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University Hospital sees banding together for survival

Saturday, Nov. 9, 2013 4:23 PM
Last updated Sunday, Nov. 10, 2013 7:27 AM
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For 15 years, University Hospital has taken pride in winning a consumer choice award. But in the face of funding cuts, Health Insurance Marketplaces and increasing technology costs, that won’t be enough in the near future. Joining with others in regional alliances might be the only way to survive, University CEO Jim Davis said.


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“We’re playing at a national level with a very local product,” he said. As health systems join together and insurance payers consolidate, size must answer size, Davis said, a kind of Wal-Mart-ization of health care that could also lead to less local control.

Two of the biggest impacts on University’s finances are coming from two sweeping federal laws – the Health Information Technology for Economic and Clinical Health (HITECH) Act and the Patient Protection and Affordable Care Act.

HITECH requires hospitals to use electronic medical records to share data between facilities, or face penalties. But implementing its electronic medical record, mainly through the Epic system, has so far cost University more than $50 million, Davis said. And it is looking at potentially $30 million in additional upgrades, which drove University to begin exploring a shared services contract with Novant Health Inc., of Charlotte, N.C.

With $3.4 billion in net patient revenues and relationships with 20 facilities, they can take advantage of economies of scale, Davis said.

“When Novant, which has 20 hospitals, does an upgrade on their Epic system, which takes a lot of work, they spread that cost over 20 hospitals,” he said. “When I do that same upgrade, I spread it over one. If I can be the 21st hospital that (cost) gets spread over, then everybody’s costs goes down. That’s the kind of thinking we are going to have to do if we are going to survive in the future.”

That becomes increasingly important in light of funding reductions.

What at first appeared to be a $17 million cut in Medicare funding is now looking like $27 million, Davis said. Hospitals agreed to $155 billion in cuts to help fund the Affordable Care Act, with the expectation that many more people would be covered by insurance through the Health Insurance Marketplaces and through an expansion of Medicaid. But the U.S. Supreme Court decision made Medicaid expansion optional for states, and Georgia refused.

“We’re not going to get that upside we were supposed to get by having everybody insured,” Davis said. “And that’s a bad position to be in.”

The Georgia Budget and Policy Institute estimated that Medicaid expansion would provide an additional $33.2 billion in federal funding over 10 years at a cost of $2.1 billion to the state. But a Georgia State University study said when economic impact and additional tax revenue is factored in, expansion would cost much less at a little more than $350 million.

It would also cover 400,000 Georgians who will not be eligible for subsidies in the federal exchanges, the institute said, because they are below the federal poverty level. The act barred them for fear states would simply dump their Medicaid population on the exchanges. They, in turn, are exempted from the individual mandate to have health insurance.

Even when people do get insurance through the Affordable Care Act, it will likely be the cheapest monthly plans – those with high deductibles and reduced reimbursement for providers, he said.

“You’re still going to absorb a substantial part of the bill from those plans,” Davis said. “It’s a far cry from traditional commercial insurance reimbursement, let’s put it that way.”

All of this will put additional pressure on hospitals to cut costs, and most have already found what savings they could in supplies and personnel while still trying to maintain good care, Davis said.

“That low-hanging fruit has been pretty well harvested,” he said.

That means turning to what Davis called the “fixed cost” side of the business, in Information Technology, human resources and other infrastructure costs. Teaming up with larger organizations allows those costs to be spread out.

University recently did just that with McDuffie Regional Medical Center, which transferred a lot of “overhead” services (like billing) to University, allowing it to break even, Davis said. Exploring a shared services contract with Novant allows University to dosomething similar.

“That was a way for us to remain independent, but hopefully leverage some of their scale to reduce fixed costs for the most part,” Davis said.

Many recent hospital mergers have been in the $3 billion to $4 billion range and it might take being part of an organization that large to compete, he said.

Insurers may demand it.

Blue Cross Blue Shield, when it was putting together its new insurance products for the Augusta area, didn’t even talk to University, Davis said. But Novant negotiated with them market by market, he said. Size will matter, Davis added.

“I think you almost have to have a multistate regional kind of presence to get that seat at the table,” he said. There are only about five insurance companies that matter in the Augusta market and those may be consolidating as well, Davis said.

“As they consolidate, the folks that are contracting with them better be consolidating as well,” he said. “It’s just going to take that to make the playing field fair. If they’re big, they don’t really want to go market by market and make all of these little negotiations when they can get a single-signature contract for a multistate deal. That’s a different world than we are used to.”

