Covenant Medical Center, formerly Methodist Hospital, is one of many medical facilities helping residents of the South Plains A-J Photo/Chase Perry

Small medical center competing as alternate care

By MICHAEL GAFFNEY
Avalanche-Journal

The battle cry for Lubbock's four major hospitals is "Revise the Balanced Budget Act of 1997." At least that was the repeated concern by three executive representatives of Highland Medical Center, Covenant Health System Ð comprised of Covenant Medical Center and Covenant Medical Center-Lakeside Ð and University Medical Center.

The federal Balanced Budget Act (BBA) reduces reimbursement for certain categories of Medicare-eligible services, and those reductions, according to hospital executives, threaten the viability of growth and services.

Of the four Lubbock hospitals, Highland is the only for-profit facility, and the smallest, a fact that John D. Brock, chief executive officer, touts as a plus.

"I think the Balanced Budget Act is going to create challenges for us this year and through 2003," Brock said. "The act as a whole does not favor hospitals. And this is a facility that, if you combine Medicare and Medicaid, it's about 70 percent of the patients."

Brock said that he does not anticipate Congress reversing the act and, therefore, expects to see strains on revenue.

But, "We certainly are looking to grow the business," Brock said. "In 1999 we recruited anesthesiologists working with the Texas Tech Department of Anesthesiology; it was very important for us to stabilize our anesthesiology service, which we were able to do."

Brock said that he wants to increase surgery volume at Highland. He added that Highland now provides a state-of-the-art kidney stone removal procedure, called Lithotron Lithotripsy.

"But I think another challenge for Highland is continuing to develop an awareness of who we are here and what we bring to the table," he said. "We are continuing to try to establish ourselves as the high-touch facility, as opposed to the high-tech facility, and the alternative to the larger tertiary facilities Ð one that's homier.

"Once people understand what we're doing over here, we'll be given more opportunities to act out that vision."

The long-term vision is for Highland to become "a very aggressive surgical facility, both inpatient and outpatient, that puts a lot of emphasis on the way a patient is treated," Brock said. "We want to establish ourselves as the alternative to the larger tertiary facilities and, really, as a provider of big care, even though we're the smallest facility in town."

Covenant Health System is Lubbock's largest hospital system, guided by combined Catholic and Methodist religious principles. Covenant employs about 6,500 people, has 683 physicians on medical staff, and is a designated Level II trauma system.

Despite its size, the BBA will present challenges to the system, said Chris Barnette, chief operating officer and executive vice president for Covenant.

"I think that the biggest challenge this year is relief from the Balanced Budget Act, for not only the hospitals in Lubbock but for the hospitals that we lease and manage systemwide," Barnette said. "We're going to see a $44 billion (Medicare) decrease nationwide, and ... (Covenant accountants) are saying we'll see $14 million per year decreases to the Lubbock hospitals within the Covenant system and an additional $1 million for Plainview and Levelland hospitals we lease."

The BBA restricts patient access to home health services, post-acute care services and skilled nursing care, Barnette said.

"We're getting ready to see ambulatory care reductions this next year and that may limit us, as far as post-acute care services."

And while medically-related jobs in Lubbock are not currently threatened by Medicare reductions, "nationally you're seeing significant threats to jobs, and to the ability of institutions to maintain themselves technologically," he added. "We maintain a substantial amount for technology but it's not necessarily the equipment itself; it's the way you do procedures, and the great concern is that we will begin to not be able to keep pace."

Last year Congress amended the BBA of 1997, restoring about $17 billion in relief to hospitals, "and we would like to see something in the range of $20 to $25 billion," Burnette said, adding, "We're saying, let's keep it where it was meant to be and not destabilize the hospitals."

Covenant's revenues are about five percent above its operating expenses, he said, "which is viewed in the industry as a minimal healthy return.

"You can give your employees pay raises, maintain the buildings and replenish the technologies. But it is viewed as pretty much the minimal level."

The system, however, continues to set high marks in delivering medical services.

Covenant was among the top 100 hospitals nationwide recognized by HCIA/Sachs, a national group that evaluates all the hospitals in the country based on Medicare data, with cost-efficiency and quality as baselines.

"And we were recognized for our orthopedic program, our Children's Hospital, and the Joint Commission (On Accreditation of Healthcare Organizations) gave us glowing remarks," Barnette said. "And volumes grew dramatically last year ... and I see it as a positive that the community continues to see the Covenant System as somebody they turn to when they need health care services."

And though University Medical Center continues to enjoy financial stability, the BBA worries Jim Courtney, chief executive officer.

"I'm concerned about trends in reimbursement through Medicare," Courtney said. "And the labor market is very tight across the board Ð nursing, radiology, housekeepers, food services, secretaries Ð and that tends to drive our salaries up just to be competitive.

"Nursing salaries will increase hospital costs by about $1 million per year ... that increases our cost of doing business and at the same time we're not getting paid more, so that imbalances that need for quality care and financial stability."

The hospital, the only Level I Trauma Center in Lubbock, benefited from the revised act in 1999, "but the BBA was a step-down act which takes place over a period of time," Courtney added. "The reductions have not been done away with, they've merely been delayed. And that's a big issue right now, to see if the act can't be delayed further or revised to provide further relief."

The total loss in Medicare reimbursement by 2003, the year the BBA tops out, is estimated at approximately $12 million cumulatively, said Mark Vincent, chief financial officer for UMC.

"That number does not include the effects of the BBA reducing the inflation factor, and our actual inflation increases annually," Vincent said. "Next year, the projection is the inflation index should be about 3.1 percent (increased cost of doing business), but the Medicare index will increase by 1 percent less than the index through 2003."

For hospitals, the only bright spot in the BBA is the fact that Medicare reimbursement for direct medical education increases by $1 million per year until 2003, and since UMC is a teaching hospital, that will help offset losses in other categories, Vincent said.

Teaching hospitals like UMC are paid indirect and direct Medicare reimbursements. Direct payment funds the personnel salaries for resident physicians; the indirect payments recognize the higher cost of operating a teaching facility, Courtney said.

"So we actually may get a little bit more money for direct reimbursement because, as a teaching hospital, we're going to have more costs as a result of training.

"But indirect reimbursement has been reduced as a percentage of our costs, and if we continue to see indirect reduced, whatever gains we make in direct reimbursement will be lost."

However, "overall, we had a very good year in 1999," Courtney added. "We did our first pediatric bone marrow transplant; we opened up our burn/intensive care step-down unit; ... and we started construction on a new office building on 82nd Street, which will help us broaden our primary care services."

But service expansions will probably be limited by Medicare reductions and market forces in Lubbock, he said.

"I honestly think that, in the future, there are going to be fewer opportunities for expansion of services," Courtney said. "We have a limited patient base and, financially, I think the resources are becoming a little bit more difficult to deal with.

"Obviously, new and better ways to do things are being introduced all the time, and I think we're going to continuously introduce new types of technologies, but I don't foresee expanding services."

The hospital was still profitable in 1999, though it saw a dramatic decrease in excess revenue.

"But we're not anticipating a tax increase, and no layoffs," Courtney said.

Michael Gaffney can be contacted at 766-8796 or [email protected]