Skiff Medical Center CEO Steve Long addressed the Newton City Council near the conclusion of last Monday night’s meeting to discuss health care reform and the impact the Patient Protection and Affordable Care Act has had on the hospital.
He first showed how the nation’s health care system was bankrupting the United States prior to enacting the PPACA. He then showed how the new health care laws will create financial difficulties for small community hospitals in the future.
In his presentation, Long said health care reform was necessary because of poor access for the uninsured, poor quality compared to other countries and costs that were already too high and increasing too quickly. He also noted the “demographic wave” as more and more baby boomers reach retirement age.
Prior to enactment of the PPACA, 16 percent of Americans were uninsured, either by choice or by circumstances. Employer and employee contributions to health insurance premiums, combined, have increased from roughly $6,000 in 1999 to about $15,000 in 2011.
The cost of health care in the U.S. has increased at a rate nearly twice that of inflation over the past 10 years. Today, the cost of health care — as a percentage of gross domestic product — is nearly 18 percent in the U.S.
The cost, per capita, is nearly $8,000 a year, which is nearly twice the cost of most other industrialized nations. Beginning at age 57, the average cost for health care skyrockets, reaching nearly $20,000 a year at age 67 and more than $40,000 by age 87.
Long showed a graph that indicated the last time the nation’s debt, as a percentage of GDP, was as high as it was now was during the World War II era. Much of that debt is attributable to Medicaid and the various components of Medicare.
“You would think with all that money we’re spending, the quality of care we receive would be the best in the world,” Long said. “But as you can see from this chart [of the world’s top nations in quality of care], it is not.”
The United States ranked behind The Netherlands, The United Kingdom, Australia, Germany, New Zealand and Canada in a number of areas. Those included overall quality of care, access to care, efficiency of care and equity of care.
As for the “demographic wave,” Long noted there are 10,000 Americans joining the ranks of Medicare daily. The substantially increased cost to provide care to the elderly is driving the nation’s budget deficits and building national debt.
“Today, there are about 52 million Americans on Medicare. By 2035, there will be more than 85 million,” he said. “The amount of money we’re spending on health care, if nothing is done, will bankrupt this country. America can’t afford it anymore.”
The PPACA is funded largely through new forms of taxation, but also by reduced reimbursement rates for services provided to Medicaid and Medicare patients. But it also changes the paradigm by which insurers are able to compete with one another.
Long said the Insurance Exchanges, also known as Marketplaces, are intended to increase competition and/or consumer choice while providing benefit standardization and lower costs.
“Standard benefits mean the only areas for competition are out of pocket costs, such as premiums and deductibles — because lower prices attract customers — and the quality of the provider network, meaning doctors and hospitals,” he said. “Some customers will pay more for higher quality provider networks.”
But most won’t.
Long showed the results of a recent study that showed 48 percent of Americans are willing to accept limitations on which providers they may see if it results in lower premiums and out-of-pocket expense. He said premiums are reduced one of two ways: either by increasing deductibles, thereby transferring more risk from the insurer to the individual, or by narrowing the network of providers that are covered.
“Exchanges will catalyze the shift of purchasing health care benefits from the wholesale to the retail channel. This channel shift will change the behavioral economics of plan purchasing decisions and increase the prevalence of high-deductible and narrow-network plans,” he said. “Value-based reimbursement will increase over the long-term as pricing and cost pressures grow, which will require improved cross continuum care coordination. Competing on value and improving cost structure are the only viable long-term options for continued growth.”
Long said, in the past, hospitals worked on a system that rewarded volume. The volume-based system rewarded hospitals that did more. In the future, he predicts health care reform will lead to value-based rewards for hospitals, rewarding providers for keeping their patients healthy.
“They’re going to change the way health care providers are paid,” he said
Year-to-date in 2013, Medicare and Medicaid account for 55 percent of payments for health care at Skiff Medical Center. Long also showed how, over the next decade, hospital profit margins will decline sharply.
“With the proposed reimbursement cuts, a hospital currently operating with a 2.2-percent [profit] margin today, if it does nothing at all, will see a 17-percent loss by 2021,” he said.
The demographics are not on Newton — or Skiff’s — side at present. In 2013, 56 percent of “new moms” at Skiff were younger than 25 and 41 percent had income of less than $20,000 per year.
Those numbers compare unfavorably to statewide averages of 35 and 27 percent, respectively. Long also pointed out that in 2005, Skiff’s “bad debt” and charity care totalled $1.3 million; this year, it’s $3.5 million.
