Hospitals in Transition

How executives from some of the state’s leading healthcare institutions are implementing new cures to keep their industry and communities healthy.

By Anthony Birritteri, Editor-in-Chief On Aug 11, 2014

In this next installment of New Jersey Business magazine’s Trade-Talk Roundtable series, hospital administrators discuss the challenges their industry is facing as the Affordable Care Act (ACA) turns the delivery of healthcare upside down. A new paradigm has been created in which providers and payers are forging closer relationships to keep patients healthy via wellness and preventive care initiatives. Meanwhile, the value of in-patient hospitals beds is becoming old medicine.

All of this is happening while New Jersey hospitals are operating at low profit margins averaging 3 percent, compared to the national average of 6.5 percent. It is predicted that more New Jersey hospitals will close. The answer to the many challenges our hospitals are facing can be found in the following roundtable Q&A.

New Jersey Business would like to thank the New Jersey Hospital Association, especially President and CEO Betsy Ryan and Vice President of Communications Kerry McKean Kelly, for hosting us at the association’s Princeton headquarters and helping us assemble this panel.

Participants in this discussion are:

Elizabeth (Betsy) A. Ryan, Esq., is president and CEO of the New Jersey Hospital Association, Princeton, the not-for-profit trade association that provides the state’s hospitals and other healthcare providers leadership on quality and patient safety, education and advocacy in both Washington, DC, and Trenton. Prior to being selected as NJHA CEO in 2008, Ryan served as the organization’s COO and General Counsel. She started her career practicing law in Mount Holly and subsequently served as assistant counsel under former Governor Jim Florio and Chief of Staff of the State Department of Health. She was also a senior vice president with the New York City Health and Hospitals Corp.

Dr. John Brennan is executive vice president for Barnabas Health and president and CEO of Newark Beth Israel Medical Center (NBIMC) and its Children’s Hospital of New Jersey. NBIMC is a 673-bed regional care facility with more than 800 physicians, 3,000 employees and more than 300,000 outpatient visits and 25,000 admissions, annually. Brennan joined the institution in 1998 as vice chair of emergency services and director of pediatric medicine. He received his medical degree from Georgetown University School of Medicine and completed his emergency medicine residency at Los Angeles County, University of California Medical Center. He received his Master’s in Public Health from Columbia University. Brennan also serves as vice chair of the Newark Regional Business Partnership.

Stephen K. Jones has been president and CEO of the Robert Wood Johnson Health System, New Brunswick. He is also the current chairman of the New Jersey Hospital Association. The health system includes Robert Wood Johnson University Hospital, with campuses in New Brunswick and Somerville. The health system employs more than 10,100 people and 3,250 medical staff members. It has a total of 1,733 beds. It is the flagship hospital for the Rutgers Cancer Institute of New Jersey. Jones became president of the system in 2007. Before taking the helm of the system, he was senior vice president of operations.

Leslie D. Hirsch is president and CEO of Saint Clare’s Health System, Denville. He joined the three-hospital system in 2008 when the system became part of Catholic Health Initiatives, a nationwide healthcare organization with 93 hospitals, 90,500 employees and 3,000 physicians and advanced clinicians in 18 states. Prior to his appointment, Hirsch was president and CEO of Touro Infirmary in New Orleans, an inner-city teaching medical center. He led the system and the area community through Hurricane Katrina’s recovery. Hirsch also held various administrative positions at hospitals in New York and Colorado. In New Jersey, he was president and CEO of Cooper Health System in Camden and worked at Clara Maass Medical Center in Belleville.

Robert Wise is president and CEO of Hunterdon Medical Center, Flemington. He also serves as president of Hunterdon Healthcare System, Hunterdon Medical Foundation, Hunterdon Regional Community Health and MidJersey Health Corporation. Hunterdon Medical Center is a 178-bed non-profit hospital that treats more than 8,600 inpatients annually, with 33,000 emergency department visits and more than 292,000 outpatient visits. Before joining the healthcare system, Wise held administrative positions at Rancocas Hospital, Albert Einstein Medical Center in Philadelphia and Kennedy Memorial Hospital. He serves on the board of the New Jersey Hospital Association and is a past chairman of the organization.

 

Q: What is the overall health of New Jersey’s hospital industry, and how would you compare it to the rest of the nation?

Ryan: This is a very competitive region because we are sandwiched between New York and Philadelphia. We have to contend with that. We have seen about 10 hospital closures in the last decade. About 30 percent of our hospitals continue to operate in the red and that is largely due to low Medicaid reimbursements. If you look at the 50 states, New Jersey is ranked 49th in Medicaid reimbursements. That is across the entire healthcare continuum: hospitals, physicians and post-acute care, etc.

