REAL News for REAL People
What is Going on with the Hospital
Publishers Note: Generally, we mostly just publish Delma Blinson's excellent well-considered news and commentary on the on-going condition of the public school system, and how it each of us; however, this treatise on the condition of the Beaufort County Medical Center is so thorough in its questioning of its past and current practices that I would be remiss if I did not provide this fine opinion piece to our readers.
Mr. Blinson's editorial begins with the premise that he recieved an MP3 audio file as to what transpired during the quasi-private meeting held on June 17, 2010, where the medical community met with the hospital administration. He explains what he understood from the MP3 file, and then launches into his commentary. We begin with Mr. Blinson's article, and continue with his commentary here further below.
Through the cooperation of Beaufort County Hospital officials we have obtained an audio file of a recording of the last Hospital Board meeting and the PowerPoint presentation the hospital's consultant, Paul Schrull made to the board. To get the full perspective you need to view the PowerPoint slides while listening to the mp3 audio file. That recording also contains the Q&A session with the Medical Staff following the consultant's presentation.
In the presentation, the consultant explains his perspective of how the hospital got in the financial bind it now faces and what the options are going forward. The Q&A is instructive because the doctors raise many of the questions the public has been asking us.
The consultant explains that the basic reason the hospital is in a bind is because of changes in the medical industry which are negatively impacting all providers, but particularly small, independent hospitals. He says the Hospital lost $1.3 million dollars last year and is on track to lose more this year. The "operational problems" this presents are: Meeting payroll and paying vendor bills. But in addition, he says, the Hospital needs to replace equipment and improve facilities to provide state of the art medical care, attract patients and retain/recruit health care providers. He mentions renovating the Emergency Department, patient rooms and renovating/expanding some doctors offices as examples of those capital needs.
Mr. Schrull explains that the reasons this fiscal crisis has happened are:
• insufficient government reimbursement for Medicare and Medicaid
• problems with insurance companies who control what they will pay regardless of what the cost of providing those services are
• economies of scale work to the disadvantage of the small hospital's financial problems in certain physician practices and procedures
• a major recession, causing fewer paying customers and more indigent patients and patients without insurance
• healthcare reform. Costs increase early, benefits come several years down the road
A "dual-track strategy" has been developed to try to increase volume, find new sources of revenue, reduce costs and liquidate some assets (selling land etc.) This strategy is outlined on Slide 4.
He states very clearly that Track 1 must be pursued regardless of other strategies because "you've got to stay viable to: 1. keep the doors open and 2. present as strong an enticement to potential partners as possible."
Track 2 he identifies as affiliation with a larger provider.
The Hospital Board has hired another consultant to seek bids from other providers to determine interest in affiliation and to assess the proposals such outside providers may offer. Mr. Schrull, responding to a later question, says it will likely take up to 18 months to work out an affiliation arrangement with another organization.
He reviewed the "cost reduction" efforts, commending the Board Committee that worked on it. You can review the list of potential cost reductions in slides 10-12. He seems to disparage most of these cuts as being long term solutions that will not help the cash flow much in the short-term.
He wraps up his discussion of Track 1 by concluding that the Hospital needs to plug a $4 to $4.5 million hole "to be financially solvent over the long term." As depicted by Slide 8 $4.5 million would be less than 6.5% of the total FY 09 costs, 28% of which Mr. Schrull indicates are variable costs, or roughly 10% of personnel costs.
On Track 2 he says that initial inquiries have been sent to 32 other organizations seeking to determine whether they would be interested in affiliating with BCMC. Ten have responded with some degree of interest. It remains to be seen how many of these organizations will actually make a proposal.
Then you have the Q&A session. At the end there is a brief discussion of calling a Cost Containment Committee meeting. The chairman brushes that off and as will be mentioned below the Committee apparently has ceased to function.
Commentary
We assume Mr. Schrull is a very competent professional. But we were very disappointed in the material he presented. Or more specifically, what he does NOT present.
