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In An Age Of Consolidation, Some Community Hospitals Struggle To Remain Independent

Sep 09, 2010

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QUINCY, Mass. — When Claire Contos needed colon-cancer surgery recently, she could have gone to a top teaching hospital in Boston, 13 miles north of here. Instead, she chose the Quincy Medical Center.

"There’s a lot of compassion and understanding here," says Contos, 83, who has lived in Quincy for 64 years. "I’d never have that same feeling" in Boston. Her surgeon was Dr. Thomas Fitzgerald, the son of a Quincy nurse and doctor she had known for years. "He’s devoted to his patients," she says. "I can call him anytime, day or night."

Contos’ affection for her local hospital, which was built 120 years ago to serve local shipbuilders and workers in nearby granite quarries, is echoed by many of Quincy’s 90,000 residents. But now, there are serious questions about whether the medical center can maintain its independence from corporate ownership or, over the long run, survive.

The 196-bed hospital — which gets more than 80 percent of its inpatient revenue from Medicare, Medicaid and another state plan — is saddled with a deficit of more than $4.5 million, hospital officials say. To try to stanch the red ink, the medical center laid off 14 nurses and technicians, shook up its management team, and brought in hospital turnaround specialist John Kastanis. as interim CEO.

Quincy Medical’s woes mirror the financial troubles facing many independent community hospitals nationwide that are not part of a health system or owned by a chain. Banks have grown reluctant to hand out loans in a lagging economy, making it difficult for hospitals to pay for capital improvements. Medicare and Medicaid reimbursement rates haven’t kept up with hospitals’ costs, administrators say. And many independent hospitals lack the clout to get higher payments from insurers and steeper discounts from suppliers because they aren’t part of larger hospital systems, says Samuel Steinberg, a hospital consultant in Daytona Beach, Fla.

The new health overhaul law could exacerbate these financial problems. For example, it will require hospitals to adopt electronic health records and track and report patient outcomes. That will put more pressure on hospital profit margins, which average 1 percent to 2 percent, Steinberg says. The law also will make further cutbacks in Medicare and Medicaid payments.

Some stand-alone hospitals, such as St. Vincent’s Hospital in New York City, have shut down. Others are joining hospital systems. St. Luke’s Hospital near Toledo, Ohio — which spent years laying off staff, freezing wages and cutting services in a bid to remain independent — just became part of local chain ProMedica Health System. "Hospitals need to become much more efficient by joining together," says Randy Oostra, president and CEO of ProMedica, which now owns 11 hospitals.

Over the past decade, the number of independent community hospitals has declined, either because of mergers or bankruptcies, according to the American Hospital Association. From 1999 through 2008, the number of independent hospitals has fallen by 290. So far this year, 70 hospitals and long-term care centers have been targets of acquisitions — 14 of which have been independent non-profits, according to Irving Levin Associates, a Norwalk, Conn., firm that tracks merger activity in the health care industry.

But some hospitals, reluctant to give up local control, are scrambling to stay independent:

-- Doylestown Hospital in Pennsylvania, which has rebuffed offers from potential buyers, is trying to expand its reach by partnering with other hospitals to provide cancer and other care. At the same time it’s keeping a sharp eye on staffing levels. "We’re conscious of our costs," says CEO Richard Reif. "We have to be."

-- Holyoke Medical Center in Massachusetts, which is running low on cash, recently scraped together $2 million in state grants to keep going, according to CEO Hank Porten.

-- Community Medical Center in Missoula, Mont., in an effort to attract new, high-paying patients, is bringing in a pediatric surgeon on a visiting basis from Seattle Children’s Hospital —the only such surgeon to set up shop in Montana. Community Medical also joined with five other local hospitals to set up a virtual purchasing system, in an effort to get price breaks on equipment and services such as air ambulances.

-- Boca Raton Regional Hospital in Florida, after losing $120 million in 2008, considered — among several options — the idea of joining a hospital chain. The board of directors decided instead to bring in a consulting firm that specializes in turning around ailing facilities. Today the hospital, which says it made a small profit in fiscal 2010, remains determined to stay independent. While joining a hospital chain could help reduce some administrative costs, it would threaten its close ties with the community in terms of philanthropy and support from volunteers, says CEO Jerry Fedele. "When you combine with a big organization, you still have fundamental challenges that a merger or sale does not address, it’s not a panacea."