The Medicaid program is a joint state and federal partnership, but the federal support received varies state by state. In New Jersey, we receive the minimum federal match. The federal government covers 50 percent of our program’s cost. Other states that are deemed less affluent can have the federal government cover as much as 75 percent of their program costs.

Brennan: We sit between two of the most expensive cities in the country and with that, the labor costs are significant. As we look at how to compete with those two markets and try to provide the best quality care, it becomes a balancing act. A year or two from now, I think you will see a number of hospitals closing. You will also see the development of very large systems that can compete with the Philadelphia and New York metropolitan areas.

Additionally, we are densely populated, with 8.9 million people, and very diverse. The diversity is a positive thing, but from a medical standpoint, it presents different issues. It’s everything from patients who suffer from sickle cell anemia, to patients who have genetic issues from Mediterranean areas. Trying to deal with all of this makes it a little more difficult than if you are in Wyoming, where you may have a much more homogenous group of patients.

Hirsch: If you look at operating margins nationally, New Jersey is on the low end. The latest numbers show that the average national profit margin for hospitals was 6.5 percent in 2012. New Jersey was half of that, which is actually better than it has been in some years.

Q: So hospital profit margins are just above 3 percent in New Jersey, the best they have been in a while. Where is that improvement coming from?

Ryan: That is an early trend and it’s too soon to tell. We still lag behind the rest of the country by 3 percent, and we think this is because we have competition from ambulatory surgery centers. We also have the nation’s most rigorous charity care mandate. We still want to provide care to people regardless of their ability to pay, but [charity care] is at a cost [to us] because we do not get dollar-for-dollar reimbursement. It is an annual budget debate we have with the state.

Governor Christie has treated us very well, but when you have to provide care to all, regardless of their ability to pay, it has an impact on a hospital’s bottom line. Add to the equation the fact that we are ranked among the bottom five states when it comes to Medicaid reimbursement.

Q: So what is being done to make hospitals profitable and how does the Affordable Care Act impact all of this?

Jones: Nationally, healthcare is in transition. New Jersey hospitals, in many ways, are leading that transition. We are working hard with doctors – and along the entire healthcare continuum – to improve quality of care, efficiency and effectiveness. That is important for our industry.

Brennan: In terms of revenues, the whole system is being turned upside down. We are going from hospitals getting paid to make somebody well, to keeping everybody well. It is the transition from fee-for-service to being paid for taking care of a population. That is going to be the equation to make us profitable.

Wise: Given the early stages of the Affordable Care Act impacting the way in which healthcare is being purchased, I think there is a transformation taking place in the value of an inpatient bed versus population health. Hospitals are transforming themselves to reduce unnecessary beds and replacing them with healthcare resources beyond the institution. That would be preventive medicine, primary care, medical homes, wellness initiatives, homecare, even increasing hospice care.

Brennan: A lot of this depends upon how we collaborate with insurance companies. If you are going to take care of a population, you need to start focusing on how you get involved in the premium. Our system, Barnabas Health, is starting to work in that kind of joint venture collaboration to focus on how to keep the population well.

Q: Are you talking about accountable care organizations?

Hirsch: We are entering a new business model. Accountable care organizations are a part of that. There are also collaborations with physicians. Doctors historically had patients in the hospital. They would get a fee while hospitals tried to reduce lengths of stay. Now we have a gain sharing pilot program approved by Medicare, in which many of us are participating. An important element of this is to align incentives to reduce costs.

Wise: Hunterdon Medical Center has a partnership with an insurance company for an accountable care organization. We have a number of partnerships. The alignment between providers and payers is growing closer and recognizing that the consumer is intolerant of high costs and high premiums. We are moving from the big ticket items of material capital investment to a human capital investment strategy. It means encouraging clinicians to work up to the level of their licenses, especially nurses. It means looking at alternatives to institutional care by using providers in least-cost environments, like in a home or in an ambulatory setting, and applying a team approach to care that coordinates services and avoids admissions or readmissions.

Q: The past relationship between insurers and hospitals was sometimes antagonistic at times. Has it become friendlier now?

Brennan: It had been a contractual relationship in which they tried to get the best deals and hospitals tried to get the best deals. It wasn’t as focused on the patient as it is now. It has turned more into a partnership or collaboration. There is more discussion about what is good for the patient, which ultimately will be better for the patient.

Q: Does anyone feel that this is about time and what should have been in place at the very beginning?

