would result in greater out-of-pocket expenses for patients that continue to seek services at Ellis and a potential drop in revenue for the hospital as patients seek new providers to avoid paying the additional costs, according to Paul Milton, president and CEO of Ellis Medicine.

Milton is encouraging Empire Blue Cross members to reach out to the provider directly.  

“We want to take care of their members,” he said. “We’re just asking for a responsible rate given our financial position.”

The negotiations with Empire Blue Cross date back to last year, but have stalled over a disagreement in reimbursement rates the insurance company would pay when a patient obtains services from Ellis. It’s unclear how many patients would be impacted if a deal is not reached, though Milton said the number would “not be insignificant.”

Empire Blue Cross, which does not disclose membership information, is the insurance provider for state employees. 

Milton said the increased rates are necessary due to low reimbursement rates from Medicare and Medicaid, as well as declining revenue and ballooning expenses that have only worsened since the emergence of the coronavirus pandemic three years ago and subsequent inflation.  

The hospital, he said, is currently losing money under the current contract with the insurance company. 

“We’re not looking to gouge the system or anything,” Milton said. “We’re looking to get to a break-even point. We still, under this calendar year, have a budgeted loss. We rely on some reasonable rate increases on a go-forward basis.”

Neither Ellis or Empire Blue Cross would say what the proposed rate increase would look like, but Natalia Burkart, a spokesperson for CDPHP, said the hospital was seeking a 25% increase for in-network services and 45% for those out-of-network before agreeing to a “fair and equitable agreement for both parties.”

“Collaboration was key,” she said. “We both came in with an understanding that we need each other in this community.” 

Burkart said exact terms on the agreement between CDPHP and Ellis Medicine have yet to be finalized, but members will not experience a disruption in service or an immediate rate increase, though that could change next year. Any rate adjustments by the insurance company would need to be approved by the state.  

Meanwhile, negotiations remain ongoing between the hospital and Empire Blue Cross. The insurance company, however, has started encouraging its members to reschedule appointments at Ellis Medicine and seek out new service providers ahead of the May 1 deadline. 

The company said the proposed rates would “place a significant increased financial burden on the businesses and people we serve.”  

“We recognize that our current agreement with Ellis expires in a few weeks and given their continued insistence on egregious cost increases, we are recommending our members reschedule or seek elective health services from one of the many other care providers in our vast network,” the insurer said. “That’s because if Ellis were to leave our network, those services would be billed by the hospital at a much higher rate.”

Declining revenue

The loss of patients would have serious ramifications for Ellis Medicine, which has grappled with growing expenses and falling revenue for years — a situation made worse by the emergence of COVID-19 in 2020. 

Hospital revenue has fallen by more than $65 million between 2019 and 2022, from $445.9 million to $380 million, the equivalent of 14.5%, according to hospital data.

Milton said the revenue decline stems from a drop in the number of patients visiting the hospital, including the emergency room and hospital admittance. 

“The general activity overall is down, and that’s revenue for us,” he said. 

Milton said the hospital is still determined to reach an agreement with Empire Blue Cross, but did acknowledge that if an agreement is not reached, hospital visits could decline even further, which would likely force the hospital to reexamine how it provides services moving forward. 

“If a number of patients decided not to come here we wouldn’t be able to collect that revenue and then have to adjust our financial model based on the change in visits that would come to Ellis,” he said. 

The drop in revenue comes as Ellis Medicine continues to examine the possibility of merging with St. Peter’s Health Partners in Albany. Ellis is currently operating under a “provided-services agreement” with St. Peter’s that is in place through the end of the year. The goal of the agreement is to improve efficiencies at Ellis before moving forward with the merger.  

Milton said both Ellis and St. Peter’s continue to discuss the merger and that nothing would move forward until the agreement expires. 

Between 2017 and 2021, Ellis Medicine recorded more than $42.2 million in operational losses, according to a review of the hospital’s financial statements. 

A bulk of the loss, $32.9 million, was seen in 2020, the first year of the pandemic, when hospitals were required to stop performing non-essential surgeries to preserve beds for COVID patients, and many put medical care on hold over fears of the virus. 

But the hospital was experiencing losses even prior to the pandemic. In 2019, operational losses reached $2.8 million, according to financial records. 

Burkart said that hospital officials reached out to CDPHP in late 2021 seeking a $9 million grant to remain “financially solvent,” but the request — which she said was not made through a formal grant application — was denied. The hospital recorded $8.6 million in operational losses that same year, according to financial records. 

Ellis did not respond to questions about the funding request. 

Increases amid lower rates

But as revenues have fallen, expenses have grown sharply as the hospital faces inflationary and labor pressures.

Like many hospitals, Ellis has struggled to find nurses, forcing the hospital to rely on outside vendors, which has resulted in a 400% increase in contract-labor expenses. 

On top of that, inflation has driven up the price on everything from pharmaceuticals to basic cleaning supplies.

Medical inflation peaked at 6% last September, but has fallen each month since, according to a recent analysis by the Kaiser Family Foundation, a nonprofit focused on health issues. The number has since fallen to 2.3% in February, but the consumer price index on other goods remains at 6%, according to the report.  

Adding to the hospital’s financial struggles are the current reimbursement rates by Medicaid and Medicare, which is a bulk of the hospital’s patients, Milton said. 

Currently, Medicaid reimburses the hospital 75 cents on the dollar, while Medicare reimburses 90 cents for every dollar spent. 

“We don’t negotiate those rates, and those rates don’t pay for the cost of care,” Milton said. So there’s a cost shift. We rely on the private insurance companies to pay to offset what the government payers don’t pay for.”

Milton said the health-care industry is at an “inflection point” and needs systemic changes in order to ensure hospitals can remain financially viable coming out of the pandemic.

“I do think after the pandemic now the financial position of hospitals is at an inflection point,” he said. 

Gov. Kathy Hochul has proposed increasing the rates by 5% as part of her proposed budget, which state lawmakers continue to negotiate. The increase would mean an additional $425 million for state hospitals, according to the Department of Health.

“The Department is committed to ensuring hospitals are equipped to continue to provide high quality service to its patients,” the department said.

Community concerns

The situation between Ellis and Empire Blue Shield has prompted concerns from community stakeholders who are calling on the insurer to strike a deal with the hospital to avoid impacts to patient care and prevent any additional financial losses for the hospital.  

Michelle Ostrelich, a Schenectady County legislator who chair’s the county’s Health, Housing & Human Services Committee, said a failure to reach an agreement would be disastrous for many who may be unable to travel to other communities to receive care. 

“Schenectady needs a community hospital,” she said. “There are many residents who cannot or will not travel to Albany for care. If we don’t have a community hospital, people will go without needed medical care, and that’s not OK.”

Ostrelich, a member of the Schenectady Coalition for Healthcare Access, a group that has raised concerns about access to reproductive care amid merger talks, said she has heard from community members, including medical professionals, who have raised concerns about the situation.

Falling into medical debt because of failed contract negotiations is an unacceptable outcome, she said. 

“Ellis is struggling financially,” Ostrelich said. “We need, in my opinion, including the state and federal governments and private insurers, to step up and pay for the true cost of care.”

Contact reporter Chad Arnold at: [email protected] or by calling 518-395-3120.

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