Independent hospitals — the local stalwarts that birth babies, handle heart attacks and support Little League teams, too — are facing hard times.
The new health care law will demand more of every hospital, including expensive records systems and more attention to quality care, and meanwhile both the government and private insurers want hospitals to be more efficient. Those demands will make it difficult for many independent hospitals to remain independent.
Statewide, about two in five hospitals are losing money.
But quite the opposite holds true for hospitals that are part of a larger network, whether a for-profit chain or a local nonprofit system. Many turned in strong financial performances in 2010, according to a review by The Atlanta Journal-Constitution.
Piedmont Hospital, for example, enjoyed its best profit margin of the decade in 2010. The five-hospital WellStar Health System’s profit margin last year was double that of 2007. Smaller systems and standalone community hospitals, however, struggled to show a modest profit or just to break even.
Industry observers predict the widening financial divide will spur a significant shift in Atlanta’s hospital market with the emerging Big Three — Piedmont, WellStar and Emory Healthcare — taking control of weaker players.
While some smaller players are holding their own, key independent hospitals have thrown in the towel. After years of losses, Henry Medical Center in Stockbridge is completing a partnership deal with Piedmont, while Atlanta’s Saint Joseph’s Hospital will soon become part of the Emory system.
Consolidation does come with risks. Patients might have to travel farther for care if services are consolidated. A hospital that has been familiar to a family for generations might lose its connection with the community and be less interested in providing charity care, maintaining services that lose money or even supporting the United Way. Even the strength of each system’s flagship hospital is on the line, if those facilities have to prop up the finances of their new partners.
Economists and insurers also point out that consolidation in the market lessens competition. Larger hospital systems gain more power to demand higher payments from insurers, who would face an uproar from their customers if they did not include one of the large systems in their network.
“There is a strong move toward consolidation here in Georgia,” said Holly Lang, director of the Hospital Accountability Project at Georgia Watch, a statewide consumer organization. “It can be both a positive and a negative thing. It depends on how the hospitals go about this and whether they consider the patients in what they are doing.”
Securing the future
Southern Regional Medical Center in Clayton County is one vulnerable player in metro Atlanta. A major investment service downgraded the Riverdale hospital’s bond rating to junk status last year. It ended fiscal 2010 with a nearly $2.6 million shortfall, although that was an improvement from a $22 million loss the year before.
Cost cutting and a debt refinancing have improved the 331-bed hospital’s bottom line. It eked out a profit of roughly half a percent in fiscal 2011, and Moody’s Investors Service has since upgraded its status to reflect a low risk of not paying back debt.
A simple supply change such as replacing disposable bed pads with cloth pads saves $50,000 to $60,000 yearly, chief operating officer John McLain said.
That’s progress, but it may not be enough progress.
“We’ve made improvements, but we’re still not out of the woods by any stretch,” McLain said.
Earlier this year, the hospital’s board hired a consultant to explore a sale or possible partnership with a larger system. Partnership deals often include a long-term lease of a facility that turns most of the management over to the health system.
“We have to secure this hospital for the future of the patients we serve here in Clayton County,” McLain said.
Other smaller systems are focusing on becoming more efficient to try to succeed in a world of lower reimbursements from the government and private insurers.
Most experts believe the large systems will have an edge, but it is impossible to predict which players will stay strong, said William S. Custer, a Georgia State University professor. The health care law and market forces introduce too many variables into the equation.
New law’s mixed effects
Some hospitals weakened by a large increase in uninsured patients, for example, may be helped by the law, which seeks to extend coverage to almost all Americans by expanding Medicaid and subsidizing the cost of private insurance.
In fiscal 2011, DeKalb Medical, which runs three hospitals in DeKalb, saw total uncompensated care at its North Decatur and Hillandale campuses jump by nearly $15 million to roughly $32 million.
Not only are there more uninsured people — about one in five Georgians lacks coverage — but insured patients who now have higher deductibles aren’t paying their bills, said Cheryl Iverson, DeKalb Medical’s marketing vice president.
