John Commins | December 16, 2015
In the second of a two-part interview, a veteran observer of rural healthcare gives his views on the evolving role of rural hospitals and the mounting challenges to rural providers.
The past few years have not been easy for rural hospitals, and there is no indication that 2016 will be any easier.
Jamie Orlikoff, a Chicago-based healthcare management consultant and observer of rural healthcare for the past three decades, spoke at length with HealthLeaders Media this month about the challenges rural hospital leaders and boards face, and the hard questions they’ll have to ask themselves about their own viability. The following edited transcript is the second in a two-part interview. Read part one.
HLM: What will rural hospitals look like in five years from now?
Orlikoff: “It’s a very difficult question. It’s also very individualistic. It depends upon how isolated the community is. If you’re talking about something which is exurbia, an hour away from a hospital, you could make the argument that maybe it’s not so critical to have a full-service hospital in that community.
If you are talking about a place that’s a four-hour drive over mountains, then other issues come into play. That was the original purpose for critical access hospitals, but CMS saw an abuse of that.
There are many CAHs where there shouldn’t be. CMS has seen that the program has been abused and if a community can get healthcare in other ways, either through driving to another hospital an hour away, or telemedicine, or Minute Clinics, I don’t think anyone outside of any particular community has a loyalty to the traditional hospital-based model, certainly not CMS.
Their mission is how to maintain the solvency of Medicare and Medicaid and [determine how] we most appropriately ensure that beneficiaries receive services. When CMS sees that these federally qualified health centers are pretty good at delivering patient-centered primary care services to populations and they can break even or make money on the Medicaid rate, it asks ‘why should we do a cost-plus model for CAHs?’
It represents the slow moving revolution that we are in the middle of right now.
HLM: How do you see the role of rural hospitals evolving?
Orlikoff: It depends on the community. There are some retirement communities that are very well-heeled that have a tremendous philanthropic base of support. The people are not looking for tertiary services, but they want a good emergency department and good secondary care and they’re willing to donate money for that.
You have other communities where they have proximity to other healthcare. ‘Why should I give you my money when I can get in my car and drive 45 minutes and get world-class care somewhere else?’
Those hospitals are either going to affiliate or get acquired. You are going to see the extension of systems into rural markets because the systems are thinking about trying to grow their feeder networks and maintain their tertiary and quaternary capacity, but also to grow the capacity in their population health models so they can spread the risk and be able to be profitable.
A stand-alone independent rural hospital is going to be much rarer.
If you see one, it will be because it’s in a market where there is strong philanthropic support or it’s a public district facility where the community is willing to have its tax rate increased and they’re willing to subsidize the institution through a tax structure. Or [it will be] where it’s been acquired or affiliated with a large system which maintains services in the community, but not all services. Or, they lose their facility.
There will be some that make it. There will be some that are smart and nimble enough to redesign their services and cut services and develop strategies that keep them in business. Those will be the minority. It will be very tough to do that.
HLM: Do you see an expanded role for FQHCs?
Orlikoff: I don’t know if they could expand to include emergency medicine. That is one option for rural hospitals to survive. Establishing very close linkages or affiliations with FQHCs is going to be critical, but many hospitals resist doing that.
If you do it well, it means you’ve got to relinquish many of the services you currently provide. FQHCs for years have been the bald-headed step child of the American healthcare system and now everybody wants to dance with them. They’re like ‘wait a minute. You didn’t want to talk to us before. Now we’re doing fine, so why should we talk to you?’
HLM: Given these challenges you describe, how can rural hospitals survive?
Orlikoff: First, if you’re a CAH, you must perform the calculation of ‘can we survive if we are put into a prospective payment system?’ If the answer is ‘no,’ which is the answer for many CAHs, then you need to run scenarios about what you would need to do to survive if you were put under a prospective payment system.
It’s important to do that rather intellectual exercise before it happens so you can get a sense of the decisions you’re going to have to make, because you are going to have to cut certain services. You are going to have to ramp up other services, and map out a retail strategy and think about all these kinds of things that many organizations haven’t thought about, and one of the reasons why they haven’t thought about it is because a lot of them have been in denial. That is step one for a CAH.
