Can Small Survive?

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How community hospitals are competing in today's tough health care marketplace
Everyone is aware of the tumult that has taken place in health care delivery over the past decade, largely as a result of the growth of managed care. This tumult, in addition to producing the all-too-familiar effects it has had on individual patients (a maze of restrictions regarding care options, reduced insurance coverage, etc.), has taken its toll on providers of health care as well. Hospitals have had to cope with HMOs cutting p>It has been more difficult for small community hospitals. A number of these hospitals around the state have been forced to close. Not that community hospitals lack for public support. In fact, just the opposite is true.

“People don't want to drive more than 15 minutes for basic services,” says Clayton Medeiros, senior vice president of planning and marketing at Yale-New Haven Hospital. Many residents are fiercely loyal to their local hospital. But patient loyalty is not always enough to sustain a small hospital.

In Winsted, the community “really rallied around keeping the [local] hospital” when it fell on hard times, notes Katz. But the number of patients Winsted Hospital was servicing had declined so greatly that it was forced to close anyway.

Yet some area community hospitals today are thriving. Griffin Hospital in Derby, renowned for its unusual patient-centered approach to health care, was named the American Hospital Association's outstanding health facility in 1996, and today attracts patients from Milford, Bridgeport and New Haven, as well as from the Valley.

Meriden's Veterans' Memorial Medical Center is in the process of building an entirely new facility, set to open its doors in September. Other area community hospitals also report they are doing well. Milford Hospital has posted profitable results recently, and just last year opened a brand new wing. And New Haven's Hospital of Saint Raphael, which defines itself as a community hospital, according to Director of Public Relations Michael Scahill, also reports rising admissions.

What are these hospitals doing right? How are they able to survive when other community hospitals are struggling or even sinking?

Community hospitals in the New Haven area have used a number of strategies to cope aggressively with the pressures placed on them by the demands of HMOs. These include keeping costs down and marketing themselves as a low-cost health care option; adding on specialized services or stressing existing ones; focusing more on out-patient services; offering a fuller array of health care services; and joining forces with other hospitals.

One of Milford Hospital's principal strengths has been its financial management. Also, points out David S. Katz, M.D., FACS, a general surgeon who practices at Milford, “There's economy in being a small hospital - less layers, no residents, no interns.”

Milford has played up the lower cost of its services to market itself successfully to HMOs. “Milford has a long history of being able to offer quality of care at a very low cost,” says Joe Pelaccia, the hospital's vice president of finance. “Milford is able to respond to HMOs' needs at a much lower price.”

Other hospitals have found a key to success in being more responsive to patient needs and requests. “Patients are educated consumers in health care. This is one of the major changes of the last 20 years,” says Saint Raphael's Scahill.

In the early 1980s, when Griffin Hospital was struggling to avert bankruptcy, hospital administrators began an extensive series of patient surveys to find out just what their customers wanted. Then they set out to give patients exactly what they had asked for.

Beginning with a new childbirth center, Griffin embraced a philosophy of patient-centered health care, known as the Planetree Model. Today, visitors to the hospital are immediately struck by its unusually friendly and un-hospital-like environment. There are unrestricted visitors hours, no visitors passes, easy access to patient medical records.

The approach has worked. Over six years, Griffin has been continually profitable, with revenues of about $10 million a year. “Patients here have a loyalty to Griffin. HMOs recognize that,” says Bill Powanda, Griffin's vice president of support services. “I think we have contracts with all the HMOs at this point except one, and this is in negotiation. HMOs view Griffin as having a very strong position in this market.”

Saint Raphael's is another that has stressed responsiveness to patient needs in its formula for success. “In competition with Yale[-New Haven] we stress our history and tradition of compassionate care,” says Scahill. Also, “the consumer is going to look for convenience. Expertise is important, but convenience is also important.”

Saint Raphael's has worked hard to build up a wide range of services that are available at a number of sites throughout the community. “We're able to offer the full range of services that are accessible,” says Scahill.

Every hospital can't remain as a full-fledged hospital,” says Deborah Katz. “The trend around the country is for community hospitals to evolve into out-patient centers.”

Another major strategy community hospitals have used to remain financially viable has been to shift focus from in-patient to out-patient services. “Seventy-five percent of my business now is out-patient,” says Milford's Katz.

Much of Milford Hospital's new wing is devoted to out-patient services The new emergency room is three times the size of the old one. Veterans' Memorial Medical Center's new facility has also been built with an out-patient orientation. The old building, with its 285 beds, “was built for an in-patient world,” said Clark Kearney, VMMC's vice president of business development and external affairs. The new building, by contrast, will have just 94 beds.

