Mark Green: The Kentucky healthcare sector has been going through significant changes in recent years, just like the national scene: mergers and acquisitions, network realignments. How does Owensboro Health fit into today’s changing healthcare sector?
Philip Patterson: As a regional and trauma-designated medical center, Owensboro Health fits the footprint for Western Kentucky as a tertiary-care referral center. But being a community hospital is where it starts. We are the primary healthcare provider for clients in our home Daviess County and in a few of the surrounding communities and counties. Secondary to that, in relationship with other hospitals throughout our region – small community hospitals, critical-access hospitals – we become their secondary and tertiary provider. We’re trying to build in systems to ensure the availability of that tertiary level of care here in Western Kentucky.
We work with many quaternary partners across Kentucky as well as in Tennessee. We’ve got a tremendous network of partnerships that allow us to grow here locally as well as move people through to Louisville or Lexington as necessary. We have partnerships such as the NICU (Neonatal Intensive Care Unit) relationship we have with Kosair and the University of Louisville Physicians group. They not only staff our NICU but also have a collaborative effort with our Level 3 NICU that we just obtained last year. We can send children to the Level 4 NICU at Kosair, and there’s a seamless transition with us having the same medical group.
We are cementing ourselves as the regional preference for tertiary care and recognize it’s going to take our quaternary partners in Louisville and Lexington to maintain that.
MG: Describe the facilities that you have now. Owensboro Health built and in 2013 opened a $400 million hospital.
PP: Yes. It opened in June 2013. On the main campus at Pleasant Valley, the new hospital has 477 beds. We are a designated trauma center as well as the largest freestanding emergency room in the state when it comes to volume. We have Level 3 NICU capabilities and a full array of surgical complements at all levels. We’re now responsible for the 90-bed Muhlenberg Community Hospital, which has now been renamed Owensboro Health Muhlenberg Community Hospital, in Greenville. It also has a nursing home with 45 beds. Then we’ve got 29 ambulatory locations with over 170 providers in our One Health network, across the 14 counties we serve. So, OH is a pretty large organization.
MG: What entity owns and operates Owensboro Health, and for how long?
PP: Owensboro Health Inc. is a Kentucky not-for-profit corporation set up as a charitable organization under the 501(c)3 laws for the Internal Revenue Code. It has a board of directors of about 14 members appointed by the city, the county, the medical staff and the community at large. The current structure was developed in 2003.
MG: What is Owensboro Health’s geographic market?
PP: Our market consists of a 14-county region in Kentucky and Indiana. Our primary market is Daviess County, Ky., and our secondary market includes the Kentucky counties of Breckinridge, Butler, Grayson, Hancock, Henderson, Hopkins, McLean, Muhlenberg, Ohio, Union and Webster, and the Indiana counties of Perry and Spencer.
MG: What is the One Health subsidiary?
PP: One Health is the new name that Owensboro Health has given to its medical group, which now includes 180 physicians and allied health providers in more than 32 subspecialties. The group’s presence spans more than 25 clinic sites and satellite facilities across all 14 counties we serve. We chose One Health because we wanted our name to reflect the aim of our healthcare: simple to access, receive, understand care. We also want one point of contact tied to the health system. Previously we’d gone under a number of names for the medical group. Last year, in FY2015, 23,000-plus new patients chose to seek an affiliation with our company through One Health.
MG: How many patients does your organization see in a year?
PP: We’ve had significant increases in outpatient volume over the last three years and have grown from about a half a million outpatient visitors to well over 800,000.
MG: What has been Owensboro Health’s experience with the broad trend of fewer inpatient days and more outpatient
services? Is your experience is any different from what’s occurring elsewhere?
PP: For FY2015, our admissions were up about 5 percent from the previous year, and already in FY2016 we’re about 7 percent ahead of last year. So for the last two years we’re still seeing a trend towards the inpatient care that’s pretty significant. That is a trend that is not seen nationally.
For the most part, what you’re seeing across the healthcare world is a shift of inpatient-related care to more of an outpatient setting. But because of the capabilities of our hospital and our regional platform, we’re seen as a more trusted partner throughout the region. As we’ve become that and become a more tertiary provider, we’re seeing increases on the inpatient side as well as the outpatient side.
We’ve had success recruiting primary care and specialty physicians and allied health professionals. We’ve added 55 new providers the past two years. We’ve increased the acuity capabilities at the hospital with our Level 3 NICU, as well as adding trauma services. We’ve added two plastic surgeons who cover inpatient needs – emergency patients, not the cosmetic type. We’ve increased the number of general surgeons, and, in reflection of what you’re saying as the transition of healthcare, we’ve gone into the outpatient pharmacy world in the last two years.
Medicaid expansion has provided increased volume to the organization, as many others have seen. Unfortunately there’s been a large increase in our emergency department, which did ultimately become a large source of inpatient admissions. We continue to address with education across the region about Medicaid expansion that appropriate, proper access of care can lead to a more economical provision of sustained care that has a long-term benefit of creating a better relationship with patients, who then have a better quality of life. If we can address those conditions, it will provide a more long-term, continuing patient relationship instead of the episodic relationships and they end up in the emergency room.