And that might move decision making farther away, Davis said.

“I’m not sure people in Augusta are going to be making those network decisions,” he said. “Maybe people in Georgia aren’t making those decisions. It could be someone as far away as California is going to decide who is going to serve the patients in Augusta.”

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IBeDogGone 11/09/13 - 06:52 pm
I understand every Mr. Davis

I understand every Mr. Davis made, I am on the billing side of Health Care for a company that provides support and billing accross the USA. Most of the clients I manage are out of state, when they transfer EHR and billing to us it caused an economic impact for employees, loyal employees that have worked for facilities and providers for years jobs are in jeporady. We have tried to employee these valuable resources to work remotely and it has been benificial. If the choice is made to go to Novant in order to use their Epic system I would hope University Employees would be given this opportunity if their work ethics merit this.

As a certified coder through AAPC our jobs are going to be much more difficult meeting all of CMS's requirements. University also is unique in that they service SC and GA Medicaid patients, billing and coding policies are different for each state. University participates in FQHC and RHC billing and claims for these patients can be very tricky.

When I started billing years ago if you coded the claims correctly and submitted them in the correct format to the carrier you got paid. Now carriers require DX and CPT's are specific and not recognized by all carriers. Credentialing and rates were easily negotiated for provider to receive fair compensation. Yes you have to be a Wal-mart of Health Care to stay afloat.

Riverman1 11/10/13 - 06:05 am
University and MCG

The obvious merger of services is University Hosp. and MCG. They can't even cooperate on residents training and they are next to each other.

LuvMyTown 11/10/13 - 08:25 am
$2.1 billion to receive $33.2 billion

Come to your senses Georgia, take the money!

WalterBradfordCannon 11/10/13 - 08:45 am
Mr. Davis made the same

Mr. Davis made the same mistake made by many others. Epic is an epic disaster, and costs most hospitals roughly the same amount that it is costing Unversity. When you use medical billing software, you need to take into account IT costs, maintenance costs, and lost clinical hours from inefficient software. Epic is by far the worst. Cerner is less costly, but still sucks rocks. However, had Mr. Davis made the wiser IT choice, it would have saved him 10s of millions. The software space of medical billing is ripe for takeover. Why any administrator would CHOOSE software that will cost them money, instead of saving them money, is beyond me. Aren't these supposed to be good business decisions?

justthefacts 11/10/13 - 09:35 am
EPIC disaster?

Everyone has an opinion.
"Epic is the nearly undisputed king of the electronic health records world.
About 40% of the U.S. population has its medical information stored in an Epic electronic health record (EHR), and the company often sits atop research firm KLAS' rankings of best-available EHR systems." Medical Economist.

IBeDogGone 11/10/13 - 10:24 am

I work on the physcians side and Epic is the Mercedes of Provider accessibility to EMR with the facilicy. We can easily access CCD's creating better revenue for both our clients and the facility. If I only had to deal with Epic I would be a happy camper.

Sweet son
Sweet son 11/10/13 - 02:41 pm
St. Joseph as we knew it is gone! University as our 'city'

hospital will be gone as we know it. Nothing is sacred anymore. Hope only the background names and services changes and the quality of services remains the same. And of course MCG another one of 'our' hospitals is gone by way of the 'empire builder.'

deestafford 11/10/13 - 08:56 pm
My questions are, "Were y'all beating the drum for obamacare

when it was being crammed down our throats? Did you actually believe the snake oil that Obama and his people were selling? Did you actually study the common sense aspects of offering more coverage for more people at less costs?" If you got snookered by the horse squeeze of the Democrats I have no sympathy for you.

mosovich 11/10/13 - 10:58 pm
"Obamacare" is not to blame wholly..

There are many areas to point blame.. New ins. regulations, technology regulations and of course bad management decisions come into play as well.. I understand consolidation is the norm these days, but this will mean the axe for a lot of good employees who have stood by Univ. through thick and thin, but I'm sure management isn't that concerned about that, it's all about that dollar..

Marinerman1 11/11/13 - 10:46 am
American Hospital Association = Stupid

I can't believe that the AHA was so stupid as to agree to take a $150B cut in benefit reimbursements, without having all the facts laid out, in writing. Now, we ALL are going to hurt.

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