Facing a severe revenue shortfall, the Vineyard Nursing Association is on track to end the year with a large and unsustainable operating loss, leaders at the Island’s only home health care agency told the Gazette this week.

Chief executive officer Robert Tonti said a series of cost-cutting measures went into effect early in the week, including administrative pay cuts among senior managers, reduced hours for administrative staff and limited layoffs. None of the cuts will affect patient care, Mr. Tonti said. But the top three administrators at the agency will all see their salaries reduced, as efforts begin to address a perfect storm of circumstances that include a decline in patient census and reductions in Medicare reimbursements along with what Mr. Tonti said are increasingly draconian requirements for home health agencies. Some 63 per cent of the revenue at the Vineyard Nursing Association comes from Medicare, the federal health care provider for people over the age of 65. That population group is already significant on the Vineyard and projected to increase dramatically in the next decade.

VNA leaders are simultaneously seeking to raise more money and exploring possible partnerships with other agencies to create efficiencies, especially in administrative areas, Mr. Tonti said.

Beyond Medicare, VNA also receives a mix of funding from private insurance and private pay, the elder service program and Island boards of health.

VNA expanded its services to Nantucket two and a half years ago and bought a new $2 million office building in Vineyard Haven last year. But this year the agency has seen a 30 per cent decline in its patient census, Mr. Tonti said. Much of it can be tracked to strict new federal regulations that require more extensive documentation for people who are homebound and need care. As a result of these requirements, fewer referrals are coming to the VNA from the Martha’s Vineyard Hospital.

“We are struggling,” he said bluntly. “We saw changes in the spring; we expected things to pick up in the summer but we still had a gap between revenue and expenses. We have talked to the Vineyard hospital and the Nantucket hospital and they have been very helpful and supportive. But we see this as an ongoing problem, this tighter filter tied to the rules of homebound and skilled need. The treadmill is getting more inclined.”

Mr. Tonti said VNA recently hired an outside consultant to help develop a strategic plan and received more bad news. “They said it’s going to get ugly quickly,” he said.

The projected shortfall for the end of the year is nearly $500,000, even after some $200,000 in annual fundraising money is used to offset losses. In the short term the agency is looking to cut its monthly payroll by $35,000, Mr. Tonti said. An end-of-the-year special appeal to raise funds will be launched, with letters going out to potential donors this week. The goal is to raise $250,000 by Dec. 31. The VNA board of directors has already put $100,000 on the table to jump-start the fund drive.

In the longer term, Mr. Tonti said talks have begun with other health care agencies, including Martha’s Vineyard Community Services and other, unnamed agencies off-Island, about possible partnerships.

The survival of VNA is at stake, he said.

The home health agency has no endowment and no free care fund and therefore no method in place for sustaining large annual operating losses.

The cutbacks instituted this week are primarily administrative, Mr. Tonti said, although there will be two layoffs in clinical positions: a nursing position in the smaller Nantucket operation will be eliminated and a full-time physical therapist position on the Vineyard will be eliminated.

The annual operating budget is about $5 million; there are 90 employees.

“The long-term financial stability of a small home care agency like the VNA is increasingly difficult with reimbursement reductions and the high cost of providing health services,” said a press release that went out this week.

The Island at one time supported three independent home health agencies. Community Services closed its Visiting Nurse Service in 2008, after 38 years of operation. Colonial Nursing based on Cape Cod provided home care services on the Island for a time between the 1980s and 1990s. Founded in 1984, the nonprofit Vineyard Nursing Association is today the sole agency providing home services that include skilled nursing, licensed practical nursing, physical and occupational therapy, certified home health aides and homemakers. The average Medicare patient is 70 to 79 years of age.

The federal regulatory climate around home care agencies has been in a state of change, Mr. Tonti said, with ongoing Medicare reimbursement reductions that began in 2009 and are scheduled to increase. In the next four years proposed cuts amount to a 13 per cent reduction in Medicare reimbursement, he said. This year under the Affordable Care Act, VNA saw a two per cent reduction in reimbursement rates, plus another two per cent due to the federal budget freeze known as sequestration. That translates to a loss of $120,000 for VNA. All told, revenue is down $466,000 for the year.

Meanwhile, eligibility requirements for home care have grown increasingly strict, he said. Some of this is because an array of patient information is collected by Medicare to be used for studies. Also Medicare has been cracking down on fraud and abuse of the system. This has no application to the VNA, Mr. Tonti said, which is in good standing with Medicare and the third party financial company that handles all the claims.

There are currently 12,000 home health care agencies in the U.S., he said, and Medicare has a stated goal of cutting that number in half. “They want to see a plan for going out of business,” he said, noting that the federal government believes profit margins at most home care agencies are too high.

“It’s complex, it’s coming at us from all sides, and all we want to do is provide care,” Mr. Tonti said. “We will have home care on Martha’s Vineyard. It just may look a little different in the future.”

In the press statement this week, VNA board chairman Michael Goldsmith said: “The board of directors is committed to maintaining high quality care on the Islands. There will not be a lapse in care as we work through our financial difficulties.”