He, for example, spent less than ten seconds on personnel costs and physician payments, even though he acknowledged that they comprise 95% of the hospital's operating expenses. Yet he did not present any data on staffing patterns now, compared to earlier times when patient counts were significantly higher and before recent changes in reimbursement. The data he does present shows non-doctor personnel cost to be $36.7 million. Yet the Cost Containment Committee proposed only a 1% reduction in personnel costs, and apparently no specific amount from "MD payments," which amount to $8.7 million per year. Patient counts have decreased much more than 1%. So it appears to us that as patient load has declined personnel costs have not been adjusted.
But even more alarming, he did not present data to show which doctors' practices were making money and which were losing, and how much. Yet the annual external audit identified "certain" practices as costing much more than the revenue they take in.
So we requested this information (income statements from each cost center/practice) nearly a month ago. It has not been provided. We were told that it was not readily available but would be provided at the next Board meeting and we could get it then. We found it amazing that the information not only did not currently exist, but that it had not been used over the last several years to manage the finances of the Health System (the umbrella that includes the hospital and the doctors practices and other affiliates).
Thirdly, we were also amazed that the Item 17 on the BRHS Item Log for "Physician Practices" identified a number of "improvements" that we wonder why they have not already been implemented, including: "Tie physician salaries to productivity, consolidate billing functions, eliminate bottlenecks, close less profitable practices, incentivize practice managers" and something called "policies, procedures, implementation" for $320,000. Taken at face value the data in this presentation suggest very weak actions over the past few years to respond to the financial challenges the Hospital faces. It appears to be a "business as usual" approach even as patient counts plummeted and reimbursement problems hit.
We simply find it amazing that any business could operate a number of "cost centers" (i.e., doctors' practices) and not know how much each makes or loses. That, and the staffing patterns in the hospital itself, are where the money is. That there appears to have been little or apparently no monitoring of the cost centers and significant adjustments in staffing as patient counts declined makes us doubt the veracity of the conclusion that Mr. Schrull (and some others, including the Chairman's press comments) that the Hospital cannot be operated profitably ($1.00) without sacrificing patient care. How do they know that if they have not tried?
We were alarmed that when we requested minutes of the Cost Containment Committee to look at what had been accomplished we were told that "the Committee has not been meeting" and apparently little or nothing has been done by the Administration to implement their earlier cost reduction recommendations. Moreover, there appears to be no monitoring system in place to track the success and impact of cost reductions.
We are not suggesting that the Hospital can "cut its way out of this problem." Indeed it may not can. But the point is that it is a patently false assumption that it can't when there is no data to support that conclusion.
Look at the basic numbers: $70 million revenue in FY 09, 28% of which was variable and $45 million in personnel costs. The deficit was identified to be $4.5 million. That's 10% of personnel costs. There are few businesses that have not had to cut back 10% in the last few years. Those numbers simply do not support a conclusion that the enterprise cannot operate self-sufficiently.
And on the point that small, independent hospitals have no future, we might add...there are a number of "small, independent" hospitals that operate both efficiently (don't go broke) and effectively (provide excellent care), one of which is located in Beaufort County. We are also told the Agape Heath Clinic is thriving, even as we wonder if it is at the expense of BCMC. But in a cursory review, we found other examples of small, independent hospitals that are surviving and resources to assist that objective.
But we dare say none are thriving by following the same business model BCMC has been following (maintaining the same staffing patterns as patient load declined).
Regardless of whether our Hospital can remain independent or not, it seems to us that somebody has not done their job appropriately if there is no evidence that there has been a systematic approach, including monitoring, to cost reduction over the last few years. We have asked for, and it apparently does not exist, documentation of the ratio of fixed costs to marginal costs over time (trend lines). That this apparently does not exist should alarm everyone interested in health care in this community.
Now we must admit that we have been furnished anecdotal evidence that other strategies could have already been implemented that would have better positioned the organization for the "environmental factors" Mr. Schrull mentions (reimbursement ratios, recession etc.) For example, we have been told, and have corroborated it to enough of an extent to say that at least it is a relevant issue, that patients have been referred outside of Beaufort County who could have been treated here, thus improving the patient count or "increasing volume" as Mr. Schrull says.
And on increasing volume we have to suggest that we are troubled that there was no mention by Mr. Schrull of shedding unprofitable procedures. With Pitt being so close one would think that would be standard operating procedure.