The trend toward increased out-patient services is likely to continue as the health care industry moves toward a capitation base. (The Medicaid system is already capitated, and area HMOs are beginning to implement capitated rates for certain services, such as child care.)

Under capitation, an HMO pays a health care provider a flat fee for the care of a certain number of patients over a period of time. Capitation provides a strong incentive for hospitals and doctors to deliver health care oriented toward prevention and wellness rather than focused on the more expensive treatment of illness.

Another strategy community hospitals have employed is that of featuring specialized treatment options. Griffin recently added a pain management center, a hyperbolic chamber that is useful in the treatment of certain kinds of wounds (one of just two such facilities in the state), and a heart disease reversal program.

“These are the kinds of things community hospitals will have to do,” says Powanda, who dubs the approach “creating new profit centers.” Similarly, Saint Raphael's emphasizes treatment specialties in cancer care, orthopedics and cardiology.

In addition, community hospitals have also begun expanding the range of more ordinary health care services. “Insurance carriers are looking for one-stop shopping,” says Saint Raphael's Scahill. In response, his hospital now has primary care centers in several towns, an occupational health center in Branford, educational programs, and affiliations with rehab facilities.

Milford and Griffin have likewise stepped up the number and variety of community health services they make available. These include blood pressure screenings, mammography screenings, school-based health care programs, health fairs and more.

Griffin Hospital, however, recently learned a hard lesson about not losing sight of its primary focus in the midst of such expansion.

Griffin had been subsumed under the umbrella organization Griffin Health Services Corp., which offers other health care services as well, including its own HMO. The ouster of Griffin's CEO last month resulted in large measure from dissatisfaction with the way in which hospital-generated revenue was being used to fund other Griffin Health Services ventures - chiefly the HMO - rather than being channeled back into the hospital.

One of the most common strategies for survival among community hospitals has been to enter into cooperative arrangements with other hospitals.

One such type of arrangement is that of affiliating with a larger hospital. This was what Veterans' Memorial Medical Center elected to do ten years ago, when it became a wholly-owned subsidiary of the Hartford Health Care System, which includes Hartford Hospital. Although the Meriden hospital was not failing financially at the time, says Clark Kearney, “We had a view of what the future would be; we could see the trends of less in-patient, pressure from HMOs.”

Of the arrangement, Kearney says, “Financially, it's been great. Without it we might not have been able to save this community hospital. We've been financially viable and successful, with 11 straight years of operating gains.”

Hartford Health Care has also backed the bonds for the new hospital now being built. Additionally, says Kearney, “Oncologists, infectious disease specialists come down to [VMMC] - services a community hospital would not ordinarily be able to offer.”

There can, however, be pitfalls in affiliation. Mt. Sinai Hospital in Hartford was formally taken over by St. Francis Hospital and Medical Center back in 1995. Now St. Francis wants to convert Mt. Sinai to a facility offering out-patient services only. The community is engaged in a legal battle to try to preserve Mt. Sinai's status as a provider of in-patient services as well.

Other community hospitals in the New Haven area, perhaps fearful of Mt. Sinai's predicament, have steered clear of the type of arrangement into which VMMC entered. But that does not mean they do not see the advantages of collaboration.

“This board wants to be fiercely independent, not align itself with others,” says Griffin's Powanda. “A larger organization would not have the same commitment to looking after the community. But that doesn't mean Griffin would not partner with other hospitals for special services in a win-win situation.”

IIn fact, Griffin recently did exactly that by joining the Laboratory Alliance of Connecticut. Each of the eight hospitals in the alliance cannot handle all its own lab work, but now, instead of sending the overload out to a more expensive for-profit lab, they are able to have it done by one of the other affiliated hospitals.

Saint Raphael's has entered into a comparable arrangement called the Regional Resource Partnership, which includes Hartford Hospital. The partnership enables Saint Raphael's to cut costs by purchasing certain supplies and services together with other members of the partnership.

For the time being, local community hospitals are holding their own. What is the prognosis for the years to come?

Representatives of all the aforementioned hospitals are optimistic about their institutions' future. What is the basis for the optimism?

“The future is not really clear,” says Milford's Pelaccia. “It's a continuously changing environment. We like to consider ourselves a speedboat when it comes to reacting to change in the marketplace. A smaller hospital can do this more easily.”

Powanda of Griffin echoes the sentiment: “In this kind of environment, it's sometimes easier being a Griffin. It's a lot more difficult for a large hospital to change course

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