BY DIRK PERREFORT
Hearst Connecticut Media
As health care organizations look to survive in a rapidly changing industry, hospitals are increasingly turning toward consolidation.
Nearly half of the 31 hospitals in Connecticut have merged with larger networks in an effort to reduce costs and improve patient care amid declining revenues and new government regulations that are forcing the industry to reinvent itself.
It was a year ago this month that Norwalk Hospital joined the Western Connecticut Health Network, making a trifecta that includes Danbury and New Milford hospitals. The relationship, hospital officials said, is working.
- The new 11-story addition, left, shown during the dedication party last summer at Danbury Hospital. Photo by Tyler Sizemore
While revenues have declined ”“ a national trend in the industry ”“ the affiliation has allowed the network to save more than $6 million during the past fiscal year. And officials hope to save as much as $140 million during the next five years.
The shift in the industry comes at a time when the federal government is looking to move to a value-based reimbursement approach, where organizations are paid not for the individual patient services provided but for the perceived value of care a hospital provides to a community. It’s a big change for hospitals, much of whose funding comes from Medicare and, to a smaller but growing extent, Medicaid, programs for the elderly and disabled and people with low incomes.
About 61 percent of the Western Connecticut Health Network’s patient revenue comes from those government programs, according to Steven H. Rosenberg, the chief financial officer for the organization.
“The state and federal governments essentially control more than half our revenues,” he said. “That makes getting expenses under control that much more important.”
Beating the average
Stephen Frayne, the senior vice president of policy for the Connecticut Hospital Association, said that while reimbursements through Medicare have been increasing at about 1.5 percent on average, it’s not enough to cover the increased costs of providing those services. Reimbursements through Medicaid, he said, have been either flat or declining in recent years.
“If half of our business is shorting you on an annual basis, that’s a big problem,” he said. “That puts a lot of pressure on hospitals, and that pressure will only continue to mount as we move to get more people covered” under the Affordable Care Act.
The revenue problem, Rosenberg said, is only made more difficult in light of declining in-patient admissions across the country due to lower readmission rates and an increase in patients who are admitted for observation rather than for treatment of an illness, which are reimbursed at lower rates. Danbury Hospital, however, has beat the national average, losing less than 2 percent of its in-patient activity during the past fiscal year.
- Dan DeBarba, president of Danbury Hospital and New Milford Hospital, speaks at the Western Connecticut Health Network’s annual meeting in Danbury in January. Photo by H John Voorhees III
Initial savings during the past fiscal year, Rosenberg said, came from reducing overhead and consolidating back office functions that don’t impact patient care. Savings were also achieved, he said, by standardizing vendors among the network and moving both Danbury and New Milford hospitals under one medical license, which eliminates the need for duplicate audits and other reporting requirements.
Dan Debarba, the president of both Danbury and New Milford hospitals, said they are also trying to improve quality and reduce costs by standardizing patient care throughout the network. Each medical facility, he said, had its own protocol for handling an illness and what tests to perform. By standardizing the care using best practices, the network can save money through eliminating some procedures and tests that may be unnecessary or redundant while ensuring that correct procedures are used.
During Danbury Hospital’s annual meeting recently, Debarba said care is being standardized for more than 30 “clinical pathways” including cardiology, behavioral health and cancer.
“We are both strengthening clinical programs and access to care,” he said.
Stable outlook
Dana N. Sodikoff, an analyst with Fitch Ratings who specializes in the health care industry, said the Western Connecticut Health Network has been proactive in dealing with changes in the industry.
“They made some moves early on that were very beneficial,” she said. “They are spreading their costs out over a larger area and are gaining more exposure in the service area. It makes a lot of sense.”
In October 2013, Fitch gave the health network an “A” rating with a stable outlook, citing improved operational performance due to savings initiatives, a strong physician network, a manageable debt burden and adequate liquidity. In the report, Fitch looked favorably on the affiliation with Norwalk Hospital, which was completed in January 2014, noting that the move would “provide more opportunity for medical education and research, expense reductions and revenue enhancements.”
While the network will continue to face challenges as the health care system evolves, network Chairman Ervin R. Shames said it will stay true to its mission of helping people when they need it the most.
“As chairman I can assure you that we are stronger today for working together,” he said.
Hearst Connecticut Media includes four daily newspapers: Connecticut Post, Greenwich Time, The Advocate (Stamford) and The News Times (Danbury). See newstimes.com for more from this reporter.
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