Central Arkansas Medical Centers Collaborate, Compete in Tight Health Care Market

Hospitals in central Arkansas must collaborate to survive, according to St. Vincent Health System President and CEO Peter Banko, who says he doesn’t think Little Rock can support three hospitals.

“I think it’s a two-hospital market,” Banko told Arkansas Business in a recent interview. “At the end of the day, if you look at the financials, we all lost money. And to what point? Three of us are beating up on each other and none of us are benefitting.”

Reinforcing Banko’s further assertions about the need to collaborate, Dr. Dan Rahn, chancellor of the University of Arkansas for Medical Sciences, revealed last week that while partnership talks between the two systems have officially ended, the negotiations aren’t dead.

“We’re very interested in exploring beneficial partnerships of all kinds,” Rahn told Arkansas Business last week.

He said he “fully expects” to be working with St. Vincent and some of the areas that are being discussed involve collaborating on cancer services.

“I’m not prepared to discuss conversations right now,” he said. But “we’re continuing to talk with each other about ways … to partner … that are beneficial to the public and patients as well as to our organizations.”

That partnership strategy fits into St. Vincent’s plans for growth.

For the past several years, Banko has been operating under the premise that one day Arkansas will have only two or maybe three statewide health networks. And he wants to be sure St. Vincent is one of the systems.

And he sees partnerships with hospitals and physician groups as keys to St. Vincent’s success, Banko said in a recent interview in his Little Rock office.

“Just having a presence in Little Rock is not enough,” he said.

On April 1, St. Vincent began operating the 282-bed hospital in Hot Springs that had been run by Mercy Health of Chesterfield, Mo. Catholic Health Initiatives of Englewood, Colo., and St. Vincent, an affiliate of CHI, completed their purchase on April 1 of Mercy’s Hot Springs hospital and physician clinic. The purchase price wasn’t publicly disclosed.

The Hot Springs acquisition gives St. Vincent four hospitals in the state, with other locations in Sherwood, Morrilton and Little Rock. It also has a rehabilitation hospital in Sherwood. Baptist Health of Little Rock is the state’s largest health care organization. It operates eight hospitals and is building a 100-bed hospital in Conway.

Banko said St. Vincent isn’t done expanding. It hopes to work with Conway Regional Medical Center, which announced in October that it would consider affiliating with other hospitals. A Conway Regional spokeswoman recently said nothing has been decided and wouldn’t comment on the talks with other hospitals.

Banko said that partnering with UAMS also would make sense because the hospitals are neighbors “separated by a golf course.”

“We’re always open [to partnership talks],” Banko said. “And in time, you’ll start to see us do things together.”

In an email response last week to follow-up questions about the talks, Banko said, “St. Vincent is focused on building a robust and vibrant statewide network with leading hospitals and physician groups in key markets around the state. We are also engaged in select service line affiliation discussions with local and national health care systems including UAMS.”

Financial Losses

But the expansion moves come at an uncertain time in health care for St. Vincent and other hospitals.

“There’s no question that we’re in a period of disruptive change, which we all have to focus on efficiency and cost reductions,” UAMS’ Rahn said. “And we are anxious to partner with willing parties that help us advance our mission and deliver more value to the public. I think we just have to see how things evolve.”

St. Vincent’s flagship hospital in Little Rock, St. Vincent Infirmary Medical Center, posted a loss of $39.3 million on net patient revenue of $312.3 million for its fiscal year that ended June 30.

Most of the loss was tied to implementing an electronic medical record system, which cost around $100 million, Banko said. In addition, because of the economy, patients stayed away during parts of the fiscal year, he said.

Added to the financial troubles, hospitals across the country are facing the loss of billions of dollars due to lower reimbursements per patient. To help pay for the Affordable Care Act, the rate of growth in Medicare reimbursements slowed.

Banko said starting in October 2013, St. Vincent missed out on $5 million in Medicare money this fiscal year and that amount will grow to $7 million to $8 million annually during the next three to four years.

Other Little Rock hospitals are also having a tough time. UAMS’ Medical Center reported a loss of $1.6 million for the six-month period between July and December 2013. The same period a year ago, it had a loss of $419,000. Baptist Health Medical Center-Little Rock reported a loss of $1.8 million in 2012, the most recent figures available to Arkansas Business.