Wise: Absolutely. I think that the competition and success insurance companies now have will be based upon the collaboration they have with healthcare providers. They may not have been concerned as much in the past, but I think they now see they are in as much competition themselves, for us as partners, as we are with them.

Jones: Another important factor in that equation is that patients now need to be more engaged. Going back, the insurer worked with the employer who bought that insurance. You had a contract with the hospital and the doctor to provide that service … the patient wasn’t engaged very much. Today and going forward, in order to keep people well, it is important that patients and their families be engaged.

Q: Will it be easy to get patients involved in monitoring their own health?

Brennan: It depends on the generation. The older population relied on the physicians to just basically tell them what to do. It was a very paternal relationship. The younger generation, those in their mid-20s to 30s, can get anything they want on a mobile app. They are much more engaged in doing that themselves. So the answer will be different depending on the generation you are looking at.

Q: With the Affordable Care Act, do you expect more or fewer emergency room visits? 

Ryan: I think the jury is still out to some extent. However, if Massachusetts is any example, it actually saw a spike in emergency room visits in the short term, when the state had its initial influx of new enrollees [under its reformed healthcare system]. We are expecting that in New Jersey, but we haven’t seen any hard data yet.

Hirsch: I think it depends on the area and how that will play out. For instance, we are in Morris County and have seen a marginal decrease in the number of patients coming in for treatment and release. Patients of all ages are becoming educated consumers, and all of us who are insured are paying much more out of pocket for healthcare. The employer-sponsored plans don’t cover what they used to. So every participating employee has greater out-of-pocket cost. That is influencing people’s buying decisions.

Q: Do you expect more or fewer charity care visits?

Ryan: Over time, there should be less charity care patients, but I caution that we will never see charity care go away. New Jersey is considered a border state. Even though we don’t border Mexico or Canada, I believe we are 8th in the number of undocumented immigrants. They will never get health insurance under the ACA, so we will always have a number of uninsured folks using our emergency departments and hospital facilities.

Wise: There is also the issue of, “Do hospitals need to have all the same resources hospital by hospital?” Obviously, hospitals that are most convenient to the population are the ones that are going to be used most often. So if a hospital system assesses its community’s health status, it would make better decisions about where to invest dollars, rather than compete for resources that aren’t needed at some considerable expense.

Q: I also read the Affordable Care Act would narrow healthcare networks, meaning less hospitals in any given exchange. Is that true?

Jones: It is very possible that there will be narrow networks. If you look across the country, and in the Massachusetts example, there were narrow networks that excluded some of the large teaching hospitals and children’s hospitals. The people who provided the highest specialty care were excluded because of the cost considerations. I think in New Jersey there will be a range of different alternatives.

Q: How is the transition to electronic medical records working as a cost saving measure?

Hirsch: I don’t know if any one of us around this table would say we have seen a cost savings from a lot of the systems we have implemented. But if you look at electronic health records as being a vehicle to managing outcomes, quality and resources, then – theoretically – there should be a proven value to help reduce the cost of healthcare.

Wise: We recently introduced an open chart structure for all of our physicians in their offices where they are sharing information and creating one chart for the patient who may be seen by half a dozen different specialists. They are able to determine whether the patient is behaving the way he or she should: taking medications and avoiding behaviors that caused their illness or disease; and making sure there is a follow up – in a timely basis – so that they are being treated effectively. I think that will eventually reduce the excessive and expensive utilization of institutional care because the patient is being directed to follow a regimen. That monitoring was not in place, so I think it may benefit in the long run.

Jones: We have seen electronic records helping with patient safety and quality, as well. In our systems we have “hard stops” that ask a question: “This was done yesterday, are you sure you want to do it again?” Or there may be a contra indication, and its asks, “Are you sure you want to do this?” So we see it as a way of avoiding medical errors.

Q: Related to quality, the ACA is fining hospitals that do not reduce their readmission rates. How do you feel about that?

Brennan: I think it’s good and I think we have to look at it and develop best practices for it. But again, there are a lot of social determinants that affect healthcare. It depends on the population of an area. If you are living in an area that has a lot of primary care services and folks who are insured, I think that is different from an urban hospital where you see lot of uninsured or underinsured patients.

Ryan: If you are discharging a homeless patient, he or she will probably be back in the hospital within 30 days. The fine is 1 percent of a hospital’s Medicare revenues. While we supported the ACA, that was one provision we thought [legislators] got wrong. Because of the gridlock in Washington, DC, we couldn’t quite get it fixed. However, we would like to see it adjusted for states like New Jersey.

Q: On top of everything we talked about, there is a doctor shortage. How will hospitals cope with that?

