South Florida Hospital News
Wednesday August 5, 2020
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April 2015 - Volume 11 - Issue 10
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Economic Realities of Running a Hospital

Part 1 in a series on exploring hospital costs
 
Across the U.S., hospitals and healthcare systems are increasingly being tasked to improve the quality of patient care and to rein in escalating costs. Through the Affordable Care Act and evolving payment structures for physicians and hospitals, healthcare systems are trying to keep people healthier and out of hospitals.
 
However, most healthcare executives would say it is difficult to retain the infrastructure and safety of a hospital unless somebody pays for these costs. The clinical capabilities and administrative expenses of a hospital are much greater than a physician office or a medical clinic. The needs of patients who come through a hospital’s doors are much different from patients who seek care at a medical practice or clinic. Hospitals need to be open 24-7 and be ready at a moment’s notice to treat a wide variety of acute and chronic conditions.
 
Yet, when it comes to discussions on reimbursement and cost containment, many government and private payors want to treat hospitals and physician practices as equals. However, according to a new study, conducted for the American Hospital Association by KNG Health Consulting LLC, patients seen in hospital outpatient departments are more clinically complex and are 2.5 times more likely to be on Medicaid, self-pay or eligible for charity care.
 
“If the goals of the Affordable Care Act are to keep people healthier and to have fewer patients come through the hospital’s doors, our health care financing system has to figure out different reimbursement methodologies, and how to sufficiently reimburse hospitals to be able to undertake this population health journey we are being encouraged to do,” says Calvin Glidewell, CEO of Broward Health Medical Center. “Remember, we have to be open for people when they do need us.”
 
Keeping Costs Under Control
 
Being open all the time requires a significant amount of overhead to maintain. The top three expenditures at any hospital across the country are typically labor, supplies and services, such as IT arrangements and licensing fees. While hospital executives like Glidewell are working diligently to try to keep escalating costs from spiraling out of control, they are contending with an ever growing aging population who need healthcare, more chronic diseases to treat, and more innovative, advanced (and expensive) technologies to treat these diseases.
 
Today, attracting insured patients is how a majority of these costs are ultimately paid. Patient volume drives hospital profitability. By attracting compensated patients who have the ability to pay for services, supplies and labor, a hospital has the ability to turn a profit. If a hospital only treats unfunded patients, it would have an inordinate amount of expenses and no revenue to pay for the costs.
 
Glidewell says a hospital’s profit margins are typically in the 2% to 6% range—8% if you are really lucky.
 
“One misconception people have is that hospitals are huge monolithic entities that make a lot of money,” says Glidewell. “Since hospitals are typically the largest employer in town, they are seen as big businesses. However, the profit margins in hospitals are not what you see typically in pharmaceutical companies, medical device companies and even in insurance companies, where these profits can be as much as 20% of revenues. Because hospitals are such people-dependent businesses, we’re always going to have fairly high labor costs and we have to keep abreast of the market. We have to pay for new technology or we won’t be able to treat and attract patients.”
 
Quality of Care at an Affordable Price
 
Although the healthcare landscape has changed a bit over the past decade, South Florida now ranks number two or three among all geographic areas of the country in terms of uninsured, unfunded patients, notes Glidewell. Being sure his hospital can provide services to everyone with a special mission of providing for unfunded patients is one of the hospital’s greatest challenges.
 
“We want to position ourselves as the hospital of choice for all patients, both funded and unfunded,” explains Glidewell. “While we are managing our costs and ensuring we can provide services that all people need, at the same time, we need to attract funded volume to help pay for the unfunded volume. As a large-scale, 24/7 operation, we have to be here anytime day or night to provide the utmost in trauma or critical care for any patient, unlike other healthcare services which can offer their services in a more defined timeframe.”
 
Alex Fernandez, CFO of Broward Health Medical Center, adds that hospitals these days have to strike a balance between driving exceptional quality at an affordable price.
 
You have to provide the quality that patients demand at a cost where you can still earn some sort of margin,” says Fernandez. “I think another challenge for us too is the complexity of the healthcare plans out there for the consumers.”
 
Five or 10 years ago, patients had the equivalent of an HMO gold card to come to the hospital for whatever services they needed and only paid a $20 co-pay to get into the door. Although there are so many different plans and options available now for the patient, Fernandez says they sometimes see high deductibles which a few patients cannot afford. That may mean an MRI, which a patient needs may be unaffordable.
 
“The complexity of the plan, the lack of knowledge of the consumer selecting the plan, and not understanding what they are actually purchasing has been a challenge for enrollees, but also for hospitals,” says Fernandez.
 
Delivering Value-Based Care
 
With more pressure on hospital CEOs to improve quality of care and lower costs, there has been a shift in the last few years to tie hospital and physician payments to compensation based on quality of care and patient outcomes, also known as value-based purchasing. Hospitals and private and government payers are making large strides in distancing themselves from fee-for-service medicine.
 
“Not only are payors already paying you a fixed amount for every procedure, test and patient that you see, but they are also beginning to pay you more for how well you are at treating these patients with incentives or penalties based on whether you are doing a very good job as compared to your peers,” says Glidewell.
 
But to provide quality care and ensure your physicians are paid more for keeping patients from returning to your hospital, hospital administrators have to take advantage of newer, better—and more expensive—technology to keep up.
 
“We need to take advantage of new technology to minimize any penalties that we get,” says Glidewell. 
 
Building Good Partnerships with Physicians
 
Broward Health Medical Center has long been one of the top hospitals, not just in South Florida, but the whole state. One key to its success in the changing healthcare landscape has been its partnerships with its physicians. Advice Glidewell would have for other hospital CEOs is to build and foster collaborate relationships with them.
 
“Have good conversations with them about what the reimbursement implications are and what value-based care means to hospitals,” he says. “And then make sure they fully understand what impact they have on the costs that we incur in a hospital. Because every patient that is admitted and discharged, and every test that is done in a hospital, is really done with the order of a physician.”
 
Glidewell says if physicians understand how a hospital is being rated, what quality indicators are important and understand what implications their decisions have on which test to order and how long to keep the patient in the hospital, they can make better sound judgments for their patients and while bearing in mind what it means to the hospital.
 
“Educating, informing and having good relationships and partnerships with your doctors are paramount,” he adds.
 
Finally, Glidewell says it’s important for hospital CEOs to focus on the fact that it’s not just about cost.
 
“We’re all realizing it’s about quality and value,” says Glidewell. “We have been very good at watching both our quality and our costs and not artificially inflating prices above what they need to be. However, pricing is not everything and we all just need to pay attention to the value of what we are delivering—the very best quality product or service at the lowest cost but getting great outcomes at the same time.”
 

 For more information on Broward Health Medical Center, visit www.browardhealth.org/BHMC

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