In researching other small, rural systems we have learned that innovative strategies have been successfully implemented in other communities, yet there is no evidence of that approach having been exhausted at BCMC. It may have been, but they were not documented in the presentation. Examples of that include more efficient management practices, new services such as home health services and the use of technology more effectively. We have been told this has saved Pungo Hospital.
So how do we know "small, independent hospitals" can't survive? It seems clear to use that that simple answer is that such an assumption is not supported by the data and demonstrated efforts.
We are not experts in running a hospital. But we do know something about running multi-million non-profit institutions. And we know that, for example in the school business, that when your student population declines your revenue decreases and you had better adjust your staffing patterns or you're going to soon be in trouble. And as in a school system, you can't cut Big Bucks without cutting personnel. But while we also know that is emotionally hard to do, we are alarmed that there is no documentation of that approach having been used. Mr. Schrull does not even mention it.
And my experience as a small business person has taught me that you have to constantly monitor and adjust for which facets (products, services/procedures, departments etc.) of a business are making money and which are losing money. You will seldom survive if you just lump everything together and not cut out the deadwood. But you have to have solid data, tracked over time, to effectively manage retrenchment.
And finally, you don't have to be a rocket scientist to know you don't wait until you can't meet your payroll before you respond. Mr. Schrull says that "you (BCMC) are within a hiccup of ...that."
So we are not convinced the "presentation" about Track 1 shows evidence of solid management and board oversight to justify Mr. Schrull's conclusions. So as harsh as it seems, we have to wonder if the administration and previous boards have been doing their jobs adequately.
But we must admit that we are prejudiced in reaching that conclusion. We admit that the mess in the embezzlement case causes us to wonder if those problems were confined to just one person or department. Obviously there was a systemic problem there and we wonder if "the systemic problem" was not larger and whether it has been corrected. And if not, to what extent does that cause the problem "Track 1" seeks to address? And as agitating as we know it will be to some, we have to raise the question: How could the embezzlement mess in the Foundation have happened? Has the same Administration and Board that allowed that to happen been managing and overseeing the Hospital and the Health System more effectively than was true when that problem developed.
But it is on Track 2 that we have the most concerns. Assuming that BCMC's best bet for the future is to merge with "deeper pockets" we also know that in trying to acquire any business partner you have to offer the best face you possibly can to get the best deal. It makes absolutely no sense to us for a hospital board member (or two county commissioners) to announce in the press that they're going to throw in the towel and just be taken over, if you want to get the best deal. If the potential partner knows your are urgent and desperate you are almost always assured that you will not get their best offer.
So you shape things up as best you can to "hang on" because time can be your best friend, or worst enemy, in many of these cases. It simply seems to us to be irresponsible for a board member or county commissioner to announce in the press that BCMC needs go with one particular partner and that "we don't have much choice" and to do that before seeing the proposals. We find that so absurd that we have to wonder if there is some other agenda operating there.
We don't know what's best for our Hospital. But what is obvious to us is that the people who should have already done so have not done their homework. And we are very disappointed in leaders who obviously don't know how to negotiate the best possible deal. We all deserve better than that.
Finally, with regard to the Q&A and the point that the doctors made about being involved in the process, we want to concur. That should go without saying.
But we also want to suggest that the doctors are not the only stakeholders who should be involved in the decision-making process with the Board, Administration and County Commissioners. There are certainly other health care providers who should to be involved also. We think the business/office managers at the practices are essential. And finally, we think the patients and the general public should be involved, to the extent they wish to be. The propensity of this board to do its business in secrecy is most troubling in that regard. Transparency is essential if the public, as customers or as a fiscal resource, is going to be involved.
And finally, we close on another point Mr. Schrull made in response to a question about the downside of merging with another organization. "You lose control," he said. We think that is important and in that issue not only does the health care community have a vital vested interest, every citizen currently in Beaufort County and our children and grandchildren have a vital interest in that also. We would go so far as to suggest we foresee the eventuality of a popular vote--on a tax assessment and/or a bond issue and that should be kept in mind as this process plays itself out.
