Taking the hospital "stress test": Will OCH survive in 2014?

At the Becker's Hospital Review Annual Meeting in Chicago on May 17, Scott Becker, JD, CPA, partner with McGuireWoods in Chicago, talked about signs of hospital sustainability. He mentioned the following factors as critical signs of whether a hospital will end up going bankrupt or being sold.

I attended that conference and will be speaking at the next one in May. I decided to take Becker’s hospital “stress test” for OCH. You might do the same and see if your answers are different than mine. [In keeping with my rant about OCH in 2014, please note that, unlike the MHA version, in the Becker hospital “stress test” there are no questions specifically about cash reserves even though this is a “test” designed to figure out which health systems are likely to survive in 2014.]

Test Question 1: Does the hospital have a clear strategy for physician alignment?

Scott Becker’s comments: "It used to be if you were a hospital, you viewed yourself as in fabulous shape if a large portion of business came with physicians you didn't have a financial relationship with," said Mr. Becker. That has since changed, where throughout the country today about 80 percent of physicians have some type of financial relationship with their hospital –– up from about 60 percent a decade ago, according to Mr. Becker. Does a hospital default on a strategy where it relies on independent but affiliated physicians? If so, it should strive to be more than that in order to remain sustainable.

Answer: I would say that we do have a clear strategy. We employ almost all of our doctors for the work they do at OCH in both Missouri and Arkansas. We do not depend on any independent practitioners to bring their patient volume to us. We have very little physician turnover. We need and want to recruit more physicians to the organization, and we do face challenges in that regard.

Test Question 2. Does the hospital have high quality care?

Scott Becker’s comments: "One of the things I find most interesting is when I'm in a meeting and you have to work hard to find a board member in that meeting who would actually use that hospital," says Mr. Becker. Mr. Becker calls this a fascinating litmus test: When not one board member would want their family members treated at the hospital, that's a good sign the hospital should be sold quickly.”

Answer: We provide quality care. One of our strategies in providing quality care is that we will simply not provide a service if we can not do it well—which is one of the few benefits of being surrounded by large health systems in both Arkansas and Missouri. Our system-wide focus is primary care provided in a clinic setting. We provide quality primary care as well or better than any of our competitors. We provide quality care through our inpatient services in Arkansas and Missouri. We are something of a quality “niche” provider in Gravette through our swing bed service and in Springfield through our novel approach to care and management of geriatric patients with medical and behavioral co-morbidities. We are a leading provider of chronic pain management in all of our markets. We do that difficult job the right way for everyone regardless of payor status. There are no other health systems our size providing the scope and quality of outpatient behavioral health care that we do.

Test Question 3. Does the hospital have a great leadership team?
Scott Becker’s comments: "When people hire people, you have a choice between talented leadership and experienced leadership, and we've found really hardwired, talented engaged leadership is more critical than experience. It's not one experience that's going to help; it's being able to respond to various situations over time.”

Answer: We certainly focus more on talent than experience when developing administrative leadership. From the CEO down, except for our nursing leadership which of necessity comes from a healthcare background, our leadership primarily comes from outside the healthcare arena. My analogy is the football draft—it is smarter to draft players based on athletic ability, not the name or size of the player’s college program. You can decide for yourself how that is working out for OCH. I can tell you this for certain: an experienced healthcare leadership group would have given up on this project 12 years ago. There is a line experienced hospital administrators are not supposed to cross when making a decision about whether to close or stay open. That line is defined by days of operating cash on hand. If the health system drops below that line—close. The fact is we have never been above that line.

Test Question 4: Does a hospital have a clear plan, or is it operating vaguely?
Scott Becker’s comments: A hospital can adopt various "mantras" to serve as guiding rules going forward. These strategies should be clearly understood across all levels of the organization, and sustainable hospitals' employees will be able to recite this strategy within 30 seconds. That goes to show the need for concision and definition in the plan. "It could be, 'We're going to be a leader in shared savings programs. We're going to be an innovator. We're going to be the leader in cardiovascular services," says Mr. Becker. The goal should be well-known and easy to remember.