“Jasper County ranks 83rd in terms of overall health in Iowa,” he said. “We rank 77th in mortality and 82nd in morbidity.”
Access to care has fallen significantly behind the statewide average, as well as the national benchmark. In Jasper County, there is one primary care physician for every 2,454 residents. The state average in Iowa is one for every 1,395; the national benchmark goal is one for every 1,067.
“In 2012, Jasper County was designated a health professional shortage area,” Long said. “In Newton, the population is older, poorer and less well educated. Those are all trending in the wrong direction, and it all has an impact on Skiff.”
By 2014, Long said the number of Newton-based physicians should return to 2010 levels. But, while the number of physicians is improving, the number of admissions and surgical procedures performed at Skiff have continued to trend downward since early 2006 and 2007, respectively.
Market share for both inpatient and outpatient care has plummeted to around 40 percent. But the demand for emergency care has generally increased over the past 10 years.
New Revenue Streams
Long said these factors have led to seeking non-traditional methods to grow volume, including the Medicare demonstration program, which has allowed for longer lengths of stay and better reimbursement for skilled nursing care. That program has made a roughly $2 million impact annually.
Skiff has undergone recent technological improvements and renovations, and there has been greater community involvement and an ongoing “I Choose Skiff” marketing campaign. The hospital has been and will continue to recruit new health care providers, as well.
“Reductions in funding have had an impact, as well,” Long said. “Sequestration has had a major impact, as have Medicare ‘take backs’ and the termination of Medicare extenders.”
In 2013, Medicare reduced its payments to Skiff by approximately $1.8 million. Net revenue per adjusted patient day — the means by which hospitals measure volume — has continued to fall since 2011.
That has led to an evaluation of the services the hospital provides, as well as efforts to find operational efficiencies through “lean” process improvement, labor productivity benchmarking and lowered cost supply contracts.
Labor remains the single greatest cost per adjusted patient day and is the greatest driver in the overall cost of care at Skiff. Supply costs have been largely held stable over the last several years, while reductions in staffing have been able to reduce the overall cost.
There are other bright spots looking forward for Skiff.
“Our focus on growing volume and decreasing expenses has improved the “value proposition” of Skiff for our patients and community,” Long said. “In addition we are improving performance on the 200-plus quality indicators reported monthly to Medicare and increasing patient satisfaction by revising clinical processes.”
“Our payments for the next several years will be increasingly tied to these two elements,” he added.
He also noted Skiff received an “A” rating from The Leapfrog Group’s annual Hospital Safety Score. The score is comparable to other community hospitals in Central Iowa, but was better than hospitals scored in Des Moines.
For Fiscal Year 2013, outpatient visits to Skiff set an all-time record. The number of outpatient visits had last peaked in 2008 and declined steadily through 2011. It has since rebounded substantially to more than 81,000 visits.
Why It’s Important
Skiff, which is a 48-bed “rural municipal hospital,” is the third-largest employer in Newton with 350 employees. It is a full-service community medical center, providing inpatient medical and surgical care, intensive care, obstetrics, skilled nursing care and hospice services. It also offers surgical services, emergency services, diagnostic care, rehabilitation and home health care.
Skiff also provides specialty clinic services, as well as public health services on behalf of Jasper County Public Health.
“Skiff also has an annual budget of $38 million and has a $32 million economic impact each year,” Long said.
Long concluded his 20-minute presentation with a single question:
“What role will, or can, the city play with us operationally and/or financially?”
He asked that he be able to return in January to have a deeper conversation with the council about that very subject. In an interview following his presentation, he said he was not looking for a specific answer, but to get better clarity as to the relationship between the city and the hospital.
“As healthcare continues to quickly change and we are laying out the options for the future, we need to know how the city fits into the picture in terms of control and finance,” he said. “We know, the relationship started back in 1919 when the city gave the land the original hospital was built on and pledged to support the maintenance and repairs for that 1921 building via a tax levy.”
Long said it appears that tax support lasted until sometime in the 1970s, and in the 1990s, the hospital cooperated with the city on a hospital-revenue-funded bonding initiative to expand and renovate the facility. But after that was paid off by the hospital, he said the interaction between the two has been minimal.
“There has been little formal interaction between us,” he added. “With all the changes in the last 15 years at the hospital and city, much institutional memory has been lost and some parts of the Iowa code have changed as well, thus the need to regroup and get a better understanding.”