Hospitals find RX for growth

JimDiegel0108.jpgHospitals are key economic players around the state as they thrive in spite of challenges and an uncertain future.


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Cascade Healthcare Community CEO Jim Diegel says hospitals across the state face similar workforce, population and economic challenges.


Hospitals are key economic players around the state as they thrive in spite of challenges and an uncertain future.

By Jon Bell

The days are busy at Cascade Healthcare Community (CHC), the growing four-hospital health system that tends to the well-being of the denizens of Central Oregon.

To begin with, CHC recently signed a 23-year lease agreement with Pioneer Memorial Hospital in Prineville, adding the small hospital to its ranks to better integrate health care throughout the region. In early 2007, CHC wrapped up a $10 million capital campaign that helped build a new surgical tower at St. Charles Medical Center in Redmond and a new emergency department, additional patient rooms and other renovations at SCMC in Bend.

Add in an aging and rampantly growing population, increased demands for services, workforce constraints, skimpy reimbursement rates from Medicare and Medicaid, and more and more patients with little or no health insurance, and it’s no wonder that CHC president and CEO Jim Diegel feels like his hands are more than full.

“I feel like I’m drinking from a fire hose,” says Diegel, who joined the system in 1994 as CEO at SCMC Redmond. “I don’t think we’re facing forces that others aren’t, but that’s really what it feels like sometimes.”

Hospitals around the state, from Harney District Hospital in Burns to Providence Health & Services Portland Medical Center, all face core issues similar to those in Diegel’s neck of the woods.

In a state with a paucity of large employers, hospitals also find themselves among the top economic drivers in Oregon cities large and small. For example, with 750 employees and a payroll of $30 million, Mid-Columbia Medical Center (MCMC) is the largest employer in The Dalles. And in Enterprise, Wallowa Memorial Hospital ranks as the top employer in all of Wallowa County, employing 150 and pumping more than $6 million in salary and benefits into the local economy every year.

Top it off with a few unknown variables, such as legislative action — or inaction in the case of the recently defeated Measure 50 — and voter fancies, and the state’s hospitals have plenty to keep on top of as they refine their future health care and economic roles in Oregon.     
“It’s an incredibly volatile and challenging industry right now,” says Duane Francis, CEO and president of MCMC, “Where health care is going is not where we’ve been the past 30 or 40 years.”

THE MAJOR FORCES driving changes and new strategies at Oregon hospitals these days are a familiar laundry list of health-care industry woes. Almost always topping that list is the state’s aging population, a valid concern considering that roughly 30% of Oregon’s population, or just over 1 million people, are baby boomers. An older population logically requires more and better health-care services, which will strain facilities everywhere.

“The challenge of the 65-plus population — they’re heavy utilizers of health care — is going to be very important,” says Scott Kelly, chief strategy and business development officer for Asante Health System, which has facilities in Grants Pass, Medford and Central Point. He says that the population in Asante’s service areas — Jackson and Josephine counties — is expected to grow by more than 5% in the next five years. By 2010, some 16% of Jackson County residents will be over the age of 65; in Josephine County it will be about 20%.

Workforce shortage, another well-worn concern in the health-care industry, also has many hospitals on guard. Workers in the health-care fields are aging and the state’s learning institutions on the whole aren’t cranking out enough replacements to meet demand.

The strains can be particularly tight in more remote, rural areas, where it’s often difficult for hospitals to draw much-needed specialists away from urban centers.

And then there are the dual issues of rising health-care costs and low reimbursement rates for Medicare and Medicaid. Nowhere is this felt more acutely than in Oregon’s hospitals, which not only provide millions of dollars in uncompensated care every year — for people who cannot or simply do not pay — but also face meager reimbursement rates from federal Medicare and Medicaid programs.

Terry Smith, chief operating officer for Providence Health & Services’ Oregon region, says Providence is looking at charity care and bad debt of $91 million for 2007, up from $13 million in 1993. At Asante, Kelly says total charity care was $2.7 million in 2002; last year it was $26 million. (Part of that increase for all hospitals came as a result of cuts to the Oregon Health Plan in 2002.)

At Wallowa Memorial Hospital, gross revenue in 2006 was about $15.1 million, but CEO David Hartman says deductions for bad debt — people who don’t pay for health care — and other allowances left the hospital with net revenue of roughly $10.8 million. And Francis says at least 15% of MCMC’s patients are either under- or uninsured or are on Medicaid.

“That’s a pretty healthy burden on a facility our size,” he says, noting that in 2006, the hospital provided $3 million in free care for patients unable to pay and more than $7 million in unreimbursed care for patients on programs such as Medicaid or who were unwilling to pay.

Andy Davidson, president and CEO of the Oregon Association of Hospitals and Health Systems, says Medicare and Medicaid have historically underpaid hospitals for the actual cost of services. Currently, he adds, Medicare pays roughly 84 cents of every dollar of health-care costs, while Medicaid pays just 72 cents.

Davidson likens the setup to a store charging less money for a gallon of milk than it paid for it.

“No market-based business would ever do that,” he says. “So how do you survive when you’re not getting paid your actual cost? It’s crazy, but that’s the way it goes.”