Brennen: The answer again lies in using everyone to their maximum capability. Nurse practitioners, for example, are going to be playing a bigger role. Certainly, there are shortages in certain areas. There are areas that have the right amount of [physicians]. It goes down to the community level and how you are deploying the different types of providers.

Hirsch: Patients will possibly use places like Walgreens as clinics and use them for disease management programs. These will be new entrants into the market. Then, there are people who will access healthcare via telemedicine. Technology will keep you from going to the ER, urgent care center or doctor’s office. As healthcare is being reshaped with navigators and coaches, it will be interesting to see what impact that has on the [shortage question].

Jones: We have great teaching hospitals in New Jersey that are committed to [feeding] that pipeline of physicians. However, there is only a [physician] shortage if nothing changes. In the new paradigm, in which all health professionals could practice to the extent of their license, i.e. nurse practitioners, physician assistants, pharmacists, EMTs and paramedics, we will have shortages in different areas, but there will be new models in care provision. That is the exciting thing about practicing today; we get to work with our colleagues and design those new models.

Q: The state is having a hard time retaining medical school graduates. What can be done to keep these physicians here?

Brennan: The malpractice liability issues are still of significance here. You then have a Medicaid system that underpays physicians, considerably. You also have geographical areas that are very dense with patients who are not insured or under insured. Those are some of the main reasons why a doctor can’t open his or her own business. However, we are starting to see physicians, especially the younger ones, wanting to be employed. As that continues, you will see more doctors staying here. We need to provide some kind of reasonable career paths for them; meaning we are going to have to help them with the liability, forgive their loans and create a working environment that is conducive to providing great care.

Wise: I’m not sure whether the loss of physicians graduating from New Jersey schools is because they are finding it difficult to stay, or, we are not matching up our medical needs with the graduates. They are looking elsewhere because certain areas are already saturated with certain professions (specialty areas) that aren’t needed. They realize they wouldn’t survive in a situation where they couldn’t pay their student loans.

Q: Why is the state seeing an influx of for-profit hospitals?

Ryan: As mentioned, we have hospitals in distress. In the past 10 years, we have had some hospitals come out of bankruptcies through being purchased by for-profit organizations.

Additionally, it is a very disruptive time in healthcare with lots of changes. Whenever you have disruption, you often see for-profits entering the field. We still are highly regulated, but in the early ‘90s we did away with the rate setting system where state government told the payers, “Here is what you are going to pay New Jersey hospitals.” I think that kept for-profits away for a period of time. If you look at the other 49 states, save New York, they all have a healthy number of for-profits hospitals. We are now catching up to the rest of the country.

Hirsch: If you look at other sectors, like nursing homes or continuing care retirement communities, you’ll find that we have had for-profit organizations in New Jersey for many, many years. The fact is that nationally, the for-profit industry has proven itself. It has proven that it can run hospitals as effectively as non-profits with high quality and delivering community benefits such as free care and so forth. It is important to remember that in New Jersey, for-profit hospitals are subject to the same rules, laws and regulations as non-profits, so there is no double standard. We have to give it a chance in the state. It is reflective of the changes that are going on. (Note: For-profit Prime Healthcare is in the process of acquiring St. Clare’s System of which Hirsch is president).

Jones: I have been to for-profit and non-profit hospitals around the country and [in both cases] I have seen doctors and nurses trying to take care of patients and serve their communities. There is nothing wrong with the concept. As long as [for-profits] play under the same ground rules with transparency, with community benefit, with common reporting … it will be a good thing for our industry. We all believe that competition is healthy. You only succeed by serving the customer. That is how for-profit and non-profit companies work.

Wise: Perhaps the real answer is for-profits think they can make money here.

Q: What will the state’s hospital industry look like 20 years from now?

Jones: We will be much more in the health business than in the hospital business. It will be much more retail, more local, you’re smartphone will be used for lots of health transactions for monitoring your health. It will be much more ambulatory, and much more driven by the consumer rather than the hospital being the center of the [healthcare] universe.

Wise: I think consumers will carry membership cards of the organizations that they are a part of … that represents their partnership with an organization that best fits their healthcare needs. That membership will represent an investment that they, and the payer, are making in a health enterprise system that is more aligned with a community.

There will be a growing community of health campuses that will have the wellness and preventive care and the medical home partnerships people need. People will be using these aspects of their neighborhood health resources as one would use a country club.

Ryan: Our hospital system will remain intact, but the facilities themselves may have fewer beds for all the reasons we talked about. I think hospitals will remain the big economic engines they are and provide care for their communities while improving population health. We are going to see more consolidations in the short term, and there will be a shift to more outpatient care, more care in the physician offices and more use in physicians extenders.

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