Answer: 

• We are and we are going to continue to be a leader in primary care for governmental patients and the uninsured. Our recent adoption of the Kitchen Clinic is a recent illustration and it is paying dividends to the organization. 
• The reimbursement playing field is leveling out and it is coming down to where we are and have been. Our advantage over other health systems is that we are accustomed to it and will thrive while they are collapsing. 
• We are being innovative in the way we are incorporating behavioral health as primary care—both on an inpatient and outpatient basis. The nation is slowly beginning to recognize that care for behavioral health is as important as national security to our long-term survival as a nation. It doesn’t hurt that we will now have the NRA on our side lobbying for funds. 
• We are clearly an innovator when it comes to governmental revenue management. For example, our understanding of governmental reimbursement led us to develop a game changing strategy in the Gravette hospital. We recruited expansive-to-manage skilled nursing patients to our inpatient swing bed service knowing that we would be reimbursed for those higher costs while other providers would not. As a result, we are getting patients from providers who have their own skilled nursing units. 
• We have been a leader in maintaining provider-based clinics. The only clinic in our organization that is not provider based is OCH Jasper County—and we receive provider-based reimbursement even there for our Missouri Medicaid patients. 
• We have been an innovator in providing care for the Medicaid population. We opened and continue to operate the only hospital-based primary care clinic exclusively for Medicaid patients in the State. We employed specialists and paid Medicare rates for services provided to Medicaid patients. 
• Our employment of long-term care providers through provider-based rural health clinics tied to a small urban hospital is a one-of-a-kind innovation. 
• We have been an innovator in physician contracting. We are one of the only health systems in our markets that is “payor blind” when determining physician compensation. We do not require physician production to deduct for operating expenses. We do not impose covenants against competition. This innovative approach to physician compensation will give us an advantage in expanding our base of primary care providers—which is our fundamental strategy. 
• We are going to stick with the plan we have followed for over ten years and trust that the healthcare industry will catch up to it and find us leading the way. 

Test Question 5: Does the system have a clear reason for being?
Scott Becker’s comments: "If you're a community hospital, the answer is probably yes. If you closed, people would have to travel much further for care. In Chicago, there might be less need for being," said Mr. Becker. Hospitals in urban or competitive markets with hundreds of hospitals, especially need a defined reason for their existence.

Answer: We are a community hospital in Gravette and we provide a niche, skilled nursing care service for expensive-to-manage patients through our swing bed program. In general, the Springfield community does not need our hospital beds since there are two billion dollar hospital systems in town, but it does need our clinics; and I believe we still provide a needed inpatient service primarily to the nursing home community.

Test Question 6. Is the hospital known for something?
Scott Becker’s comments: Closely related to that former question, hospitals need a reason patients would travel to or strongly prefer their facilities. This often comes in the form of an outstanding specialty program. There are plenty examples of these reputations in Chicago. "Years ago, the University of Chicago was the lead academic institution here. If you had a serious GI problem, you went there. On the North Side, there were also certain hospitals that patients preferred for OB/GYN care," says Mr. Becker.

Answer: OCH is known as the “Medicaid hospital” in Springfield. We are known for being a community resource in Gravette. We are known in a small but important way for the approach we take in the treatment of disenfranchised and at-risk people in Missouri and Arkansas. For example, there was a situation recently in which a DFS caseworker needed help for a child, and the situation involved police, EMT, Children's Division hotline worker and the caseworker. Before OCH could raise its hand and say “We will help,” all involved came to an independent conclusion that OCH was the place to go for help. They know we will cut through bureaucratic nonsense and payment concerns and simply help. We are known in a surprising number of places across the nation as a unique safety-net provider that somehow manages not only to stay open but to grow despite the odds stacked against us.

