Health care ‘nosing into an air of turbulence’

An interview with Jennie Stuart CEO Eric Lee

CEO of Jennie Stuart Medical Center Eric Lee sat down with Publisher Taylor W. Hayes, Editor Eli Pace and Opinion Editor Jennifer P. Brown recently to answer questions about the hospital and the future of health care in Christian and surrounding counties. The interview lasted more than an hour, and in this, the first of a two-part series, the questions are primarily about the future of Jennie Stuart, the health care industry as a whole and how the Affordable Health Care Act will affect them going forward. Next week, the questions will focus more specifically on Jennie Stuart and the hospital’s role in the community.

Brown: You’ve had a long career, 24 years at Jennie Stuart. With your institutional knowledge of the hospital, the surrounding communities and the health care industry, how do you see Jennie Stuart changing in the next 10 years?

Lee: I really think heath care is nosing into an air of turbulence, and it all starts with the federal government.

When you think about the aging baby-boomer population who is going to be on Medicare, the longevity of the aging population that exists, the Medicaid program, and then you add in all your other government programs like VA and the military, roughly 75 percent of this country’s health care dollars are supported by the federal government. … At some point, as a country, we are going to have to deal with health care costs.

I think what you’re going to see is some dramatic challenges and changes. I think there will be some shrinkage in the number of health care providers nationally. I think you’ll see less duplication in market places. Focusing on more strictly on Western Kentucky, we are typically not over-bedded. Now you can look at a community like Paducah and say ‘Does Paducah really need two large hospitals?’ and look around and see pockets where there’s oversupply of health care services.

But to this region’s credit, we really don’t have too many physicians, too many hospital beds. Certainly, our population and our region can sustain the hospitals that are marketing and thriving in this area. When you look at Caldwell Hospital, Trigg County Hospital, Jennie Stuart Medical Center, Regional Medical Center, those hospitals are in limited enough supply that they can sustain themselves.

But what we will see moving forward is reimbursements are going to continue to decline. The federal government is going to continue to push for more quality and better customer service. In order to be able to receive certain levels of reimbursement, you’re going to have to prove quality, you’re going to have to prove customer service, you’re going to have to prove improved outcomes in collaboration with your medical staff. And that’s going to be a challenge for a lot of hospitals.

I think you will see some hospitals likely be sold or consolidated by larger systems within a market. I’m of course very bullish on health care in Western Kentucky. The hospitals in our region can survive, but it won’t be without a lot of work.

Health care has been a big employer over the last several decades and has been a big part of the economic engine that’s driven our country. I think you’ll see hospital hiring begin to slow over the next three to five years, and you’ll probably see hospital employment begin to decline somewhere in the next three to seven years.

For us to survive on the reimbursement that’s available, we’ll have to provide higher quality, better customer service with fewer employees. That’s going to be the biggest challenge for us because we are a human-resources driven business and industry.

Pace: How will the Affordable Care Act affect Jennie Stuart financially?

Lee: A lot of it, we’re going to have to wait and see how this plays out. … It’s never been exactly clear how the federal government intends to roll this out. There is going to be some effort on the part of the federal government to expand access to health care to the poor through the Medicaid program.

What is unknown is how many states are going to agree to take those additional federal funds with the strings that come attached and expand those Medicaid roles because obviously the states have to administer the Medicaid program and it increases the level of bureaucracy on them. … On the one hand, potentially you could have some currently uninsured poor people gain access to a reimbursement source through Medicaid, which theoretically would help physicians, and clinics, and hospitals.

But we have a Medicaid system that is increasingly paying less. It’s becoming much more managed. It’s much more difficult to receive payment and a lot of providers are struggling with that system. It could have a net positive benefit — it’s just very early to tell. What’s also very early to tell is whether the individual mandate is going to produce a lot of new money into the system.