Meanwhile, to save money Quincy Medical Center has frozen and cut wages; eliminated some ambulatory care services and reduced staffing in the operating room. "I had staff here on weekends when there were no cases," says Karen Conley, chief nursing officer. "They were sitting around waiting for emergencies."

The Massachusetts Nurses Association, a union that has 300 nurses working for Quincy, has responded angrily, saying the staff is spread so thin that patient safety could be affected. "It’s a tragedy waiting to happen," says spokesman David Schildmeier. A hospital spokeswoman said in an e-mail that the hospital’s "highest priority is and always will be the safety and well-being of our patients."

Reducing labor costs may be only a short-term fix. "Hospitals can cut labor, but that means cutting back on service," consultant Steinberg says. "It’s very difficult to cut your way to success."

Quincy officials are bracing for another round of Medicare cuts that will hit hospitals in October. Mark O’Neill, the chief financial officer, expects a 2% reduction in payments, or a potential drop in revenue of $500,000 per year.

Despite the financial strains, Quincy’s executives say they’re determined to preserve the hospital’s independence. "Health care is a local issue," says Kastanis. "When physicians have a local hospital that they have a long-term relationship with, and they have some control as to how their patients are treated, that goes a long away in creating confidence among patients that they’ll get good care."

When a hospital is taken over by a system, the parent company typically replaces local board members, and physicians can end up with less say. "If you have a strong parent, they make all the decisions," says Donald Thieme, executive director of the Massachusetts Council of Community Hospitals.

Quincy Medical Center has launched a clinical affiliation with prestigious Tufts Medical Center in Boston. The deal won’t supply Quincy with cash, but it could result in Quincy getting new — and more lucrative — patients, Kastanis says. Tufts surgeons who specialize in treating breast cancer and thoracic conditions will now be offering those services at Quincy, a move that should increase the volume of high-margin services performed in the hospital. Officials hope that Tufts physicians will come in a few times a week to bolster the hospital’s orthopedics, geriatrics and neurology services, too. "It’s not going to take a lot of volume to get us back to break-even," Kastanis says.

Still, the heavy reliance on government payers continues to cause consternation. Kastanis says commercial insurers reimburse the hospital $1.33 for every $1 spent on a patient, on average, while Medicare pays about 83 cents for every dollar spent, and Medicaid pays 80 cents for every dollar spent. Quincy is one of six hospitals suing the state over Medicaid payments.

Tucked into a middle-class neighborhood that residents call "hospital hill," Quincy Medical Center employs 1,100 people, making it the fifth-largest employer in this historic town, where thousands of tourists flock each year to see the birthplace of two presidents — John Adams and his son, John Quincy Adams. It has added services for the growing over-55 population, and employs translators for the 6,000 Asian patients who visit the hospital each year. Many of the signs in the hospital include Chinese translations.

Quincy Mayor Thomas Koch says maintaining a hospital that’s under local control is essential. "Our people are more comfortable getting their medical services in Quincy — not Boston," he says. He recalls talking to a man who was rushed to QMC with a heart problem. "He told me that if he had been in traffic trying to get to Boston, he wouldn’t have made it."

Still, the hospital is running out of options. A $20 million bond offering in 2008 allowed it to replace a 1950s boiler and renovate the emergency room. Now administrators are struggling to find $150,000 to purchase a new cardiac-monitoring system for the emergency room. They can’t afford to fix the air conditioner in the cafeteria and so must rely on a noisy fan.

Tufts officials are looking for ways to help Quincy quickly, such as by providing the visiting surgeons, says Deborah Joelson, senior vice president of strategic services at Tufts. But executives at both hospitals are already thinking about how they might transform the relationship into an accountable care organization — a system of independent doctors and hospitals that work together to provide a continuum of health services, from primary care through acute hospital care. The health overhaul law encourages such linkups.

"We envision moving in that direction, but we’d like to do it without owning everything," Joelson says.

Quincy residents, such as Lance Peterson, are hoping for the best. A printer who publishes newsletters and brochures for the medical center, Peterson has had two colonoscopies and a liver scan there. Both his parents were treated there, as was his son, who got a peanut stuck in his throat when he was 2. "It’s someplace you like to visit," says Peterson, "if you have to."

Andrew Villegas and Philip Galewitz contributed to this story

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