Whats in it for Ochsner? New revenue, statewide presence in move to manage north Louisiana safety-net hospitals.
When state officials recently hailed a tentative agreement with Ochsner Health System to take over management of two state-owned, safety net hospitals in Monroe and Shreveport, they lauded the hospital systems reputation. We are pleased with the prospect of working with a world-renowned experienced hospital partner like Ochsner, said LSU President F. King Alexander at a Dec. 19 news conference to celebrate the signing of letters of intent outlining a management transfer to Ochsner. Gov. John Bel Edwards administration and LSU officials who oversee the states network of public hospitals pursued Ochsner for the job, and they are hoping that the regional health care powerhouse will help remedy what they claim are longstanding management deficiencies - including ensuring quality patient care and medical education - at the University Health hospitals under current operator BRF. Negotiations over details of a binding contract are ongoing, but Commissioner of Administration Jay Dardenne called it a watershed day. Everybody comes to this day believing this is going to be in the best interest of the hospitals, the best interest of health care delivery and the best interest of the people of north Louisiana, Dardenne said. As the states largest health system, Ochsner owns, manages or affiliates with 30 hospitals across Louisiana and Mississippi, a roster that includes Terrebonne Parishs safety-net hospital under a 2013 operating agreement with the state. Ochsner also brings a proven record as an academic and research hospital and has partnered with University of Queensland Medical School in Australia since 2009 to form a clinical school. But while state officials have found a clearly viable and experienced private partner, whats in it for Ochsner? According to health care industry analysts, Ochsner stands to benefit by bringing in a new source of revenue at a time when not-for-profit hospital systems are being squeezed by rising costs for labor and prescription drugs and lower reimburse rates from government payers like Medicare and Medicaid. There are a couple of reasons to do it, said Nate Kaufman, a San Diego consultant who has worked with hospitals in Louisiana since the 190s. One is, all hospitals are looking for alternative sources of revenue. Its getting harder for hospitals to make money on patient care. So this is an opportunity to make money in other areas. Another reason is that Ochsner can spread its significant fixed costs over a greater number of facilities, such as for expensive information technology systems that help hospitals coordinate care, Kaufman said. Whether you are covering one hospital, five hospitals or hospitals, there is a very high fixed-cost component. If in fact you can spread that cost over more hospitals, the cost actually goes down. In December, Moodys Investors Service revised its 201 outlook for the not-for-profit hospital and health care sector from stable to negative for the first time in recent years, citing a larger-than-expected decline in operating cash flow in 2017. Analysts expect that to continue amid higher expenses and lower reimbursement rates, as well as higher rates of unpaid care due to the prevalence of high-deductible plans and more uninsured patients under changes to the Affordable Care Act. Ochsners operating revenue has continued to grow - from $2.31 billion in 2013 to $2.1 billion in 2016. But so has its expenses - from $2.27 billion to $2.76 billion over the same period, according to financial statements. But running a state hospital comes with more risk and challenges than a traditional hospital. They are more difficult to operate because at a traditional hospital you are able to negotiate rates with a commercial insurance company, and typically those rates are significantly better than the kind of reimbursement you get from Medicaid or the uninsured, Kaufman said. Medicaid patients and non-paying patients dominate the payer mix at safety nets, and that presents a challenge, said University of New Orleans health care economist Walter Lane. If you want to look at the success of hospitals, the biggest thing to look at is payer mix. Hospitals that have lots of private-pay patients can do pretty well. Because, on average, private pay covers 135 to 140 percent of your cost, Lane said. But Lane also noted that the state helps safety-net operators by paying 0 percent of the cost of caring for Medicaid patients - community hospitals get less -- and that Edwards decision two years ago to expand Medicaid under the ACA reduced uncompensated care at state hospitals. If you are breaking even on the Medicaid patients and you can get a few others in there, you can be able to run a hospital on that, Lane said, adding that if Ochsner can negotiate a reasonable amount of compensation and can manage the hospitals more efficiently, they should be able to turn a profit. And Ochsner should be able to negotiate with an insiders perspective, Lane said, given its experience with the state system managing the Leonard J. Chambert Medical Center in Houma and also taking over operations at several other public hospitals. Most recently, Ochsner won a long-term agreement to continue operating Hancock County Medical Center in Bay St. Louis, Mississippi, and since taking over St. Bernard Parish Hospital in Chalmette in October 2016 the health system says it has realized more than $2 million in operational savings. Still, the states severe budget crisis brings added uncertainty. Private operators of state hospitals, including LCMC at University Medical Center, have absorbed several cuts in recent years as state lawmakers have grappled with large revenue shortfalls. On Monday, Edwards released a budget proposal for next fiscal year with deep cuts to education and health care to account for $1 billion in expiring sales taxes. They are cuts Edwards does not want to make but its uncertain the Legislature will agree on new taxes to replace the revenue. He warns the shortfall would shutter hospitals, endanger medical schools and lead to thousands of health care job losses. Because you are dealing with the government, you never know from year to year how much you are going to get, Kaufman said. It is a much more unstable environment. In 2013, former Gov. Bobby Jindals administration began privatizing nine state-operated charity hospitals for Louisianas poor and uninsured. Shreveport-based BRF started as a biomedical research foundation and had never run a patient-care facility before winning a no-bid contract to manage the north Louisiana safety nets when a more experienced operator could not be found. Since then, BRF managers and state officials have clashed over adequate funding levels, quality of care and education and other issues and expectations. Now Ochsner has an opportunity to further expand its geographic reach, following on a 2014 partnership with Lafayette General Health and a joint venture it began pursuing last summer with CHRISTUS Health in the Lake Charles region. This locks down the northern part of the state, Lane said. Now they have a big hospital in Shreveport and a big hospital in Monroe. It builds on their plan of really being the statewide hospital. It fits into their mission statement and their global plan. At the Shreveport announcement in December, Ochsner president and CEO Warner Thomas said Ochsner was honored by the opportunity and promised to work collaboratively to bring its model to north Louisiana. We look at this as an opportunity to build relationships with physicians and with faculty at LSU, to improve facilities and to expand clinical sciences, to add new options and new care and also to enhance technology available to folks here in Shreveport, Thomas said. We are excited to be here today to try to lend our help. We are growing. We are not shrinking. We are focused on growing more services, better services, more employees and trying to help more people. To sign up for free CityBusiness Daily Updates, click here.
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|Publication:||New Orleans CityBusiness|
|Date:||Jan 26, 2018|
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