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
Go Back
Mr. Blinson's editorial begins with the premise that he recieved an MP3 audio file as to what transpired during the quasi-private meeting held on June 17, 2010, where the medical community met with the hospital administration. He explains what he understood from the MP3 file, and then launches into his commentary. We begin with Mr. Blinson's article, and continue with his commentary here further below.
Through the cooperation of Beaufort County Hospital officials we have obtained an audio file of a recording of the last Hospital Board meeting and the PowerPoint presentation the hospital's consultant, Paul Schrull made to the board. To get the full perspective you need to view the PowerPoint slides while listening to the mp3 audio file. That recording also contains the Q&A session with the Medical Staff following the consultant's presentation.
In the presentation, the consultant explains his perspective of how the hospital got in the financial bind it now faces and what the options are going forward. The Q&A is instructive because the doctors raise many of the questions the public has been asking us.
The consultant explains that the basic reason the hospital is in a bind is because of changes in the medical industry which are negatively impacting all providers, but particularly small, independent hospitals. He says the Hospital lost $1.3 million dollars last year and is on track to lose more this year. The "operational problems" this presents are: Meeting payroll and paying vendor bills. But in addition, he says, the Hospital needs to replace equipment and improve facilities to provide state of the art medical care, attract patients and retain/recruit health care providers. He mentions renovating the Emergency Department, patient rooms and renovating/expanding some doctors offices as examples of those capital needs.
Mr. Schrull explains that the reasons this fiscal crisis has happened are:
• insufficient government reimbursement for Medicare and Medicaid
• problems with insurance companies who control what they will pay regardless of what the cost of providing those services are
• economies of scale work to the disadvantage of the small hospital's financial problems in certain physician practices and procedures
• a major recession, causing fewer paying customers and more indigent patients and patients without insurance
• healthcare reform. Costs increase early, benefits come several years down the road
A "dual-track strategy" has been developed to try to increase volume, find new sources of revenue, reduce costs and liquidate some assets (selling land etc.) This strategy is outlined on Slide 4.
He states very clearly that Track 1 must be pursued regardless of other strategies because "you've got to stay viable to: 1. keep the doors open and 2. present as strong an enticement to potential partners as possible."
Track 2 he identifies as affiliation with a larger provider.
The Hospital Board has hired another consultant to seek bids from other providers to determine interest in affiliation and to assess the proposals such outside providers may offer. Mr. Schrull, responding to a later question, says it will likely take up to 18 months to work out an affiliation arrangement with another organization.
He reviewed the "cost reduction" efforts, commending the Board Committee that worked on it. You can review the list of potential cost reductions in slides 10-12. He seems to disparage most of these cuts as being long term solutions that will not help the cash flow much in the short-term.
He wraps up his discussion of Track 1 by concluding that the Hospital needs to plug a $4 to $4.5 million hole "to be financially solvent over the long term." As depicted by Slide 8 $4.5 million would be less than 6.5% of the total FY 09 costs, 28% of which Mr. Schrull indicates are variable costs, or roughly 10% of personnel costs.
On Track 2 he says that initial inquiries have been sent to 32 other organizations seeking to determine whether they would be interested in affiliating with BCMC. Ten have responded with some degree of interest. It remains to be seen how many of these organizations will actually make a proposal.
Then you have the Q&A session. At the end there is a brief discussion of calling a Cost Containment Committee meeting. The chairman brushes that off and as will be mentioned below the Committee apparently has ceased to function.
Commentary
We assume Mr. Schrull is a very competent professional. But we were very disappointed in the material he presented. Or more specifically, what he does NOT present.
He, for example, spent less than ten seconds on personnel costs and physician payments, even though he acknowledged that they comprise 95% of the hospital's operating expenses. Yet he did not present any data on staffing patterns now, compared to earlier times when patient counts were significantly higher and before recent changes in reimbursement. The data he does present shows non-doctor personnel cost to be $36.7 million. Yet the Cost Containment Committee proposed only a 1% reduction in personnel costs, and apparently no specific amount from "MD payments," which amount to $8.7 million per year. Patient counts have decreased much more than 1%. So it appears to us that as patient load has declined personnel costs have not been adjusted.