ONE OF THE WAYS hospitals have tried to survive is by adding moneymaking services such as imaging, heart and other specialized programs, and also by shifting costs to the commercial side of the business.

At Harney District Hospital, for example, CEO Jim Bishop says net revenues have nearly doubled over the past five or six years to $12.1 million, though the hospital almost never logs an operating profit.

A quick checkup
Wallowa Memorial Hospital

2006 gross revenues: $15 million
2006 net revenues: $10.8 million
Employees: 150
2006 payroll and benefits: $6.2 million
Cascade Healthcare Community
Bend, Redmond and Prineville

2006 gross revenues: $513 million
2006 net revenues: $338 million
Employees: 2,600; will grow to
3,000 early this year
2006 payroll and benefits: $150 million

Harney District Hospital, Burns

2006 gross revenues: $14.7 million
2006 net revenues: $12.1 million
Employees: 140
2006 payroll and benefits: $6.9 million

Mid-Columbia Medical Center,
The Dalles

2006 gross gevenues: $119 million
2006 net revenues: $62 million
Employees: 750
2006 payroll and benefits: $38 million

Oregon Health & Science University Hospital and Clinic, Portland

2006 gross revenues: $1.2 billion
2006 net revenues: $722 million
Employees: 5,200
2006 payroll and benefits: $387 million

Providence Health & Services
Oregon Region

2006 gross revenues: $3.3 billion
2006 net revenues: $2.2 billion
Employees: 15,100
2006 payroll and benefits: $908 million

(Gross revenues are all the charges that go out from a hospital; net revenues are the actual amount a hospital is paid for after bad debt, allowances and other deductions.)

He attributes the revenue increase almost entirely to new services added over the same time period, including a more advanced CT scan capability, a bone density machine and mammography services. The hospital also is adding speech therapy and next year will open a sleep clinic.

An added benefit of offering more services to a hospital like HDH is that area residents can get their treatments locally rather than having to drive long distances.

In addition to adding new services, hospitals around Oregon are expanding simply to meet increasing needs as the population has grown. Smith says Providence’s St. Vincent Medical Center recently added a new tower to accommodate growth on Portland’s west side, and other new clinics, which help keep patients out of the hospital, are in the works for north Portland, Warrenton and Clackamas. Asante and Oregon Health & Science University Hospital and Clinic have both recently added space as well.

“The population and demographic trends point to the need for beds continuing to grow,” says Peter Rapp, director of the hospital at OHSU. “We’re just trying to stay ahead of that curve.”

Still, other hospitals have undertaken construction projects simply to replace outdated facilities. Brand new hospitals that opened in Burns and Enterprise this year, for example, replaced federal Hill-Burton hospitals built in the mid-20th century to provide free or low-cost health care.

Davidson points out that people outside the health-care industry sometimes misperceive the construction work that goes on at hospitals as some sort of building boom.

“I always hear that there’s this arms race or a building boom,” Davidson says. “But they’re not expanding their ER — which in every single hospital is a money loser — because they want to. It’s because they have a mandate to take people into the ER and they have to have the capacity to meet these increasing demands.”

HOSPITALS THAT HAVEN’T yet expanded or upgraded know that they will have to soon to keep up with demand and technology. Legacy Emanuel Hospital & Health Center in Portland recently announced a proposed expansion that would add 67 new beds, and at MCMC, Francis says officials are putting together a site plan for a new hospital within the next five years.

Whether that hospital will be bigger or will offer the same services has yet to be determined because, as Francis points out, there are so many unknown variables that can come into play with health care.

“What I don’t want to do is build the wrong hospital,” he says. “So it really depends on us looking forward five, 10, 15 years and trying to see what health care is going to look like. Then we make the best plans and move forward with what we can afford to do.”

On the workforce front, many hospitals have already begun addressing shortages by working with universities and community colleges on tuition reimbursement programs for students pursuing health-care careers. Some, like Wallowa Memorial, play up their resort-like setting, new facilities and overall quality of life to help attract quality employees.

“We can’t ever relax about the employment issue,” says Bishop. “We’re just trying to look years down the road and make plans that way.”

Years down the road, however, the overall issues facing Oregon’s hospitals aren’t likely to be any clearer than they are today. Diegel says there’s always going to be an “insatiable appetite for capital to add services, facilities and programs.”

As health-care costs rise, as more and more employers can’t afford to provide health insurance, as more people become uninsured or underinsured and as reimbursement rates continue to lag, hospital financial constraints may tighten further still.

“It’s not sustainable,” says Davidson. “We’re in a death spiral, and it doesn’t take long until you can’t pull out of it.”

There are also unknown policy and legislative influences — one example being the recent defeat of Measure 50 tobacco tax increase that would have raised money for children’s health-insurance coverage — that are bound to keep the story of hospitals in Oregon an interesting one.

But Davidson also notes that hospitals are working harder to be leaner and more efficient, utilizing new technologies and methods to reduce procedural defects and variability.   

“It’s just a really interesting balance that hospitals are faced with,” says Asante’s Kelly, “and I think it’s going to get a lot harder before it gets any easier.”

Jon Bell is a Portland-based business journalist. His last story for Oregon Business was on banking.

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