Test Question 7. What is the payor mix?
Scott Becker’s comments: This factor is the wild card, as a payor mix is largely dependent on demographic traits that fall out of hospital management's control. Still, hospital leaders should not be naive about the determinant nature of a payor mix.

Answer: We take patients from the payors our competitors do not value, and we have transformed that necessity into a virtue.

Test Question 8. Is the hospital large enough to afford some chance investments?
Scott Becker’s comments: If not, hospitals have to make every single bet right, and that's risky. "You have to have enough size and capital to take some chances," said Mr. Becker. Hospitals with $100 million in revenue may be sustainable, but they may face the challenge of finding enough money to invest in their physician alignment strategy, for instance.
Answer: Our strategy is to strengthen and widen our base of primary care providers. We cannot manufacture capital (cash reserves) which would make us a larger system as systems are ranked based on their balance sheets; so, we have to get “large enough to afford some chance investments” simply by growing real capital—OCH patients and employees.

Outline of new growth rules for healthcare

I have to admit that I cannot improve much upon the following outline and that I agree with most of it. This kind of work is why I am going to participate in and later speak at the Becker’s Review CEO forum. Pay particular attention to #6 through #8. The other insights are interesting mostly because they are applicable to the mega systems and have been one of the ways I evaluate whether a given mega system is going to get it or get hit.

Here are eight contemporary insights for hospital and health system leaders from the Advisory Board, which collected these ideas during its CEO Special Sessions.

1. Accept the idea that price/high reimbursement is no longer a strategy for growth. Previously, hospitals consistently received price increases that outpaced inflation. Four market trends are signaling the end of this strategy, according to the Advisory Board:

• Direct and implicit reimbursement cuts from the Patient Protection and Affordable Care Act and sequestration.
• Limited offsets from coverage expansion.
• The dilution of employer-sponsored coverage and increase in high-deductible health plans.
• Patient preference for low-cost sites of care, such as retail clinics.

2. Transition from extractive to productive growth. Hospitals can no longer rely on growth strategies that focus on consolidating their market position, locking up referral streams or demanding price increases. Instead, hospitals are entering a new era of what the Advisory Board calls "productive growth" — earning market share by attracting empowered purchasers. This includes:

• Network suppliers, such as physicians, post-acute providers and capital partners.
• Wholesale buyers, such as commercial payers, employers and physician accountable care organizations.
• Clinical shoppers, or physicians and patients making decisions about individual episodes of care.

3. Re-position growth as an output instead of as an input. Traditionally, hospital leaders often justified growth as an input. Growth advanced a larger cause, such as funding innovation or extending the hospital's mission. But under productive growth, in which purchasers selectively buy care in a competitive market, the Advisory Board says leaders should re-position their understanding of growth as output rather than an input. Hospitals that grow are doing something right; hospitals that don't are failing.

4. Create three complementary care models. Savvy hospital leaders understand the subgroups within population health. The Advisory Board says there are three:

• High-risk patients with complex diseases and co-morbidities. This subgroup makes up about 5 percent of patients. Hospitals should take a comprehensive and proactive approach to care management to avoid high-cost acute-care services when possible.
• Rising-risk patients who may have medical conditions that are not under control. This subgroup makes up about 15 percent to 35 percent of patients. Providers should avoid unnecessary spending on these patients and keep them from becoming high-risk.
• Low-risk patients, who have minor conditions that are easily managed and account for 60 percent to 80 percent of patient populations. Hospitals should keep these patients healthy but loyal to the system when they need care.

5. Define population health goals. Develop a short list of actionable and measurable goals. They should be narrowly defined and unambiguous. Ensure each member of the organization understands how they contribute to the goals.

6. Ensure high-risk patients have care managers. The Advisory Board says high-risk patients' most important relationship is that with their care managers, not primary care physicians. Dedicated care managers can coordinate the diverse needs of high-risk patients, which span from clinical to nonclinical and may demand more help than PCPs can offer.