Outpatient surgeries were up in 2015 about 12 percent over FY2014, and we’re running another 8 percent higher this fiscal year – so, continued growth on the outpatient surgery side. We’re seeing numbers up across the board. Some of it has to do with Medicaid expansion, but at the same time we have gone through a significant growth of our whole resources across our region, which has led to some of that growth. People have received quality care at Owensboro Health, and have gravitated to using our newly expanded services and providers.
MG: What were OH’s latest revenue and profit-loss numbers, and how do they compare to the industry?
PP: Total operating revenue in 2015 was about $500 million, which was 11 percent higher than the prior year. Our operating cash flow in 2015 was about $70 million, which was $22 million higher than FY2014. We’re on track for a similar performance this year. Current fiscal year revenue is running about 17 percent higher than a year ago; our operating cash flow compares very favorably to industry averages and significantly ahead of FY2014 for comparable organizations.
MG: Your 14 percent cash flow in 2015 is considerably higher than the industry average.
PP: It is. We are the sole community provider, driven by the Owensboro Health mission to heal the sick and improve the health of the communities we serve. We truly believe the entire community is our responsibility, but we don’t do it alone. We created a community benefit grant program to assist not-for-profit organizations that work to address the priorities identified from the community health needs assessments that we now have to provide to the federal government.
Last year, we gave over $700,000 in grant money to care partners and not-for-profits. It helps drive the second part of our mission, which is to raise the overall health of our communities. It’s not just about healing people episodically. It’s more about really preventative care, and it’s also about getting to the socioeconomic disparities in our community and how we can change that dynamic to improve the overall health of communities we serve. That program’s been in place for about five years, and we’ve given out over $3.5 million.
MG: Which service sectors are generating the most revenue or are shifting the most?
PP: Like most across the industry, we’re seeing growth mainly in our outpatient network and in our physician and provider clinics. The business from the clinics has increased 70 percent the last couple of years. Our physicians saw 430,000 visits last year, versus 250,000 just two years ago. Due to needs, we are increasing our capabilities around primary care and allowing those who previously were underserved to access primary care. We’ve also expanded significantly across our subspecialties; where people used to have to travel out of our region for certain subspecialty care, they can now receive it here.
Growing our physician network has led to a significant increase of people wanting to access care through Owensboro Health. We talked about Medicaid expansion, but enhancing and increasing the locations and services and physicians as well as the Medicaid expansion, has driven growth. It’s also driven hospital services in the hospital itself. We’ve seen an increase in surgery, in obstetrics. Our emergency room is still growing, and we are seeing inpatient service growth of 5 percent, 7 percent, the past two years.
Our laboratory services revenues are flat over that time, because we’ve learned to be more efficient and more effective in that world. And we’ve actually seen a decrease in our volume of diagnostic radiology.
MG: Owensboro Health has 4,000 employees, making you Western Kentucky’s largest private employer. What are the largest categories? What has driven changes in staffing?
PP: Our most relative category, like every other provider, is nursing services. Of those 4,000 employees, 1,782 are in nursing services and 684 are in eight other ancillary services – other providers not in nursing. We’ve got significant inpatient and guest services and tried to be more service-oriented; provide point-of-care and point-of-need individuals. There are no more “phone trees.” People are not getting recordings or having to leave messages but have a live nurse’s or a care coordinator’s voice to help them with their need or crisis. We put a lot into our call centers and people at the front desk to try to make sure that everybody’s care experience is as efficient as it can be on the service side, too.
MG: Why did Owensboro Health acquire Muhlenberg Community Hospital last year, and do you anticipate further merger and acquisition deals?
PP: The hospital has been there since 1938 and was looking for a partner with a regional health system that could strengthen its financials as well as service offerings and preserve its identity as well as its capability within their community. We fit that bill. In June last year, we signed a 20-year lease with the county, then purchased everything at Muhlenberg Community Hospital. The providers and the personnel all became Owensboro Health employees. It led to strengthening the quality and financial initiative at the community hospital level in Greenville.
To answer your question about other merger and acquisition deals, we’re concentrating more on growing our physician capabilities across the 14 counties. It’s about answering those access-to-care issues that still exist in the more rural areas of our community and in basic primary care access, so people can have intervention at the right time and not have to wait to drive 30 minutes to an hour when an intervention will be at the hospital level. I don’t see us making an acquisition at this time with any other health provider.
MG: How has the expansion of Medicaid affected Owensboro Health? And would you like to see Kentucky continue that expansion or make changes as are being considered?
PP: There’s been an increase in people seeking care across the state. We’ve seen that in trend data across all health systems. While some of our increase in primary care is due to Medicaid, part is due to us expanding access; we’ve increased the number of primary care providers and other physicians. Also, Medicaid expansion coincided with the opening of the new hospital. Expansion of the hospital and our capability is driving increases in tertiary care, and some of that is due to Medicaid.