It may well be likely that, for instance, … we may see some of the same things we see with these auto insurance policies where companies advertise ‘We have an insurance plan that meets the federal requirements,’ but what it is, is people pay a nominal amount per month and it may be a $10,000 deductible with 90 percent copay. Basically, when they come into the emergency department or seek routine health care services, they may technically have insurance, but it’s not insurance that’s actually going to pay anything.

What we do know for sure is the train is already out of the station with regard to health care reform on value-based purchasing and quality and customer service. Those mandates have already unfolded. Starting in 2013, our reimbursements are tied to that. We’re being evaluated on a quarterly basis for our patient outcomes, our case management, our quality, and our customer service. The federal government in 2013 is going to … start out very small, and then over time, they’re going to tie more and more of your reimbursement to these factors.

You see the end game: If you’re not an efficient, effective, low-cost, high-quality, high-customer-service provider, eventually your reimbursement will drop to the point you can’t sustain your operation.

And when you look at it, it makes sense. … If a third or a fourth of (medical service providers) magically disappear — because they’re not needed, inefficient, ineffective, whatever — then there are fewer physicians, clinics, hospitals, home health agencies and medical equipment companies to pull from the pool of money that’s available. No one in the federal government will come out and say that, but I really believe that part of the overall strategy is to thin the availability of providers, particularly in your large metro markets where there’s a lot of over-bedding and a lot of over-supply.

Pace: With so many more people expected to have insurance, is the system prepared for more people to start seeking care?

Lee: Most experts will say, ‘Nationally? No.’ Locally, we are in much better shape than we were a couple years ago. By September, we will have eight new primary-care specialists in our service area that did not exist two years ago so we’re in a much better position.

Our role as a hospital is to monitor the situation, and make sure that, if we have a need in an area, we’re aggressively recruiting a physician to fill that. ... Everybody with kids says we need an ENT; we need a couple actually. We got one that’s coming to the community late this summer. We need another orthopedic surgeon. ... We need a couple new urologists.

Hayes: Nonprofit hospitals vs. for-profit hospitals, which one stands to be in a better situation with these changes taking place?

Lee: The challenge for community hospitals moving forward is we tend to be either standalone or in small groups in some cities. … We tend to be more isolated. That limits your ability to leverage the commercial payers when you’re contracting with them. In some communities, not ours because we have access to the HPG purchasing group, but in some communities, the hospital has to pay more for supplies. What the for-profit hospitals have going for them is they run extremely lean and so they have a good handle on their cost structure. They’re part of large networks so they have access to very cost-effective purchasing and they have a lot of leverage when it comes to negotiating contracts.  

I think what for-profit hospitals are going to have to deal with is they have been extremely aggressive in acquiring physician practices over the last five years, and they are acquiring them at such speed, I am concerned that as reimbursements start to tighten and the level of reimbursement for these acquired practices begins to diminish that they could find themselves in an over-leveraged position. … It could put a competitive strain on their ability gain access to capital and grow.

Community hospitals have typically been much more gradual and much more careful. That’s the advantage to the community hospitals.

In our case in particular, with Fairview Physicians Network, we bring in a real sharp financial-minded guy like Darrell Gustafson, and we challenge Darrell with saying ‘We want to grow in a very controlled manner. We want to bring in good physicians. We want high quality, but our goal through Fairview Physicians Network is for that entity to stand on its own and operate cost-effectively.’

Wall Street is very bullish on for-profit health care right now. A lot of economists look at the Supreme Court’s ruling — most people have accepted that the ACA is going to fully be able unfold — and they feel that the for-profits are well-situated to benefit from that.

No doubt, you’ll see some community hospitals assimilated throughout the country. But the ones that are in a good market position, the ones that are in a market that is not over-bedded, that have strong boards and management, they’ll do fine. Now, you may see some linkages to strengthen those community hospitals … where a small hospital like Trigg County may partner with a larger community hospital like a Murray or a Jennie, and then we would maybe affiliate with a Vanderbilt or something.