7. Manage "rising-risk" patients in the medical home. Nine risk factors, such as obesity and smoking, make a patient a fit in the rising-risk category. Hospitals should identify these patients and connect them to a medical home, which offers a balance of customized support and scale necessary to manage this population with limited resources.

8. Ensure access for healthy patients. Hospitals don't want too many encounters with their low-risk patients, but they must offer accessibility when the time for care comes. Hospitals also need to foster loyalty among these patients. "Mainly, you need to provide timely access to evidence-based preventative care," wrote the Advisory Board. "We've also seen organizations turning to patient portals to offer convenient options such as online scheduling and the ability to email a physician."

Hospital cuts are hitting fast and furious

I am not trying to scare everyone, but we all need to stay informed about what is going on in our industry. It is not pretty out there. If you have been listening to me rant, you know the healthcare industry is no longer the inflationary spending beast hell bent on wrecking the economy that it was according to the talking heads urging reform. For more than a generation, healthcare spending was increasing faster than the rest of the U.S. economy by a factor of two or three times. Beginning in 2009 and continuing through the first half of 2013, nation-wide healthcare spending was keeping pace with growth in the gross domestic product—but no more than that. In fact, spending per person is actually down. The 2.7% annual increase in overall spending is due to population increase.

Despite that fact, the pace of reform has not abated—if anything, it has increased. Modern Healthcare recently ran a cover story entitled, “Death by a Thousand Cuts.” The title says it all. Change is coming fast and furious. The healthcare industry needs a chance to catch its collective breath. I am afraid that we are all going to wake up in a year or two and discover that we have effectively disabled one of the few significant sectors of the U.S. economy that had been thriving. As weak as the “recovery” has been, it is a good way to trigger a second recession.

So, I will continue to pass along information as I receive it about facilities closing, cutting costs and laying off employees. According to the most recent seasonally adjusted data from the Bureau of Labor Statistics, hospitals cut 4,400 jobs during July. Becker’s Review reported the following on August 1, August 15 and September 4:

August 1:

1. Sound Shore Health System to Lay Off Nearly 2,000
Sound Shore Health System in New Rochelle, N.Y., which filed for bankruptcy in May, plans to lay off 1,993 employees. The system notified the New York State Labor Department of its layoff plans. The cuts will affect employees at Sound Shore Medical Center in New Rochelle, Mount Vernon (N.Y.) Hospital, the Helen and Michael Schaffer Extended Care Center in New Rochelle, Mount Vernon Housing Corp. in Mount Vernon and New Rochelle Sound Shore Housing.

2. Interfaith Medical Center in Brooklyn Sends Layoff Notices to All 1,544 Employees
Financially beleaguered Interfaith Medical Center in Brooklyn, N.Y., sent layoff notices to all 1,544 of its employees and asked a bankruptcy court to approve its closing. A hearing on the closing of the hospital will be held Aug. 15.

3. Denver Health to Slash 300 Jobs
Denver Health will cut roughly 300 jobs in the next year through layoffs, attrition and reduction in new hires. In all, the workforce reduction will shrink Denver Health's workforce by 5 percent.

4. Vanderbilt University Medical Center Braces for More Staff, Budget Cuts
Nashville, Tenn.-based Vanderbilt University Medical Center recently cut more than 300 members from its staff, and further budget and staff cuts are on their way at VUMC. VUMC officials have set a goal of saving $100 million in its new fiscal year, and an additional $150 million in the following fiscal year. These cost savings will be achieved through cutting costs in areas like supplies, facilities and contract improvements, and also through labor cuts like offering early retirement, leaving vacant positions empty, implementing a hiring freeze and instituting layoffs.

5. Baptist Health in Arkansas to Lay Off 170
Little Rock, Ark.-based Baptist Health laid off 170 employees. The system cited lower reimbursement, increasing charity care and bad debt as the reasons for the cuts.

