Hospitals face consolidation, collaboration, University CEO says

 

Big reductions in funding will lead to further cost-cutting, forcing hospitals to consolidate and collaborate in the future, University Hospital CEO Jim Davis said Thursday.

Speaking to the Au­gus­ta Metro Chamber of Com­merce’s May Member Eco­no­mic Lun­cheon, Davis said much of the change can be attributed to consequences, intended and otherwise, of the Affordable Care Act.

The American Hospital Asso­­ciation, for instance, agreed to $155 billion in cuts to help fund health care reform in hope that having everyone covered would make up for that difference and for current amounts of uncompensated care. Part of that coverage was going to come from states expanding Medicaid, though, which Geor­gia and many other states will not do, Davis said.

“Not expanding Medicaid actually hurts hospitals. It leaves a hole in the insured group,” he said.

In 2010, University had a year-end margin of $14 million and, under normal growth, would expect to see it at $16.1 million in 2019, Davis said. Under the health care overhaul, however, University would be projected to gain $20.8 million from the newly covered and $1 million for quality improvement but would sustain $30.9 million in cuts, lose an additional $15 million from a program designed to help cover uncompensated care and $2.1 million from regional readjustments, he said. That turns a $16 million surplus into a $10 million loss, Davis said.

“This is not good news for the hospital industry,” he said.

University and other hospitals will have to learn to live on a near Medicare-level of payment from all providers, which experts say means reducing costs 20 to 40 percent, Davis said.

“That’s big, that’s really big,” he said.

Hospitals can look to the airline industry as inspiration, Davis said. Between 1995 and 2010, the number of passengers went from 460 million to more than 700 million while staffers decreased by 10,000 and the cost per passenger declined as fuel prices more than doubled, Davis said.

“They did it. There’s no reason why hospitals can’t figure this out,” he said. But it won’t be easy.

“Hospitals are going to struggle, they are going to struggle a lot over the next couple of years, and I will tell you some of them are going to close,” Davis said.

That could mean fewer but larger hospitals or networks of hospitals, Davis said.

“I think you are going to see a lot of consolidation in our industry,” he said. “Hospitals are going to buy hospitals that are going to buy hospitals, and they’re getting bigger.”

Economies of scale will be important – University recently agreed to work with Novant Health to provide services such as information technology and for purchasing supplies. Buying just five common medical devices will save University $3.5 million a year, Davis said.

In the audience, Trinity Hospital of Augusta CEO Jason Studley could agree with Davis’ assessment. The Medicare cuts will cost Trinity about $500,000 a month, and the hospital needs to position itself to adjust, he said. Consolidation might not change the Augusta hospital landscape so much as change the way they interact, which is already happening, Studley said.

“The same hospitals that are here are going to continue to grow,” he said. “I think what you are going to see is a lot more consolidation of services, with different hospitals defining the scope of their level of care and then collaborating with the same physicians that also use other hospital systems for higher levels of care.”

For example, in cardiology, all the hospitals might do catheterizations but rely on University and Georgia Re­gents Medical Center for open-heart surgery if needed for referral, Studley said.

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