Economic changes in health care forced Caldwell Memorial Hospital’s hand

May. 19, 2013 @ 07:38 PM

Caldell Memorial Hospital was built for only $1.25 million with money raised by local factory owners, businesses and individuals, and supplemented by federal and state grants. Its name was intended to memorialize all war veterans. The hospital was easily accessible, within walking distance of the heart of Lenoir. Families no longer needed to travel out of town to see loved ones who needed hospital treatment.

Caldwell Memorial was not designed as a rich man’s hospital. Rates for ward room care started at $6 per day. From its beginnings, the hospital was intended to help all of Caldwell County.

Fast-forward to the 21st Century, and the landscape of medical care has shifted dramatically, becoming more complex and multi-layered. And costly.

“There’s a lot of waste with the health care system. What we’re doing right now is non-sustainable,” said Dr. John Powell, medical director of Caldwell Physicians Network, which staffs CMH.

The North Carolina Hospital Association says hospitals are dealing with some “harsh economic realities.” Among other things, although the Affordable Care Act is designed to ensure that more people have health insurance, thus reducing the number of patients who can’t afford to pay their bills, it also will reduce Medicare payments to the state’s hospitals by $7.8 billion over the next decade. At the same time, because North Carolina legislators rejected the expansion of Medicaid that the Affordable Care Act allows states to make, almost entirely at federal expense, that will deprive N.C. hospitals of an estimated $440 million a year.

David Horn, the hospital’s vice president of business development, said a total of 62 percent of Caldwell Memorial’s patients have health coverage from either Medicare, which is government insurance for seniors, or Medicaid, government insurance for the poor.

“These are the two areas we are seeing decreasing in funding,” Horn points out. “How do we address that? We have an aging demographic that is needing specialty care for chronic illnesses such as COPD (chronic obstructive pulmonary disease), hypertension, heart disease or diabetes. We need the ability to meet these needs.”

The hospital’s charter makes CMH a nonprofit, so it seeks to have a marginally positive revenue stream to be reinvested back into the hospital. CMH had always been independent and fiercely protective of that status, but hospital officials began to consider whether it could remain independent and still keep that positive revenue stream.

“With a new era of health care, it’s making it more difficult for a free-standing hospital to survive, said Parker Williamson, chairman of the CMH Board of Directors. “We made that determination while we were a strong hospital. The trends of consolidation had been very clear five to six years ago.”

Hospital officials spent the past two years looking for a dance partner. Hospital leaders felt it essential that a future partner would allow CMH to maintain its identity and a sense of autonomy, even if technically it no longer would be independent.

“We put out information and circulated it among hospitals interested in partnering, and invited potential parters,” Williamson said. “We received quite a few suitors, and we began to narrow it down.

It was decided CMH would partner with UNC Health Care Systems. A deal was signed May 1, and UNC became the new owner of Caldwell Memorial Hospital. The deal brings a much-needed infustion of capital -- UNC will make at least $35 million in capital improvements to CMH over the next five years. Among the items still being prioritized in the hospital’s strategic plan is a multi-million-dollar upgrade to the operating room.

UNC also contributed $5 million to the CMH Foundation. The unrestricted donation will be used for support programs and services, and for yet-to-be-determined facilities needs.

“Every department is saying they need more space or more technology,” said Virginia Hoyle, the CMH Foundation’s executive director.

But the selection of UNC was about more than money. The nonprofit hospital’s patient-first philosophy needed to mesh with its potential partner. Hospital officials felt the difference between for-profit and nonprofit hospital systems was dramatic, Williamson said, and they feared that a profit-driven system would use CMH as a “feeder” hospital, pumping more patients into the network and exporting them for specialty care, turning CMH essentially into a “first aid station.”

“That’s the last thing we would want to do,” Williamson said. “UNC Health Care is not interested in having us export patient care that we could potentially perform just as well here. We can now have our doctors as a patient-delivery system, have patients sent to us.

“The money was certainly an atractive part of the equation. The infusion of capital will provide us with remarkable improvements, clinics and specialty services. We will also have greater purchasing power. But if it was only the money, we might have selected a different partner.”

Access to UNC specialists, teaching that might be available, and physician residencies that could aid recruitment are among the things now in the realm of reality for CMH.

Medical staff also had concerns about the impact on the hospital’s revenues and, ultimately, salaries.

“The main thing most physicians were worried about was, ‘What’s going to happen to me and my patients?’” Powell said. “I didn’t want a whole lot to change, I didn’t want hospital administration and management to change.

“After reviewing all available potential partners, UNC was far and away superior in our efforts to maintain contracts. I think that was kind of the biggest issue with the medical staff.

“UNC encouraged us to continue what we were doing, which was finding more cost-effective patient care. We will be able to negotiate with other third-party payers, such as private insurance carriers (besides Medicaid and Medicare) to improve cash flow. Even a 1 or 2 percent increase makes a huge difference in our hospital.”

Caldwell Memorial CEO Laura Easton, who also is the chair of the N.C. Hospital Association, points to three issues concerning hospitals. Among them are the potential $943 million loss in hospital funding if the state reduces its share to an assessment program through which hospitals pay the state’s matching share of Medicaid in order to draw additional federal funding (hospitals pay one-third, the other two-thirds is paid by the federal government).

“The assessment program is what keeps my hospital out of a deficit,” Easton said.

Easton says Gov. Pat McCrory’s budget proposal seeks savings of an additional $85 million this year, and $90 million next year, from hospital assessments. Whether that and other legislation that could affect hospitals make it out of the General Assembly this year is yet to be seen, but this likely isn’t the last year such legislation will be considered.

CMH will continue to expand its services and meet the needs of Caldwell County, same as it always has since 1951.

“We are an institution in the community, to serve the community,” Williamson said. “That’s just who we are.”