6. Danbury, New Milford Hospitals Cut 116 Jobs
Danbury (Conn.) Hospital and New Milford (Conn.) Hospital's parent network, Western Connecticut Health Network, cut 116 jobs, resulting in 65 layoffs.

7. Excela Health to Lay Off 78
Greensburg, Pa.-based Excela Health is laying off 78 and leaving an additional 58 positions empty. Excela attributed the workforce reduction to lower patient volumes and revenue.

8. St. Joseph Health to Lay Off 37
Orange, Calif.-based St. Joseph Health plans to lay off 37 employees across two hospitals. The layoffs will affect 26 employees at Santa Rosa (Calif.) Memorial Hospital and 11 employees at Petaluma (Calif.) Valley Hospital.

9. Blue Mountain Health System Lays Off 16
Blue Mountain Health System, a two-hospital system with campuses in Palmerton, Pa., and Lehighton, Pa., laid off 16 employees and eliminated 13 empty positions. Additionally, the system cut the hours of seven employees, and senior management and department directors took a pay cut.

10. Providence St. Peter Hospital Cuts Number of Licensed Practical Nurses
Olympia, Wash.-based Providence St. Peter Hospital is laying off nine licensed practical nurses. The layoffs are part of an internal restructuring at the hospital. Officials decided a registered nurse with a certified nursing assistant could handle patient care in certain units.

August 15:

1. Maine Medical Center to Slash 225 Positions
Portland-based Maine Medical Center announced it will lay off 50 employees and eliminate 175 other positions. In addition to the eliminated positions and layoffs, 120 employees took an early retirement package.

2. Mountain States Health Alliance to Chop 200 Jobs
Mountain States Health Alliance in Johnson City, Tenn., is cutting 200 jobs through attrition. System officials pointed to shrinking revenues, tied to the federal sequester and lack of state officials' agreement over Medicaid expansion, as the reason for the workforce reduction.

3. WakeMed to Lay Off Hundreds, Close Nursing Home
WakeMed Health & Hospitals in Raleigh, N.C., is laying off more than 100 employees, mostly through the closure of a nursing home in Fuquay-Varina, N.C. WakeMed will also cut the jobs of 14 staff interpreters as it outsources its interpretation services. All together, WakeMed will lay off 111 employees.

4. Northside Medical Center in Ohio to Lay Off 77
Northside Medical Center in Youngstown, Ohio, an affiliate of ValleyCare Health System of Ohio in Youngstown, is laying off 77 employees.

5. Alameda Health System to Lay Off Dozens
Oakland, Calif.-based Alameda Health System prepared to lay off about 57 workers. The layoffs will affect employees at all seven of the system's locations, including a psychiatric hospital and wellness clinics.

6. Lowell General Lays Off 34
Lowell (Mass.) General Hospital laid off 34 workers. Twenty-nine of the affected employees held administrative positions, while the remaining five were nurses and caregivers.

7. Samaritan Medical Center Lays Off 23
Samaritan Medical Center in Watertown, N.Y., announced a workforce restructuring plan that will lead to 23 layoffs. Of the 23 employees who will be laid off, six are in management and 17 are in non-management positions. In addition to the layoffs, about 42 staff members will be reassigned to other jobs that are currently vacant.

8. Ukiah Valley Medical Center Cuts Jobs, Employee Hours
Ukiah (Calif.) Valley Medical Center eliminated six positions and is leaving five positions vacant. Additionally, five positions will have a reduction in hours.

9. Anna Jaques Hospital Lays Off 9 Workers
Newburyport, Mass.-based Anna Jaques Hospital laid off nine employees. The layoffs represent the loss of roughly six full-time equivalent positions.

10. Hancock Medical Center in Mississippi Lays Off 8
Bay St. Louis, Miss.-based Hancock Medical Center laid off eight employees and cut the hours of an unspecified number of other employees.