We have seen a decline in people who have no insurance; 6 to 7 percent of our population used to be “self-paying,” and we’re seeing half that now. Since the Affordable Care Act came into effect, self-pay at the hospital is at about 2 percent. That is significant. We’re very, very happy about that.
To the point of our mission of being the community hospital, we turn nobody away. We see 100 percent of those individuals who need us. We have to continue that. Owensboro Health needs to be resilient and adapt to the national and statewide changes as directed by the regulatory agencies. I’m putting together a group of leaders from the business community right now that will help us discuss how we can better care for our community workforce as well as their families – not just the Medicaid population. It’s about partnering across all aspects of our community to create the dialogues necessary and the care and access that’s needed.
Medicaid expansion has been good for the providers financially. It has been very good, even better, for the residents of Kentucky as many now have access to all forms of healthcare that they didn’t have prior. It’s been good across the board.
We know that expansion has come with a price tag of financial support from our commonwealth, and we hope that our new Gov. Matt Bevin has a plan – or it all shakes out and that the work that he’s doing with Mark Birdwhistell and his group comes out as a balanced and well-thought-out plan that allows residents to continue to have access to healthcare. To Gov. Bevin’s point, we also need to be fiscally prudent.
MG: Our magazine reported last year many Kentucky hospitals are investing hundreds of millions of dollars in imaging systems that allow more precise and less invasive treatments. How does OH assess such investments?
PP: We’re not different from any other hospital. Our organization conducts ongoing evaluations of our imaging equipment as well as changes in technology. We look at the age of existing equipment. Are there significant changes that would bring significant capabilities and new opportunities for our patients? We look at what is changing just on the quality of the images, not on the scope itself or the technology. We look at what it’s taking us to maintain the existing equipment versus what is new out there.
Technology advances and vendors are always reviewed by staff and management, and the radiologists, along with having on-site visits to formalize recommendations. Then they work through the capital process. Last year we purchased three 3D mammography systems, which still are not widely reimbursed. But we felt that capability was something necessary to better meet the needs here in our community, so we made that investment. This year, we have approved a replacement MRI as well as a CT. All this is built on the significant investment we made at the hospital with expanded technology in that $400 million expansion two years ago.
MG: So you do a subjective assessment of how much improvement in care you can give patients, not just potential profitability?
PP: Obviously every organization needs to do a return-on-investment procedure to make sure it’s being prudent with its resources. But in the case of the 3D mammography, the clinical side of our operation said, “This is what is right for our caregivers and for our community, for our patients that require these services.” The financial performance is not really there yet, but we thought it was important.
Our service line managers and directors work with our finance department and gather as much information as possible on volume and revenue – what’s the overall assessment and expense projection – and we do multiyear financial performances and review cash flow. If it’s big enough, we bring that to the board and ask if they feel this commitment level is warranted at this time. So we do a thorough investigation, but finance does not drive that decision every time.
MG: There is a healthcare insurance industry trend of shifting more cost to patients, who are now opting for higher deductibles to get lower premiums. How is that affecting patients’ decision-making in accessing care?
PP: It’s not only the high deductible that has changed but the advent of “first dollar” coverage in many plans – not just a deductible, patients pay the first dollars of any service provided before the health insurance company is at risk. It really is about transference of risk back to the patient. First-dollar coverage insurance really does put that expense on the hospital as well as the patient, and deflects the risk of insurance significantly.
If you look at patients without first-dollar coverage, many pay the full deductible in full, but it is significant because the relationship there does get to the patient having to make those choices. We as community providers will not restrict that care, but it does place a different risk burden on the provider and the patient and reduces the risk on the insurance.
With Medicaid expansion, we saw a lot of our self-pay volume go down and bad debt expense and charity decrease overall early on, but with the new high-deductible plans we’re seeing shifts in these increases in bad debt charity onto the commercial population. As a sole community hospital, we realize we’re the only option for healthcare for many of these residents we serve. We take that responsibility seriously.
We have a generous financial assistance program at OH, which we revised up this past year to help work on that. For example, patients with annual gross income of 225 percent of the federal poverty level are eligible for a 100 percent charity write-off, which for this community is significant. A family of four with an annual income of $54,000 or less is eligible for 100 percent assistance with their bill. And we increased that this year, so there’s a sliding scale of assistance. Annual gross incomes of 375 percent of the federal poverty level are eligible for up to a 70 percent write-off, which in layman’s terms means that a family of four with an income of less than $90,900 annually is eligible for 70 percent assistance from the hospital.
We try and make people realize that keeping themselves healthy should not be a financial decision solely, and we need to work towards that. We believe our policy is more generous than other health systems throughout the region, and we do have other forms of assistance such as self-pay discounts for those who don’t have any insurance coverage but don’t qualify for the levels of charity that we just talked about. We have prompt-pay discounts, we have flexible payment plan options for people so that there’s not an expectation of paying immediately. One area we’ve increased is our financial counselors who are certified Kynecters through the KYNECT program. They can assist individuals with Medicaid and insurance applications on the exchange, if people want to seek what is the best plan for them.