Banko said it will take a financial crisis by one of the organizations to force a move.

“We’re all prideful and we like what we have,” he said. “We don’t want to give it up.”

But some are already working together.

In March, UAMS and Baptist Health announced they were partnering on a new 24-hour, seven-day-a-week vascular care and surgery service at Baptist Health in Little Rock.

“This latest endeavor is yet another example of changing the way health care is delivered in order to provide excellent patient care,” Russell D. Harrington Jr., president and CEO of Baptist Health, said in the news release that announced the arrangement.

Mark Lowman, a Baptist Health spokesman, said last week in an email to Arkansas Business that Baptist Health “is focused on cost effective and innovative ways to continue to provide quality care and patient safety, improve the health status of Arkansans in the communities we serve, and sustain our long term stability through financial strength.”

Obamacare Effects

Banko said he’s hopeful about the current fiscal year. The patient numbers are up at St. Vincent’s Little Rock hospital over the same period a year ago.

He said that since January, St. Vincent has seen about a 30 percent drop in charity care and bad debt as a result of Arkansas’ “private option.” Under Arkansas’ program, the federal dollars earmarked for the expansion of Medicaid — an optional part of the Affordable Care Act — are instead being used to buy health insurance from private insurers for low-income workers.

The money from patients with the private option doesn’t offset the reductions from Medicare and Medicaid, Banko said, but it’s “been a big help.”

“At the end of June, you’ll be seeing far better numbers than you saw last year,” he said.

He hopes the St. Vincent hospital will break even this year. “I’m not going to predict a profitable year,” Banko said.

Hot Springs Plans

Mercy’s hospital in Hot Springs was struggling financially when it announced in 2012 that it was selling to Capella Healthcare of Franklin, Tenn., which operates National Park Medical Center in Hot Springs. Some members of Mercy’s board and others opposed the sale because they feared it would limit health care options in the city. Both parties, though, ended the sales talks in 2013 when the Federal Trade Commission said it didn’t support the transaction.

St. Vincent then stepped in. In October, Mercy signed a non-binding letter of intent with Catholic Health Initiatives. Banko said he had had his eyes on Mercy Hot Springs since 2012. The Hot Springs hospital was considered “a gem” because it’s a hub for all of southwest Arkansas.

“So we thought there were some tremendous upside growth opportunities,” Banko said. “And there’s also some cost synergies they could get by joining our system.”

He estimated St. Vincent Hot Springs could see between a $20 million and $30 million improvement in income from slashing expenses and growing revenue.

St. Vincent’s plan to grow its Hot Springs hospital includes “vigorously competing with National Park and being a regional referral center,” Banko said.

He plans to try to attract patients from the surrounding cities such as Arkadelphia, Malvern and Mena. The specialties St. Vincent will focus on in Hot Springs include orthopedics, cancer, cardiovascular, neurosurgery and behavioral health.

He will also target the doctor groups in the area.

“Our model is a combination of employment and relationships,” Banko said. “So the private medical staff that aren’t affiliated with the hospital, we view [them] as our potential partners.”

He said patients typically follow their doctors to the hospital for treatment.

Looking Toward Conway

St. Vincent also is looking at expanding in Conway. In October, Conway Regional Health System said it was exploring “potential strategic affiliation options,” including partnering with another health care provider or system.

Banko said St. Vincent is one of the hospitals that Conway Regional is considering.

He said St. Vincent is flexible on how a partnership with Conway will work. “We don’t expect patients to come to Little Rock,” he said.

St. Vincent wouldn’t own, manage or lease property on Conway Regional’s property, and Conway Regional would continue to have its management team in place.

Both systems could see cost savings and revenue growth together, he said.

Banko also said St. Vincent plans to branch out in south, central and north-central Arkansas. And any hospital or physician group in those areas would be potential partners, he said.

But St. Vincent isn’t in a hurry and will wait until the doctors’ group or hospital organization is ready to talk, Banko said.

“Every community in every hospital is going to go on their own timeframe and their own needs,” he said. “We’re not in your face. When someone needs help or a partner, we’ll be there to answer the call.”