11. Orlando Health Layoffs Continue
Orlando Health confirmed more employees will be laid off as part of a restructuring the system announced in November. No specifics on how many employees would be laid off in this phase have been released.

September 4:

1. PeaceHealth to Slash 500 Jobs: Vancouver, Wash.-based PeaceHealth plans to eliminate 500 jobs throughout its system through layoffs, attrition and reduced hours. Most of the jobs being cut will be from two hospitals in southwest Washington State: Southwest Medical Center in Vancouver and St. John Medical Center in Longview. Of the 340 positions being eliminated from the two hospitals, 177 will be lost through layoffs.

2. King's Daughters Medical Center Lays Off 148: Ashland, Ky.-based King's Daughters Medical Center laid off 148 workers in support, administrative and supervisory positions. The workforce cuts were made due to declining patient volumes and reimbursement cuts.

3. Centra Notifies 124 Employees Affected by Layoffs: Lynchburg, Va.-based Centra notified 124 employees they will be laid off. By Sept. 5, 112 employees will have been laid off, and 12 more will be gone by the end of the year.

4. NorthShore to Lay Off About 100 Workers: Evanston, Ill.-based NorthShore University HealthSystem announced plans to lay off 1 percent of its workforce, roughly 100 people. The layoffs are part of an effort to "address redundancies and realign staff," according to a NorthShore memo.

5. Baptist Memorial Health Care Lays Off 23, With More Layoffs Coming: Memphis, Tenn.-based Baptist Memorial Health Care laid off 23 managers, and announced a second round of layoffs affecting 61 additional employees. Baptist pointed to increased charity care and lower reimbursements from the government as the reason for the first round of layoffs.

6. Arnot Health to Eliminate 83 Positions at St. Joseph's Hospital: Elmira, N.Y.-based Arnot Health announced it will eliminate 83 full-time equivalent positions at St. Joseph's Hospital in Elmira in September. Arnot Health is transitioning St. Joseph's to focus more on outpatient care, psychiatric and alcohol/drug addiction treatment, long-term care and chronic care. Some units will be closed or consolidated as part of the transition, leading to the elimination of positions.

7. HMA's Tennova to Cut 75 Jobs: Tennova Healthcare, based in Knoxville, Tenn., plans to lay off 75 employees in October. Affected employees work in one of the system's regional service centers in the Physicians Regional Hospital in Knoxville. Naples, Fla.-based Health Management Associates owns Tennova, and is consolidating the Knoxville regional service center into a center in Arkansas.

8. Mission Health to Lay Off Dozens, Cut Budget: Asheville, N.C.-based Mission Health plans to lay off about 70 employees and make other employee-related budget cuts. In addition to the layoffs, the system eliminated three vice president positions, did away with merit increases for 2014 and froze paid time off accruals, among other cuts.

9. Covenant Health to Lay Off 49: Covenant Health in Lubbock, Texas, plans to lay off 49 employees as part of a workforce reduction strategy. The layoffs stem from reduced reimbursements due to healthcare reform and the sequester's cuts to Medicare.

10. Columbus Regional Healthcare System Axes 4% of Workforce: Columbus Regional Healthcare System in Whiteville, N.C., eliminated 28 jobs, or 4 percent of its workforce. Ten of the 28 positions were vacant.

11. Windber Medical Center Restructures Workforce, Lays Off 19: Windber (Pa.) Medical Center laid off 19 employees and is leaving 11 positions vacant in an effort to reorganize its workforce in order to prepare for the future of healthcare. The layoffs are not linked to lower patient volumes. The workforce reorganization will create four new positions at WMC.

12. CHS' Crestwood Medical Center Lays Off 13: Huntsville, Ala.-based Crestwood Medical Center laid off 13 employees, about 1 percent of its total workforce. Affected employees were in administrative and support positions. Crestwood is owned by Franklin, Tenn.-based Community Health Systems.