“We raised a whole generation on a $25 co-pay and then we changed the rules,” Iverson said.
The health system in 2005 opened a 100-bed facility in south DeKalb and a new women’s and surgical tower at its North Decatur campus. It also began focusing on growing services, such as joint replacements and bariatric surgeries, and opened a heart and vascular institute in January.
After several years of losses, hospital officials say they broke even in fiscal 2011.
“We feel like we’re on a good track to succeed, but it’s not easy,” Iverson said.
Big 3 to get bigger
Those who watch the Atlanta hospital market say Piedmont, Emory and WellStar are in the best positions to dominate because they have multiple hospitals across Atlanta, a reputation for quality and financial strength.
WellStar, a nonprofit system that operates five public hospitals and offers myriad medical services in Cobb, Douglas and Paulding counties, finished the 2011 fiscal year with a $98.8 million profit on operations — a 6.2 percent operating margin that doubled its 2007 return. The system, which must pump its profits back into the operation, has remained strong even while seeing more patients who can’t pay — about 30 percent who come into WellStar’s emergency departments have no insurance.
WellStar is expanding with “health parks” in Acworth and East Cobb to offer convenient access to doctors’ offices, clinics, imaging centers and other outpatient services. It also is building a replacement hospital in Paulding and upgrading its Douglas, Windy Hill and Kennestone hospitals.
The larger players have the resources to stay on top of complex new regulations while also paying for expensive new technology, said Alex Hunter, managing director in the Atlanta office of global consulting firm Navigant. While those demands are challenging for multi-hospital systems, they can be nearly impossible for some standalone players to meet.
Emory posted strong results in 2010 at its flagship on the Emory campus and at Emory Midtown. Some of the relatively new players in Emory’s line-up — its Johns Creek hospital and its Orthopaedics & Spine Hospital in Tucker — were some of the strongest in Emory’s mix, with combined profits of more than $26 million. Emory earned profits even as it spent significantly more on uninsured care, while also relying on Emory’s strength to support its highly regarded academic programs.
“There should be no question regarding our commitment to the community through the increasing charity and indigent care that Emory has provided,” said Lance Skelly, an Emory spokesman.
Piedmont Healthcare plans to spend $180 million over the next three years just to upgrade its IT systems. But it can spread those costs over a broad base, since its lineup already includes hospitals in Atlanta, Fayetteville, Newnan and Jasper and will soon include Henry Medical, too.
The Rev. Daniel Edwards, who lives in Ellenwood, said he expects Piedmont’s partnership with Henry Medical to be positive for his community. He said he frequently heard complaints about the local hospital’s services in recent years, and many hope Piedmont will upgrade the quality of care.
“This change is welcome,” Edwards said.
Piedmont’s flagship on Peachtree Street logged one of its best financial years ever in 2010, with a $59 million profit on its patient care operations — and a total margin of $126 million, including the value of investments.
The fiscal 2011 overall results look even better because of strong investments. However, profits from patient care declined sharply, the hospital said, prompting the Piedmont system to cut more than 450 jobs this summer.
Hospital spokeswoman Nina Day said Piedmont is financially sound but faces challenges.
“Financial strength will help us weather health care reform through compliance with the new law and the ability to adapt and change,” Day said. “Regretfully, hospitals that are not financially healthy will shut down or reduce services.”
Other players hang tough
Piedmont, Emory and WellStar are not the only metro hospitals with financial strength.
The Gwinnett Hospital System runs two hospitals that have remained stable financially. Northside Health Services runs hospitals in Forsyth and Cherokee counties in addition to its flagship in Sandy Springs. The national HCA chain owns a for-profit in Snellville. Tenet Healthcare Corp. has three hospitals in metro Atlanta, including North Fulton Hospital, which said it earned about $20 million in profits in 2010.
“This is the most competitive market I have ever worked in,” said Deborah Keel, CEO of North Fulton Hospital. “We have a lot of really strong hospital systems in the same market.”
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