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Maine Hospital's Dilemma: Improved Care Shrinks Bottom Line, Part II

When a hospital increases the quality of its care, patients are healthier and need fewer services. While that's good for patients, hospitals lose money. It's created a conundrum for hospitals such as Franklin Memorial in Farmington, which serves as the financial underpinning of the community's entire health network. Patty Wight brings us the second of two reports on how the hospital is working to keep in line with expectations under the Affordable Care Act and still remain financially afloat.

Franklin Memorial Hospital made a push to improve quality even before the Affordable Care Act. Tests and procedures were scrutinized and the hospital changed its world view. Instead of touting successes, it worked on eliminating failures. And, it also encouraged patients to use preventative, primary care. With passage of the ACA, these changes were expedited. And Clinical Director Mavis Dubord says some staff began to worry. She remembers a nurse manager approached her one day and said, "I think you're moving too fast. Do you realize what this is doing to the finances of the hospital?"

It was a fair question, says Dubord. Each unnecessary ER visit the hospital prevented, each readmission avoided, each superfluous test or procedure the hospital stopped, was one less source of revenue. Revenue that was needed to support its efforts on quality.

"So this is the challenge," she says. "You have all those initiatives going on that really take more staff, that we're not adding. And at the same time you're pulling patients away from the hospital, which is where we make our money."

Over the past three years, the hospital's operating revenue dropped nearly $17 million. Chief Operating Officer Jerry Cayer says this loss extends beyond the hospital — Franklin Memorial is the engine that helps the rest of the county's health network run. The hospital supports programs from community mental health care to an ambulance service to primary care.

"Primary care essentially is not covering its cost, so we do need the resources of the hospital to invest and essentially subsidize access to primary care," Cayer says.

To make up for the losses, Franklin Memorial is operating out of fewer buildings. One hundred twenty-five positions have been cut, through a combination of layoffs, attrition, voluntary resignations and unfilled vacancies. The hospital is also seeking to join the MaineHealth network to maintain quality and stability. Jerry Cayer says the depth of this financial crisis came as something of a surprise.

"Historically, health care was recession proof, and if you build it, they will come," he says. "So I think there truly has been, for decades, this notion that there will always be people to care for, and there will always be resources to pay for it. And I think the national discussion suggests over the last two to three years that is not true."

To balance the books, Cayer says Franklin Memorial is trying to match the price of its services to what Medicare reimburses. That, combined with Medicaid payments and modest commercial reimbursements, could help the hospital come out on top.

"But it wouldn't generate a large margin," he says. "Now, we haven't solved that yet. Because it's the margin, or profit, that allows us to invest in the primary care infrastructure that then supports all of the right initiatives we're working on."

Franklin Memorial is doing what the Affordable Care Act expects: increasing quality and improving patient outcomes. But does the ACA actually help hospitals as they're forced to reconfigure their business models?

"On an operational, practical level, not real helpful right now," Cayer says.

He says the problem is payment reform — or really, the lack of it.

"So we're still paying like we did in the old days, and not the way we're trying to deliver care," Cayer says.

The ACA has changed the way hospitals are reimbursed. It's called Hospital Value-Based Purchasing. It pays hospitals based on performance and value, not just for the test or service provided. Promoting quality is good, he says, but the problem is payments are still based on units of care — the fee for service model.

"So let's not limit — this person for this service is 'X,'" Cayer says.

It would be more effective, he says, to shift to a global payment model — where a lump sum of money is used to manage an entire community.

"Many of the European countries are doing that now," Cayer says "There's a global payment, global budget for a region, and the health care provider or providers in that region now have responsibility to manage that budget with the population they have, and they have to achieve certain outcomes."

He says it would eliminate a major driver of health costs: bureaucracy. He says the biggest threat to the ACA and meaningful health reform is payment models. Despite the challenges the ACA presents, he says he does support the law.

"Now we have a landmark measure that is forcing the conversation and driving change and forcing us all to think about it differently," Cayer says.

To figure out how providers like hospitals can find solid financial footing and truly improve patient care for the long term.