Expected Tighter Spending on Health Care is Driving Hospitals to Partnerships
The Aurora-based University of Colorado Hospital will look to expand its network in other parts of the state after it nails down its just-announced deal in northern Colorado.
To the south, Memorial Health System in Colorado Springs hopes to expand its network beyond the state’s second largest city, if it can modify its limitations as a city-owned facility.
Those are just two of the ways in which Colorado hospitals are dealing with massive changes in the health care industry.
In an interview just days after the University of Colorado Hospital announced plans for a joint operating agreement with Poudre Valley Health System, UCH President Bruce Schroffel told Colorado Public News he foresees an even larger, possibly statewide system in the future.
“I do not expect the system to stop here,” Schroffel said. “I don’t think we’re only going to go north.”
The alliance with Poudre Valley means the system’s hospitals will treat more than
45,000 patients a year, with a network of clinics and outpatient facilities that reaches through Loveland and Fort Collins to Wyoming and Nebraska. Poudre Valley will remain a separate hospital with its own board, and the health district bars it from being acquired outright. Under the planned alliance, a joint board will run the new UCH/PVHS system and look after its joint bottom line.
The trends forcing the alliance include a growing awareness that health care cost increases are unsustainable; the financial burden of implementing electronic medical records; and payment reforms coming online due to the new health care law.
These trends spell a financially constrained future that is forcing hospitals to partner up, Schroffel said. No Colorado hospital is immune.
Schroffel said he couldn’t immediately provide further detail about UCH’s plans because he’s focused on completing the joint operating agreement with Poudre Valley, announced on June 24. The new non-profit health system would have a common bottom line and be the largest Colorado-owned health system in the state.
But in coming years, Schroffel said, he could see partnerships with other Colorado hospitals small and large, urban or rural.
“In this environment,” said Loyola University Chicago law professor Larry Singer, “there is not a health care system in the country that is not looking at its future in that, is it an acquirer or an acquiree?”
Less Money in the Future
Underlying this national trend is a stark fact: Many hospitals are swimming without a financial life jacket.
Just as individuals have struggled to qualify for mortgages, hospitals have struggled to borrow during the financial crisis of recent years, says Singer, who advised the Citizens Commission on Ownership and Governance of Memorial Health System in Colorado Springs.
Then, financially weakened, the industry agreed to concessions under health care reform.
For one thing, Medicare, the federal health care program for seniors, will be slowing the increase of its payments to hospitals. In addition, certain hospitals that saw many uninsured patients agreed to give up special payments, known as “disproportionate share payments,” to provide funding to expand coverage for the uninsured. No one knows how much individual hospitals will gain or lose under this new system.
Meanwhile, Colorado’s health insurance exchange, scheduled to go live online in 2014, will let buyers compare insurance policies. That is expected to lead to competition and lower prices for insurance – and then to less generous payments to hospitals.
But even without the federal health care law passed last year, Schroffel expects dramatic change in his industry.
“With a $14 trillion deficit in this country, there is going to be less money available in the future for things like health care,” he said.
Regional Networks, Bundled Payments
The UCH-PVHS joint venture offers particular advantages, both partners say. It will expand opportunities for UCH’s medical, dental and nursing students and increase the number of patients available for university research and clinical trials.
The agreement also positions UCH and PVHS to rival other large systems in Colorado.
These include nonprofit Centura Health (with 13 hospitals, including facilities in Pueblo, Colorado Springs, Canon City, Granby, Frisco, Breckenridge and more); nonprofit Exempla Healthcare (with three hospitals in metro Denver); and for-profit HealthONE hospitals (with seven hospitals across metro Denver).
Regional, integrated systems may prosper under reform. That’s because health reform will reward organizations that work together.
Government programs such as Medicare will pay physicians and hospitals a joint, flat fee for all services related to a medical case, such as pneumonia. That means hospitals and doctors will need to collaborate, share financial risk, and use joint information systems to keep people healthy and cut costs.
Pressure on Memorial Health System
This world of changes puts heat on Memorial Health System in Colorado Springs.
The city-owned hospital is seeking changes in its governance model and ownership structure. That would require approval from city voters.
Currently, the hospital can’t build outside of Colorado Springs. It also can’t do a joint venture, Singer said.
Should the health system become a nonprofit, it could build an integrated system and a regional network, just as PVHS and UCH intend to. It could also join them, he said.
“You are really seeing organizations taking a hard look at where they’re going to be in the future, and asking, ‘How are we going to respond to a very difficult environment, improve quality of care and take a regional approach?’” Singer said.
Colorado Springs voters may decide on the hospital’s status in November.