JANUARY 2008: HEALTH CARE
Cascade Healthcare
Community CEO Jim Diegel says hospitals across the
state face similar workforce, population and economic
challenges.
PHOTO BY LANCE HARDY
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RX for growth
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.
OREGON
HOSPITALS:
A quick checkup
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Wallowa Memorial Hospital
Enterprise
2006 gross
revenues: $15 million
2006 net
revenues: $10.8 million
Employees:
150
2006 payroll and
benefits: $6.2 million
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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
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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
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Mid-Columbia
Medical Center,
The Dalles
2006 gross gevenues: $119 million
2006 net revenues: $62 million
Employees: 750
2006 payroll and benefits: $38 million
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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
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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
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(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.)
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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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