But even more alarming, he did not present data to show which doctors' practices were making money and which were losing, and how much. Yet the annual external audit identified "certain" practices as costing much more than the revenue they take in.
So we requested this information (income statements from each cost center/practice) nearly a month ago. It has not been provided. We were told that it was not readily available but would be provided at the next Board meeting and we could get it then. We found it amazing that the information not only did not currently exist, but that it had not been used over the last several years to manage the finances of the Health System (the umbrella that includes the hospital and the doctors practices and other affiliates).
Thirdly, we were also amazed that the Item 17 on the BRHS Item Log for "Physician Practices" identified a number of "improvements" that we wonder why they have not already been implemented, including: "Tie physician salaries to productivity, consolidate billing functions, eliminate bottlenecks, close less profitable practices, incentivize practice managers" and something called "policies, procedures, implementation" for $320,000. Taken at face value the data in this presentation suggest very weak actions over the past few years to respond to the financial challenges the Hospital faces. It appears to be a "business as usual" approach even as patient counts plummeted and reimbursement problems hit.
We simply find it amazing that any business could operate a number of "cost centers" (i.e., doctors' practices) and not know how much each makes or loses. That, and the staffing patterns in the hospital itself, are where the money is. That there appears to have been little or apparently no monitoring of the cost centers and significant adjustments in staffing as patient counts declined makes us doubt the veracity of the conclusion that Mr. Schrull (and some others, including the Chairman's press comments) that the Hospital cannot be operated profitably ($1.00) without sacrificing patient care. How do they know that if they have not tried?
We were alarmed that when we requested minutes of the Cost Containment Committee to look at what had been accomplished we were told that "the Committee has not been meeting" and apparently little or nothing has been done by the Administration to implement their earlier cost reduction recommendations. Moreover, there appears to be no monitoring system in place to track the success and impact of cost reductions.
We are not suggesting that the Hospital can "cut its way out of this problem." Indeed it may not can. But the point is that it is a patently false assumption that it can't when there is no data to support that conclusion.
Look at the basic numbers: $70 million revenue in FY 09, 28% of which was variable and $45 million in personnel costs. The deficit was identified to be $4.5 million. That's 10% of personnel costs. There are few businesses that have not had to cut back 10% in the last few years. Those numbers simply do not support a conclusion that the enterprise cannot operate self-sufficiently.
And on the point that small, independent hospitals have no future, we might add...there are a number of "small, independent" hospitals that operate both efficiently (don't go broke) and effectively (provide excellent care), one of which is located in Beaufort County. We are also told the Agape Heath Clinic is thriving, even as we wonder if it is at the expense of BCMC. But in a cursory review, we found other examples of small, independent hospitals that are surviving and resources to assist that objective.
But we dare say none are thriving by following the same business model BCMC has been following (maintaining the same staffing patterns as patient load declined).
Regardless of whether our Hospital can remain independent or not, it seems to us that somebody has not done their job appropriately if there is no evidence that there has been a systematic approach, including monitoring, to cost reduction over the last few years. We have asked for, and it apparently does not exist, documentation of the ratio of fixed costs to marginal costs over time (trend lines). That this apparently does not exist should alarm everyone interested in health care in this community.
Now we must admit that we have been furnished anecdotal evidence that other strategies could have already been implemented that would have better positioned the organization for the "environmental factors" Mr. Schrull mentions (reimbursement ratios, recession etc.) For example, we have been told, and have corroborated it to enough of an extent to say that at least it is a relevant issue, that patients have been referred outside of Beaufort County who could have been treated here, thus improving the patient count or "increasing volume" as Mr. Schrull says.
And on increasing volume we have to suggest that we are troubled that there was no mention by Mr. Schrull of shedding unprofitable procedures. With Pitt being so close one would think that would be standard operating procedure.
In researching other small, rural systems we have learned that innovative strategies have been successfully implemented in other communities, yet there is no evidence of that approach having been exhausted at BCMC. It may have been, but they were not documented in the presentation. Examples of that include more efficient management practices, new services such as home health services and the use of technology more effectively. We have been told this has saved Pungo Hospital.