If you crunch the numbers and go through the scenarios and the multitude of the probabilities points you into the direction that you probably wouldn’t survive, then you need to start thinking about affiliating.
If you maintain independence for the sake of maintaining independence, you become a decaying asset. You ‘fight the good fight’ until you close your doors and then you have to go out and try to get acquired or affiliated. You want to do it from a position of relative strength when you can negotiate with several potential partners and pick the one who is best of you.
A lot of rural board members don’t want to think that way. They want to remain independent as long as they can, and then they back themselves into a corner. When the time comes and they can’t find a partner or they have nothing to bargain with, the partner will say ‘we will acquire you, but we are not going to maintain a hospital or the services you want.’
For a non-critical access rural hospital, they have to do more complex sets of scenario calculations. First of all, what is their out-migration? I am amazed at the number of rural facilities that have not done that calculation. ‘How much business that we should be capturing are we losing right now?’ It’s a good opportunity because if you’re losing a significant amount of business it is usually the people with money in their pockets and good insurance.
The first question is: ‘If we were able to come up with a strategy that could recapture a significant proportion of that population what would that do to our financial position?’ If the answer would allow you to stay afloat and maintain your margin, then you aggressively pursue a growth strategy which is figuring out why you are losing them, and then combatting that.
HLM: What do you see as the main drivers of out-migration?
Orlikoff: Usually it’s due to perceptions of poor quality and things like that. If the perception is a reality, you have to address that. That requires facing some hard truths. Because of your position you can’t do everything well.
That means you have to let go of the old model, which was based on the assumption that it’s better that we provide a service, even if we don’t do it well, than not provide the service. That is what many organizations have done. ‘The community needs this service. We know it’s not very good, but we provide it.’ You have to cut those or get them on par so they can compete effectively. The whole notion that ‘we can do everything for everyone in the community’ is going to have to go by the wayside.
You’re going to see a movement towards focus. ‘What does the community need and how can we do it well? What are the three or four services we are going to do really well so we stem the out-migration?’
Obviously, if you run that calculation and you capture all your out-migration and it’s still not sustainable, then you start going down the affiliation path. Another option is do you have enough reserves and enough leadership that you can expand and steal from other markets? Usually, the answer is ‘no’ because people don’t tend to perform this type of scenario-based calculation until their back is against the wall. Ultimately, for many of them, it’s going to precipitate an affiliation.
HLM: What role do you see for rural hospital boards in this process?
Orlikoff: They need to embrace the whole notion of taking the issue before the community. I am really struck at how many communities don’t understand these issues. Communities say they want a hospital, and then the questions become ‘what are you willing to do to support the hospital and what are you willing to tolerate for changes that the hospital has to do to stay in existence?’ There is a question of communities taking ownership of this issue. That is something that boards should do, because boards are the primary conduit to the community.
HLM: What else?
Orlikoff: Look at the demographics. Is the community on an economic upswing or a downswing? Do people come here to retire, or do they leave and retire elsewhere? These are the questions you have to ask in addition to the traditional payer mix questions because there is such an amazing demographic change coming.
What is your payer mix today? What is it going to be in five or 10 years? You need to take all this stuff and stir it in the pot and then leaders have to do their job, which is to come up with the provisions and strategies that will minimize the weaknesses and maximize the strengths to see if you can make it work.
The key is honesty. If you’re not willing to ask the questions, that means you don’t want to know the answers and you’re not willing to come up with a credible strategy. You need to start affiliation questions now. If you’re willing to ask the tough questions get data that shows you have a chance for success, but you’re going to have to make a bunch of tough decisions. It’s gut check time. Are you willing to make these decisions?
Finally, if you’re willing to ask the tough questions and the data tells you ‘oh my god we can’t make it,’ you have to operate on that information and start looking for partners. There it is. It’s cold. It’s stark. It’s not fun. But, being a charitable, nonprofit organization does not mean you have the right to exist. You have to earn that right.
Source: Health Leaders Media
http://healthleadersmedia.com/print/COM-323797/Gut-Check-Time-for-Rural-Providers