Special Report: OHSU Hospital’s reinvestment strategy

Business is booming at Oregon’s hospitals as the Affordable Care Act continues to transform the industry.

But industry leaders say the increased margins hospitals are enjoying today are temporary, and they’ll have to plan for a future without them.

Leading the pack is OHSU Hospital. Net patient revenue at Oregon Health & Science University grew 10 percent in the most recent fiscal year to more than $1.8 billion, all but $400,000 of which is generated by OHSU Hospital. Yet the Portland hospital isn’t sitting idle on its good fortune — it’s well ahead in planning how to reinvest that money to meet changing demands, said Lawrence Furnstahl, OHSU’s chief financial officer.

“We have a public mission, and what we do with our hospital revenues is to reinvest,” Furnstahl said. “So investing wisely now — long-term investments that have payoffs 5, 10, 25 years from now — if we do that we’ll continue to add value. . . . And if we don’t make investments now, including some that are innovative and disruptive, we’ll never change.”

Why investment is necessary

The ACA beefed up Medicaid enrollment and gave Oregonians much broader access to health care, which helped increase hospital revenues in the last two years. But those changes also came with a compromise — Medicare reimbursement rates from the federal government will continue to drop.

That means hospitals will need to plan for the future with the savings they’re currently seeing, said Andy Van Pelt, executive vice president of the Oregon Association of Hospitals and Health Care Systems.

“We’re still in this world of flux in Oregon and around the country,” Van Pelt said. “We’re still in wait and see mode. The higher margins? Those are temporary, and they’re not sustainable going forward. (Cuts to Medicare reimbursement rates are) really the story that doesn’t get told.”

Oregon hospitals agreed to $150 million in cuts to Medicare reimbursement rates over 10 years, starting in January 2014 when the ACA went into effect, he noted.

Decreases in charity care at emergency rooms and increases in the number of insured patients have helped bottom lines in the short term, but hospitals are also trying to prepare for a host of changes — some anticipated like the drops in Medicare reimbursement rates, and some not — such as how the new system will transform patient demographics and needs.

Science, an insurer and a new hospital

Among OHSU Hospital’s new investments is a $77 million transfer from hospital earnings to support science and education at the university, up from $62 million last year. That will help train more doctors, medical professionals and researchers to fill growing needs, Furnstahl said.

Another is the design and build of a new $300 million ambulatory hospital, he said.

“When I started in this industry 30 years ago we had about 85 percent inpatient care, and now we have about 55 percent,” Furnstahl said. “And it continues to move from inpatient to outpatient at a rate of about a percentage point a year. So what we’re doing is not building more beds, but more ambulatory capacity.”

The hospital’s announcement earlier this week of a $50 million strategic partnership with Moda Health Plan Inc. is also a big part of that, he said.

“That’s about integrating vertically,” Furnstahl said. “If you think about caring for populations of people, we have about 500,000 new people now who didn’t have access to health care before.”

The partnership with Moda will help OHSU better understand the new patient demographics, because HIPAA allows for certain types of data analysis of patient health plans, such as increased rates of diseases like diabetes, Furnstahl said.

“You don’t just have to worry about the one patient in front of you anymore,” he said. “You also have to worry about the 99 who aren’t in front of you.”

Using data to create preventative programs and outreach will help the hospital save money in the future, he added.

Other hospitals in the state are looking at making similar investments and strategies to meet the changing demands, but it some cases it’s too early to understand the data yet, Van Pelt said.

“Really it’s about managing expectations,” he said. “Turning the hospital industry around to adapt to a new market is really in the infancy stage. It’s day by day, and it’s a collaboration. They’re trying to think outside of the box.”

Furnstahl said each hospital will likely have to figure out its own unique set of changes while the extra revenues are coming in. There’s no one size fits all solution.

“Here’s my general advice — if you copy somebody else’s strategy, you’re probably going to make a mistake,” Furnstahl said. “Good strategies are based on your own situation. So hospitals will need to look at their own goals and objectives and craft their own strategy to find what works.”

Hospitals brace for shrinking Medicare reimbursements
Business may be booming at Oregon hospitals, but cuts to Medicare reimbursement rates are likely to offset any gains in the long term.
And that’s something hospitals will have to adjust to as they look at their temporarily increased numbers, said Philip Schmidt, a spokesman for the Oregon Association of Hospitals and Health Systems.
“The bargain was that you’ll have more people come in with insurance, so you’ll get more money,” Schmidt said. “So to (counter) some of that, we’re going to lower the Medicare reimbursement rate. That’s a simplification, but it’s generally true.”
Schmidt said he expects two changes — reduced reimbursements for Medicare coupled with more insured visitors to the ER — to even out for hospitals financially sometime around the year 2022.
“Folks have thrown around how well hospitals are doing as if it’s an unknown phenomenon — but it was well known to the authors of the ACA,” Schmidt said. “And hospital leaders agreed to that.”
Since the launch of the ACA, hospital operating margins increased 15 percent from the first quarter of 2014 to the first quarter of 2015, according to the recently released Oregon Health Authority report “Oregon Acute Care Hospitals: Financial and Utilization Trends.”
In the same period, total margins across the state rose 5.3 percent from the first quarter of 2014 to the first quarter of 2015, according to the report.
In addition, charity care and uncompensated care expenses fell by more than $100 million, and emergency room visits increased by 9 percent, growing by 353,000 from 2014 to 2015, the report said.
— Sue Vorenberg

Nov 20, 2015
Sue Vorenberg
Contributing Reporter

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