Hospitals restructure to manage expenses

Hospitals, caught in an increasingly competitive market, are re-examining their business practices and shoring up strategic alliances.

"Mergers, affiliations and layoffs started to become prevalent a few years ago when talk began about national health reform in Washington," said Lou Gable, director of media relations for the Hospital Association of Pennsylvania. "Not a week goes by that I don't see a news story on a proposed merger or affiliation of a health-care entity," he said.

Gable noted that as talks about health-care reform became more intense, the pace of mergers, affiliations and layoffs increased; this was a sign of uncertainly about the future of the health-care industry. However, as the talk about reform died down, managed care took over as the driving force behind cost cutting within the industry.

Additionally, Gable noted that there's been a continuing decrease in government reimbursements to health-care facilities for procedures performed on patients covered by Medicare and Medicaid. In terms of the budget, Medicare and Medicaid are the two largest government programs. Medicaid is funded jointly through federal and state programs, but both federal and state governments have decreased program funding. Medicaid funding is also linked to proposed cuts in welfare packages.

Area hospital administrators also see a continued trend toward managed care.

"We think that as health care heads toward managed care, the typical patient will have less choices. By having less choices, patients will demand and expect better coordination of care," explained Mark Brazitis, CEO of Lancaster General Hospital. He noted that overall, the hospital is having a decent year both financially and in terms of patient activity. "The Health Pavilion (which opened in 1995) has been a site at which we've realized new patients. It was an expense but has provided new revenues," he said.

Lancaster cuts costs

Brazitis noted that Lancaster General has worked on various levels to ensure it meets budgets. The facility is increasing cost-savings by entering into a group purchasing agreement for medical and surgical supplies that uses a selected group of vendors throughout the Lancaster General system.

Daily operations of skilled personnel have been examined.

"We initially brought in patient-focus care in our cardiology section," he said. Through patient-focus care, more skilled employees such as registered nurses are used to provide care and treatments; lower paid personnel are utilized to file records or provide extra pillows or blankets for patients. "This lowers our overall salary cost and does not hurt the quality of care. We put our valuable skilled resources into the essential responsibilities," he explained.

Lancaster General has also started increasing its use of home care. To do this, the hospital has worked with its own medical staff, the Visiting Nurse Association and local nursing homes. "Everything we've done in the recent past has been designed to provide less costly care, but still at a high level of quality," Brazitis said.

Hospitals are affiliating or merging with home health agencies, nursing homes and doctors' groups to provide higher quality at a lower cost.

In the case of Lancaster General Hospital, that affiliation is with the Lancaster Health Alliance. The hospital is the alliance's flagship hospital, according to Brazitis. Other entities under the corporate structure of the alliance include Lancaster General Health Pavilion, Visiting Nurse Association (which has its own board and management structure), Lancaster General Susquehanna Division (formerly the Columbia Hospital), Lancaster General Medical Group (a physician corporation formed by doctors practicing at Lancaster General) and Lancaster General Services. Lancaster General Hospital and the Lancaster General Health Pavilion are the predominate care-giving sites.

"In the future, as we move to a capitation rate, we (as a hospital) will need to manage care much more efficiently and effectively. The Health Alliance enhances convenience for patients and efficiency of information flow at the care sites; there's less redundancy and less rework," Brazitis said. Part of that efficiency will be better computer information systems. These systems will enable sharing of information between Alliance members in a more convenient manner. Being under one umbrella also promotes better coordination of care.

"We feel that in the future, the hospital and health system will be challenged to keep people well. Hospitals will be a place to o not just when one is sick," Brazitis said. To this end, Lancaster General and the Lancaster Health Alliance are getting involved in wellness programs.

York Hospital tackles revenue pressures

The York Hospital, like Lancaster General, is going through a similar examination of costs and improvements. Chrysta Stine, vice president of finance for the York Health System, explained that Medicare's average patient reimbursement is 90 cents per $1 of cost. "We've had this situation for some time; our average reimbursement has not been able to cover the cost," she said. She expects that state and federal budget cuts in Medicare and Medicaid will continue and this situation will not improve.

Additionally, the hospital's revenues have been adversely impacted by the influence of managed care. "We have a lot of pressures on our revenue stream, so we need to look at what we can do to improve our cost structure," Stine said.

York Health System is re-engineering its processes. In clinical settings, it is looking at clinical pathways or guidelines; it is taking a particular situation and getting doctors, nurses and clinical staff to look at the work that is needed and how that can be improved. "This doesn't reduce quality, but can increase it," she said.

As an example of the clinical process at work, Stine noted that the situation with pneumonia patients was examined, and the outcome was a reduction in time in which antibiotics were initially administered. This improves the outcome, according to Stine; the patient has an opportunity to recover more quickly, and this reduces cost and days in the hospital.

The admissions process was also investigated and improved, making it more convenient for the patients and their families. In addition, Stine indicated that the hospital will be investing in improved information systems.

"Patient-care information and care-giving information can be automated. This provides quicker and more efficient access to the information," she explained.

Like Lancaster General, York Hospital is also becoming involved in community health; it is part of the Health in York County Coalition.

"A few years ago, we joined with other organizations and did a health assessment. This information has been instrumental in developing our seminars on community wellness. We're in the process of working with other coalition members to develop programs to deliver needed services," she said. One such program involving York Hospital is an immunization program dubbed "All the Shots for All the Tots."

It has also developed its own managed-care products. "In this way, we're able to have a little more influence over our own destiny. We also allow a local influence and local businesses have more direct input than they would in larger managed-care organizations that are based outside of the area. In a lot of instances, we can provide services at a lower cost to employers; we eliminate the middle man," she said.

The York Health System has several managed-care products for employers. The York Health Plan, a PPO for self-insured employers based in York County, is awaiting state approval. South Central Preferred is a three county PPO for employers with 25 or more employees. Health Central is a regional HMO.

Harrisburg limits duplication In the Harrisburg area, the scenario is somewhat different. At the end of December 1995, three Harrisburg area hospitals merged under the same management. At that time Capital Health System, owner of Harrisburg Hospital and Seidle Memorial Hospital, merged with Polyclinic Hospital. The new company name for this entity is Pinnacle Health System, and there is a study under way for potential renaming of the hospitals.

Frederick Fetters, vice president of corporate finance and CFO of Pinnacle Health System, explained that the merger was prompted by the declining utilization of the hospitals and over-capacity at these facilities. He said that initially Harrisburg Hospital and Polyclinic independently started the process about two years ago, when each hospital board prepared financial and patient projections for about five years. Fetters explained that the boards realized that the hospitals would be adversely affected by increased managed care and reduced hospital use. This led to discussions of what the future could be like in a joint venture.

Initially, Fetter said there were some layoffs when the hospitals merged because of duplication in departments and related positions. There were some additional layoffs at Polyclinic as a result of lower utilization of that facility. A limited number of employees were transferred among the three facilities.

Other cost savings will be realized when clinical departments are relocated, so that all of a department's services will be at one of the three campuses, not spread through the three hospital locations. Fetters also noted that Pinnacle is considering job re-engineering; looking at job functions and the most cost-efficient way to perform those functions without sacrificing quality.

Hospital services were also merged. Previously, each hospital had its own fund-raising foundation, home-health agency, physician practices and physicians hospital organization. He said that any duplicated services will be consolidated at one site.