the impact of physician-owned limited-service hospitals on community hospitals excerpts from case...
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The Impact of Physician-owned Limited-service Hospitals on Community Hospitals
Excerpts from Case Studies Conducted by McManis Consulting:
Wichita, KSLincoln, NEBlack Hills, SDOklahoma City, OK
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Four case studies illustrate the impact of physician-owned limited service hospitals on community hospitals
and the patients they serve.
Lost patients and revenues lead to:• A substantial decline in financial performance• Actions to cut costs in other areas:
– Lay-off staff
– Cutback subsidized services• Programs most at risk -- behavioral health, trauma, outpatient clinics, hospice,
home health, health education/wellness, outreach, community medical education
• Actions to protect/rebuild affected programs:– Increase wages and bonuses to compete with limited-service
hospitals
– Note: Rebuilding programs is necessary since limited-service hospitals do not serve all patients (e.g. no emergency access, avoid low-income)
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Full-service hospitals had to reallocate resources –investing more to rebuild affected services, while
cutting back elsewhere.
Wesley Medical Center’s Actions Following the Opening of Galichia Heart Hospital and the Kansas Spine Hospital
• Increased cath lab staff salaries an average of $2 per hour (cost $2.5 million a year) and paid retention bonuses of $7,500 each
Source: Wesley administration.
Competing with Limited-service Hospitals to Maintain Critical
Programs
• Laid off 120 full-time equivalent (FTE) employees in 2001 and another 54 FTEs in 2003
• Sold Occupational Medicine Clinic
• Closed Electron Microscopy Research Center
• Closed pharmacy research program
Cutting Back on Other Subisdized Services
EXAMPLE
Wichita Case Study
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BryanLGH saw its bottom line decline by $10 million per year, raising concerns about support for other
subsidized programs.
• BryanLGH operates one of the few remaining mental health inpatient programs (66 beds) at former Lincoln General site.
• Mental health program requires a subsidy from other BryanLGH service lines, especially cardiac services.
• With fewer dollars available, BryanLGH’s ability to continue to fund mental health at present service levels is questionable.
“The NHH doesn’t provide anything we don’t already have in the community … fragmentation spreads out the business, erodes margins and puts quality at risk …”
Physicians practicing at BryanLGH
EXAMPLE
Lincoln, NE
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From 2000 to 2004, the surgical hospital’s net income grew by $16 million…and the full-service hospital’s net
income fell by $17 million.
-5
0
5
10
15
20
25
30
1998 1999 2000 2001 2002* 2003 2004
Rapid City Regional Hospital Black Hills Surgery Center
Net Income, Rapid City Regional Hospital vs. Black Hills Surgery Center, 1998-2004
* Sources: IPO (2004) and RCRH (2004). RCRH had one time write-off of $6 million dollars in 2002. RCRH has a 7/1-6/30 fiscal year; BHSC uses a calendar fiscal year. BHSC’s 2004 net income is an estimate based on data contained its investor owners’ 2nd quarter report.
Net
Inco
me (
mill
ions) Bond Rating
Downgraded
(Estimated)
EXAMPLE
Black Hills Case Study
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In Spearfish, financial performance of the community hospital also declined markedly.
-6%
-1%
4%
9%
14%
Patient Service Margin
Operating Margin
ASC purchased from founder and converted to specialty hospital
Lookout Memorial Hospital Financial Margins 1997-2004
*A special provision of the Medicare Modernization Act of 2003 allowed LMH to reclassify for purposes of the wage index significantly improving Medicare reimbursement
Source: Lookout Memorial Hospital
EXAMPLE
Black Hills Case Study
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The loss of revenue has left the full-service hospitals with difficult choices.
• Both full-service hospitals have begun to incur losses from patient services and must rely on philanthropy and investment income to cover costs.
– Lookout Memorial had to eliminate home health and hospice care for its Wyoming residents
• Although the effects have not fully played out, the choices open to the full-service hospital system include:
– Reductions in subsidized and/or poorly reimbursed community services (e.g., wellness)
– Reductions in services in outlying areas (e.g., support for critical access hospitals, reduction in hospice and home health care)
– Staff lay-offs
– Reductions in non-paying or low-margin services
– Curtailments in plans for expanding services that would require subsidies (e.g., endocrinology/diabetes)
– More dependence on philanthropy
– Price increases
EXAMPLE
Black Hills Case Study
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Reductions in emergency call coverage by physician-owners of limited-service hospitals helped precipitate a statewide crisis in trauma
coverage.• Before the crisis, several Oklahoma City hospitals provided Level II
trauma coverage and OUMC provided the Level I trauma coverage for the state.
• When the neurosurgeons and other critical specialists opted out of call coverage, the Level II trauma hospitals could no longer meet state standards for specialty coverage. They began to downgrade to Level III status.
• This placed unsustainable burdens on OUMC, which threatened to drop its Level I coverage unless others reinstated Level II coverage.
• In the face of public pressure, the county medical society, the state hospital association and others brokered a compromise …
– Neurosurgeons and other critical sub-specialists who had dropped off call agreed to provide coverage for one Oklahoma City hospital each night to allow for a rotating Level II trauma service.
– Meanwhile, OUMC and the university physicians would continue to provide Level I coverage.
– Thus far, the voluntary compromise has held up. Most physicians in the critical sub-specialties are participating.
EXAMPLE
Oklahoma City
Case Study
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Competition for staff increased labor costs – higher salaries, bonuses and turnover costs.
Source: OU Medical Center administration.
Staff Turnover and Inducements to Avoid Turnover at OU Medical Center
Lost Cost ofStaff Turnover
Registered Nurses 40 1,664,000$ Respiratory Therapists 3 41,600$ Other 13 459,680$ Subtotal 56 2,165,280$
Bonuses to Prevent ICU Closure 466,000$
Total 2,631,280$
EXAMPLE
Oklahoma City
Case Study
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Cost-cutting measures eliminated positions and some programs in under-reimbursed services
• Closed outpatient clinics around the city
• Reduced the medical education program
• Reduced the eye surgery program
• Closed the child behavioral day treatment program
St. Anthony’s Response to Financial Losses Associated with
Limited-service Hospitals
Source: St. Anthony’s administration.
EXAMPLE
Oklahoma City
Case Study
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Full text of the case studies can be found at:http://www.hospitalconnect.com/aha/press_room-info/specialstudies.html
American Hospital AssociationAttn: Caroline SteinbergLiberty Place, Suite 700325 Seventh Street NWWashington, DC [email protected]
Colorado Health and Hospital AssociationAttn: Larry Wall7335 E. Orchard, Suite 100Greenwood Village, CO [email protected]
Kansas Hospital AssociationAttn: Tom Bell215 S. 8th AvenuePO Box 2308Topeka, KS [email protected]
Nebraska Hospital AssociationAttn: Laura Redoutey1640 L Street, Suite DLincoln, NE [email protected]
South Dakota Associationof Healthcare OrganizationsAttn: Dave Hewett3708 Brooks PlaceSioux Falls, SD [email protected]
For further information, please contactthe study authors:
Keith Moore or Dean CoddingtonMcManis Consulting6021 S. Syracuse Way, Suite 207Greenwood Village, CO [email protected]@mcmanisconsulting.com
Or the sponsors: