Healthcare Part One

By Jill Tyrer

Southwest Florida’s healthcare industry is, in large part, a

reflection of the national healthcare industry.

Action and inaction by the federal government has played a

leading role in the ongoing drama that has been unfolding in the industry both

nationally and locally. Dwindling Medicare and Medicaid reimbursements,

insurance disputes, and a tight labor market are colliding with better-informed

patients and their demands for new technology and drugs that are streaming into

the market.

The difference is that, while hospitals nationwide are

closing their doors and major institutions are battling bankruptcy, Southwest

Florida entities are struggling not just to mitigate their losses, but to

continue growing to keep up with the demands of a burgeoning population —

especially an aging population.

The Players

To the average patient, going to the hospital means checking

into whichever facility the doctor and the insurance company dictate. Each

hospital negotiates contracts with the various insurance companies, and the

patient goes to a facility that contracts with his insurance company.

Four major hospital groups serve Lee and Collier counties, each

with a very distinct approach to doing business.

Lee Memorial Healthcare System is a community-owned,

not-for-profit entity governed by a 10-member board of directors, who are

elected by the public. It includes Lee Memorial Hospital, HealthPark Medical

Center, and Cape Coral Hospital, which have a combined total of more than 900

beds. The Lee Memorial System serves primarily Lee County but, since it has the

only trauma center between Tampa and Miami, it also serves trauma patients from

throughout Southwest Florida.

HCA Healthcare Company, formerly Columbia/HCA, is a

multi-national company with five hospitals in its Southwest Florida region,

including three in Lee County: Southwest Florida Regional Medical Center, East

Pointe Hospital, and Gulf Coast Hospital, with more than 600 beds total. (The

other two are Englewood Community Hospital in Englewood and Fawcett Memorial

Hospital in Port Charlotte.)

The NCH Healthcare System, like Lee Memorial, is

not-for-profit, but NCH is a private organization. It serves Collier County and

south Lee County through its Naples Community Hospital and the North Collier

Hospital.

NCH and Lee Memorial also have teamed up for the first time

to establish the new Bonita Community Health Center, which includes a walk-in

clinic and outpatient surgery center.

Unlike larger metropolitan areas, where physicians are more

likely to be associated with one hospital, most physicians in Southwest Florida

have privileges with several or all local hospitals. Lee Memorial and NCH also

have some physicians on salary.

The exception is the area’s newest addition — a hospital in

Naples established by Cleveland Clinic Florida, a Ft. Lauderdale offshoot of

The Cleveland Clinic, the renowned Ohio entity. The 70-bed, all-private-room

hospital is expected to open in Naples in the first quarter of 2001.

It will open with about 40 physicians and will grow to 70

within the next few years, says Cleveland Clinic Florida CEO Harry K. Moon,

M.D. The organization of the hospital in Naples will be based on The Cleveland

Clinic’s “closed-staff model,” in which all physicians with the hospital will

be on salary. The concept is based on the idea that certain “efficiencies are

brought to the patient when you have all the specialists under one command and

control system. The patient becomes our patient, not my patient.” Salaried

physicians can focus on the patients, without the distractions of business

decisions and details.

HCA is the only for-profit. The primary difference is that

the tax-exempt status and “charitable purpose” of a not-for-profit organization

means it’s a lot more likely to offer those services — such as women’s and

children’s programs and trauma centers — that don’t generate as much revenue,

says John Wiest, chief financial officer of Lee Memorial Health System. And

that does affect the hospital’s overall financial health.

The Business of Being a Physician

The business factors lead many private physicians to join

physicians’ groups, rather than maintaining their own offices, explains

osteopathic physician Bruce Lipschutz, a member of Lee Physicians Group (Lee

Memorial System’s group) and president of the Lee County Medical Society, which

claims more than 500 members. “It’s difficult to run a solo medical practice,”

he says. Joining the group allows him to concentrate on medicine while the

group hires others to handle billing, insurance, staffing, scheduling, and the

other business functions of the practice.

Groups also allow physicians to step in for one another,

says Margaret Williams, executive director of the Collier County Medical

Society. In a private practice, “if he’s not there, he’s not making any money

for himself. In a group, they can cover for each other.”

Larger practices might have a lot more resources, including

legal resources, says Ann Wilke, executive director of the Medical Society, but

member physicians pay for those services. Those additional expenses and the

group determine their salaries.

But the pressures of being a physician have increased so

dramatically that more and more are opting to join groups, Lipschutz says.

Patients are more informed, and advances have made available a wealth of new

diagnostics. Doctors want to conduct tests they feel appropriate for a patient,

but the tests can be expensive. Insurance companies, in efforts to control

costs, might not allow certain tests. That pits the doctor against the patient

and insurance companies in a cost vs. care battle (hence, the Patients’ Bill of

Rights, which could redefine the business of medicine).

“The care of patients is being taken away from physicians by

bits and pieces,” he says. Insurance companies are making healthcare decisions,

more physicians are seeking greater privileges at hospitals, such as

optometrists doing laser surgery, and pharmacists now want the right to

prescribe medications, he says. Managed-care demands, the ratcheting-down of

Medicare payments, increasing overhead costs, and growing requirements and

regulations by government agencies combine to make it very discouraging to

manage your own practice.

Effects of the Balanced Budget Act

Healthcare organizations are fighting many of the same

battles as the individual physician.

The largest single issue undermining the healthcare industry

lies in the federal government’s efforts to cut Medicare costs. For hospitals

nationwide, Medicare reimbursements represent a very significant portion of

their revenue.

“Fifty percent of our business is Medicare. Another 12

percent is Medicaid and, while Medicaid is administered on a state level, it’s

matched and funded from a federal standpoint,” says Wiest.

It began in the 1980s, as the federal government switched

reimbursements from a cost-based system to a diagnosis-related group (DRG), fixed-cost

system. It was a gradual process, starting with in-patient reimbursements,

which encouraged efficiency, says Dr. Moon. “If you are efficient and get the

patient out of the hospital sooner, you get to keep the difference in the

amount that it cost you and you were paid if there was a savings, and that was

beneficial.”

The policy spread to other areas — home health

reimbursements, outpatient care reimbursements — and the clincher was the 1997

Balanced Budget Act, which finalized the process.

“The concept behind the Balanced Budget Act was something

that people knew for a long time was going to have to happen,” says Jim Nathan,

CEO of Lee Memorial Healthcare System. “The single greatest domestic program is

healthcare that the federal government is involved in, so we knew there would

be an economic pressure. But when they announced the five-year Balanced Budget

Act, it was supposed to be a $115-120 billion hit to hospitals. It’s turned out

to be about $250 billion.”

A refinement act in 1999 committed to return some of the

funding, but “it really wasn’t a significant percentage,” he says. Last year,

“they got all the way up to right up to before the election and had a

bipartisan bill that was ready to go to President Clinton, but he said there

was too much money being given to the insurance companies in that bill and he

threatened to veto it.” At that point, Congress recessed for the election and

hospital administrators fear the issue, with elections over, will be shoved to

the back burner.

In fact, the whole Balanced Budget Act situation has been a

bitter pill for many in the healthcare industry.

“I think the manner with which the federal government has

handled that has probably made the Florida election look efficient,” says

Edward Morton, CEO of NCH Healthcare System. “They’ve had an impact on every

hospital in the country. We estimate the impact on NCH and North Collier

Hospital to be about $35- to $40-odd million over a five-year period.

“We were promised relief by the Senate, the House and the

President. Politics has played a game here and, to date, the promise we

received from all people in Washington, they have walked away from the issue.

Each party is blaming the other. We have had virtually no budget relief and

this country is paying consequences daily in terms of canceled programs,

shuttered facilities, and denied care that are a travesty.”

Belt-Tightening

Hospitals have responded by tightening their belts to a

painful state. Locally, several have had to lay people off and cut positions.

Others have cut programs.

NCH has withdrawn support from several community efforts —

“wonderful social programs, but not necessarily related to our core hospital

mission,” Morton says — such as the school nurse program, which placed

registered nurses in area schools.

Lee Memorial did not adjust very well at first, Nathan says.

Since January 2000, it has reduced the organization’s management by about 10

percent. It also has renegotiated managed-care contracts, “basically saying to

the insurance companies that we can’t work with the dollars we’re being paid.”

All have gone through some sort of process reengineering,

examining the business processes for inefficiencies.

HCA has found savings in buying products more judiciously