Service Lines and Bottom Lines

In our December Intelligence Report, more than one-third of healthcare leaders (36%) said it is likely they would drop clinical services as a way to cut costs or enhance margin. What do those results suggest generally, and how is your organization handling its clinical services?

Alison Page
CEO
Baldwin Area Medical Center
Baldwin, WI

Healthcare needs to change, and it will change. The biggest challenge for healthcare organizations is going to be riding the transition to a future reimbursement model based on value, and how do you reduce costs and increase quality while designing the delivery system of the future?

How do you move from our current world in which all the revenue is based on face-to-face visits and admissions to a world where revenue is based on effective management of total cost of care? Right now if we do a group visit or health coaching, we don't get paid for that. These things are a great way to reduce costs, so the challenge is going to be moving to the new care delivery model incrementally in a way that allows you to keep your margins steady.

There are a lot of services that we offer that we don't make money on, and we are going to have to evaluate which of those we can continue to offer or other ways that we can reduce costs. We are a critical access hospital, so closing services means people have to travel further. You want to offer services that meet the needs of the people who live in your region, but you also have to have a black bottom line.

Mark Bogen
Senior Vice President and CFO
South Nassau Communities Hospital
Oceanside, NY

On balancing revenues: The hope and expectation is that there are enough profits being earned on the service lines such as orthopedics and oncology and cardiology to allow the continuation of access to things such as behavioral health or pediatrics or outpatient clinics.

We have seen that on Long Island with both the private and even the state-run hospitals for behavioral health. That has dumped a lot of patient issues on the doorstep of those of us who still have programs.

On feeling the squeeze: As hospitals feel squeezed and feel like their overall financial viability is threatened, they are going to take a look at those programs that have the least contribution margins and they may feel that it's better to close to keep everything else going. That reduces access for people who have grown dependent on those institutions to provide for those services. You see that as a microcosm when you look at those hospitals or systems that start to show the cracks financially. You cut services that aren't performing and somehow that is not enough and you continue to cut and pretty soon you don't have anything left.

On long-term implications: That may take a year or 10 years, but I have seen it all too often where it is like water going down the drain. I understand the finance guy. The survival of the organization is always at the most critical level in making these decisions. But you start to lose the identity and the mission the organization was originally founded upon.

Dennis Wolford
CEO
Macon County General Hospital
Lafayette, TN

We are a 25-bed critical access hospital. We are not-for-profit. We have to look at these services we provide and how much is in Medicare or Medicaid. We look at that closely. We can't provide services like obstetrics. That is not reimbursable and we haven't had any docs or OB-GYN services since 1984.

One thing we are concerned about is our rehab services: physical therapy and occupational therapy. The provision there is, do you need direct supervision or can you use general supervision? We got it clarified and it looks like we are exempt from that, but there are a lot of other critical access hospitals that are providing a lot of services that require direct supervision and it is going to kill them. It almost feels like CMS has got it out for critical access hospitals.

We do at least a three to five-year strategic planning but with so much up in the air—the impact of Obamacare and these other pending changes, and Tennessee has not approved Medicaid expansion—we are almost living from month to month and day to day. It's hard to project. We have been treading water for some time. Financially we are holding our own, but with what is coming down the pike I don't know how much longer we can hold on and I know all the other critical access hospitals in this state are facing the same thing.

Tammy P. Mims
COO
Effingham Health System
Springfield, GA

It is very likely that Effingham will drop clinical services as a way to cut cost. Our organization is examining each service line to determine profitability.

Any service line that is a drain on the bottom line will be thoroughly examined and may be eliminated. Or we may restructure to eliminate waste and reduce operating costs to keep the service line at a minimum. It is unknown today if any service lines will be dropped.