So how do we know "small, independent hospitals" can't survive? It seems clear to use that that simple answer is that such an assumption is not supported by the data and demonstrated efforts.
We are not experts in running a hospital. But we do know something about running multi-million non-profit institutions. And we know that, for example in the school business, that when your student population declines your revenue decreases and you had better adjust your staffing patterns or you're going to soon be in trouble. And as in a school system, you can't cut Big Bucks without cutting personnel. But while we also know that is emotionally hard to do, we are alarmed that there is no documentation of that approach having been used. Mr. Schrull does not even mention it.
And my experience as a small business person has taught me that you have to constantly monitor and adjust for which facets (products, services/procedures, departments etc.) of a business are making money and which are losing money. You will seldom survive if you just lump everything together and not cut out the deadwood. But you have to have solid data, tracked over time, to effectively manage retrenchment.
And finally, you don't have to be a rocket scientist to know you don't wait until you can't meet your payroll before you respond. Mr. Schrull says that "you (BCMC) are within a hiccup of ...that."
So we are not convinced the "presentation" about Track 1 shows evidence of solid management and board oversight to justify Mr. Schrull's conclusions. So as harsh as it seems, we have to wonder if the administration and previous boards have been doing their jobs adequately.
But we must admit that we are prejudiced in reaching that conclusion. We admit that the mess in the embezzlement case causes us to wonder if those problems were confined to just one person or department. Obviously there was a systemic problem there and we wonder if "the systemic problem" was not larger and whether it has been corrected. And if not, to what extent does that cause the problem "Track 1" seeks to address? And as agitating as we know it will be to some, we have to raise the question: How could the embezzlement mess in the Foundation have happened? Has the same Administration and Board that allowed that to happen been managing and overseeing the Hospital and the Health System more effectively than was true when that problem developed.
But it is on Track 2 that we have the most concerns. Assuming that BCMC's best bet for the future is to merge with "deeper pockets" we also know that in trying to acquire any business partner you have to offer the best face you possibly can to get the best deal. It makes absolutely no sense to us for a hospital board member (or two county commissioners) to announce in the press that they're going to throw in the towel and just be taken over, if you want to get the best deal. If the potential partner knows your are urgent and desperate you are almost always assured that you will not get their best offer.
So you shape things up as best you can to "hang on" because time can be your best friend, or worst enemy, in many of these cases. It simply seems to us to be irresponsible for a board member or county commissioner to announce in the press that BCMC needs go with one particular partner and that "we don't have much choice" and to do that before seeing the proposals. We find that so absurd that we have to wonder if there is some other agenda operating there.
We don't know what's best for our Hospital. But what is obvious to us is that the people who should have already done so have not done their homework. And we are very disappointed in leaders who obviously don't know how to negotiate the best possible deal. We all deserve better than that.
Finally, with regard to the Q&A and the point that the doctors made about being involved in the process, we want to concur. That should go without saying.
But we also want to suggest that the doctors are not the only stakeholders who should be involved in the decision-making process with the Board, Administration and County Commissioners. There are certainly other health care providers who should to be involved also. We think the business/office managers at the practices are essential. And finally, we think the patients and the general public should be involved, to the extent they wish to be. The propensity of this board to do its business in secrecy is most troubling in that regard. Transparency is essential if the public, as customers or as a fiscal resource, is going to be involved.
And finally, we close on another point Mr. Schrull made in response to a question about the downside of merging with another organization. "You lose control," he said. We think that is important and in that issue not only does the health care community have a vital vested interest, every citizen currently in Beaufort County and our children and grandchildren have a vital interest in that also. We would go so far as to suggest we foresee the eventuality of a popular vote--on a tax assessment and/or a bond issue and that should be kept in mind as this process plays itself out.
Delma Blinson writes the "Teacher's Desk" column for our friend in the local publishing business: The Beaufort Observer. His concentration is in the area of his expertise - the education of our youth. He is a former teacher, principal, superintendent and university professor.
| This Publisher’s short Commentary Regarding the Quasi-Private Meeting Regarding the BCMC | Beaufort Observer, Editorials | Constitutional Watch - “The McDonald Case - The Supreme Court Gets it Right” |
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