Despite hospitals facing millions of dollars in lower health care reimbursements, Baptist Health of Little Rock is pushing ahead with ambitious expansion plans.
Last week, Baptist began operating a 72-bed hospital in Malvern. And this year, the health care system will start construction on a 100-bed hospital in Conway, which will be its ninth hospital in the state.
Baptist Health President and CEO Russell Harrington Jr. recently told Arkansas Business that while the Affordable Care Act “creates a lot of uncertainty … we decided we’re not going to hunker down and stick our head in the sand. We’re going to be proactive and position our organization for the future regardless of the law.”
Baptist also is considering adding more primary care clinics and working with other hospitals in Arkansas to “enhance quality and reduce costs,” he said.
Harrington declined to name the hospitals he’s talking with.
“Our idea of expansion is not always bricks and mortar,” he said. “We believe one of the keys to our success in the future is working with an increasing number of physicians and hospitals in a clinically integrated relationship.”
Medicaid Option Critical
Baptist’s moves, though, come at time when 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 took a hit. For Arkansas hospitals, that means missing out on $2 billion to $2.5 billion in Medicare revenue during the next decade.
Harrington said the lower payments have already stung Baptist. “2013 has not been an easy year financially for us, as well as most hospitals,” he said.
In addition, hospitals also are bracing for somewhat lower payments for procedures performed for patients newly insured by the ACA health care exchange as participating private insurers have adopted hardball pricing tactics.
The federal budget sequestration cost Baptist $5 million in 2013 and is projected to cost $6 million in 2014. In July, Baptist Health laid off 170 of its workers across its network of about 7,300 employees.
Baptist blamed the layoffs on a “difficult and challenging environment of substantially less government reimbursement, burdensome government regulations, rapidly rising costs of supplies, increasing charity care and bad debt, and the need for technology and medical innovations.”
Baptist and other hospitals have hope for better financial days, though, as a result of Arkansas’ “private option.” Under Arkansas’ program, the federal dollars earmarked for the expansion of Medicaid — an optional part of the ACA — will be used instead to buy health insurance from private insurers for low-income workers.
It’s estimated that around 250,000 Arkansans will qualify for the private option program, which could cover as much as $670 million in hospital bills that would otherwise go unpaid during the next decade.
Continued funding for the program will be decided when the Legislature meets for a fiscal session next month. Harrington said he is urging legislators to approve the funding.
“It’s important for the people who don’t have insurance,” he said. “It also is extremely important for providers because it gives us an opportunity to take care of people that we were already taking care of but now have insurance.”
In November, Baptist announced it would build a hospital in Conway that is expected to open in 2016. Harrington said about 30 doctors from the area had urged Baptist to enter their market.
The doctors “had a strong desire to see a new hospital where they could have more direct input into the planning and operation of the hospital,” Harrington said.
Still, not everyone was thrilled with the announcement.
“We feel like we meet the needs adequately, and there’s not a need for a second hospital,” said Jim Lambert, president and CEO of Conway Regional Health System, which operates the only hospital in the city, Conway Regional Medical Center.
He said the health care market in Conway isn’t growing very fast. For 2012, Conway Regional reported a net income of $1.8 million on net patient revenue of $123.1 million. That revenue was only about 1 percent higher than in 2011, when the hospital’s net income was $6 million.
But Conway’s population is growing. It has nearly 59,000 people, an increase of 36.5 percent over the past decade.
Harrington said Conway needs another hospital; about 15 percent of Baptist’s patients come from Faulkner County and the surrounding area. “It’s always been an important part of our market, and this gives us a chance to solidify that and hold on to it,” he said. “We also see it as an opportunity to spread our area of service.”
The Arkansas Hospital Association hasn’t studied whether a second hospital is needed in Conway, said Paul Cunningham, executive vice president of the association. But he said that if Baptist has concluded that there’s a need, there probably is one.
“Baptist has been around a long time,” Cunningham said. “I’m sure they can document that not only do they believe that there’s a need there, but they can make a go of it.”
Baptist didn’t have a price tag for the hospital because the construction plans aren’t final, Harrington said.
Baptist has already spent $10.6 million to acquire the 37 acres on the west side of Interstate 40, near Exit 129, where the 200,000-SF Baptist Health Medical Center-Conway will sit. It is expected to have seven operating rooms and employ 425 workers.
Baptist will pay for the hospital with a bond issue that will be paid off by patient revenue, Harrington said.
Meanwhile, Baptist is working with a group of doctors on the hospital project. Dr. Benjamin Dodge of Conway is chairman of a steering committee of nine physicians representing the Conway physicians.
“We feel Baptist Health understands the current health care environment and through collaboration has created an excellent avenue for area physicians and Baptist Health to align their goals, roll up their sleeves together, and get down to the business of creating a great hospital,” he said in a November news release that announced the hospital.
Harrington told Arkansas Business that the doctors have already been in on discussions about the planning and design of the hospital. That collaboration will continue once the hospital is open. “We expect they will perform a key role in day-to-day operations,” Harrington said.
Hot Spring County
Hot Spring County Medical Center reached out to Baptist Health in 2012.
CEO Sheila Williams told Arkansas Business in April that she began pursuing a partnership because of looming government reductions. The hospital was facing revenue reductions of $12 million during the next decade just from Medicare alone.
Harrington said he agreed to work with HSC because it would help both the hospital and Baptist.
Last week, Baptist began operating the hospital under the new name Baptist Health Medical Center-Hot Spring County.
The county owns the hospital’s building and the property, and HSC leases the space from the county. Baptist entered into a long-term lease agreement with the hospital.
Harrington said the hospital now could save about 15 percent on supplies by using Baptist Health’s supplier.
Harrington also said the move helps Baptist expand its territory and builds relationships with physicians in the area who refer patients to Baptist Health hospitals.
Baptist’s goal, however, isn’t to be the only health system in the state.
“That’s certainly not something we’re trying to do,” Harrington said. “It’s still a free market, [and] competition is important.” But he said he thinks it will become common for hospitals to form partnerships to keep a lid on costs and improve health care.
The Arkansas Hospital Association’s Cunningham said smaller, regional hospitals are trying to form partnerships because of the lower government payments and health care reform. He said, however, that he didn’t know of any Arkansas hospitals currently in talks to form such partnerships.
Still, Harrington said hospitals have to learn to adjust to the Affordable Care Act, which won’t be fully implemented until 2019.
“It brings about new things every year,” he said. “It is a period of great uncertainty. … It’s just a tougher environment than it’s been for many years.”