DePaul Dilemma: Balancing Care, Charity and Profit
Posted on: Sunday, 13 July 2008, 09:00 CDT
Editor's Note: A public hearing is set for 10 a.m. Friday at The Lifestyle Center at Chesapeake Regional Medical Center on the Bon Secours application to the state health commissioner to shrink DePaul Medical Center and open new hospitals in southern Virginia Beach and northern Suffolk.
By JACK McNAMARA
The July 6 business report on the future of Bon Secours DePaul Medical Center, "How big does this hospital need to be?" raises two important questions:
From whose perspective should it be sized?
What are the financial considerations in determining the number of beds?
It is understandable why the city of Norfolk and the DePaul Emergency 134 Committee do not want a significant reduction of beds. They want ready access to care that is efficient and of high quality. And they deserve it.
From the perspective of Bon Secours Health System, it is also understandable that its ability to provide care to those in need requires a business model that generates sufficient profit (operating margin) to fund repairs, maintenance and investment in new technology.
Bon Secours certainly can work harder to lower costs, but when the number of nurses and technical staff get to a bare-bones level, affecting quality, how much lower can you go?
Hospital financing is incomprehensible to most business people. But here's an instructive but hypothetical comparison - selling hamburgers at a fast-food restaurant.
Our model indicates that it costs $6 to produce a Big Meal, and we plan to sell it for $7, yielding a $1-per-meal operating margin. But along comes a chap with a Medicare Red Card, entitling him to purchase that meal for $5. And the next person in line has a Medicaid Blue Card, entitling him to that same meal for $4. And after a few months we find that 52 percent of our customers are in the less-than-cost category.
Additionally, 8 percent of our customers have no money at all, so we just give them the meal. Add into that customer base the 7 percent of our customers with Optima cards who pay at the Medicaid rate, and CHAMPUS, which reimburses us at slightly more than Medicare pays.
So in the case of DePaul Hospital, with 70 percent of customers paying less than actual cost, they can make the business model work only by getting insurance companies like Blue Cross to pay double what true costs are.
Blue Cross says "no way" and reimburses at slightly better than cost, which has resulted in mounting losses and a projected deficit of $8 million in 2008.
DePaul serves as a Hampton Roads example of a national problem. Alvarez & Marsal, a global business consulting firm, conducted an April 2008 analysis of more than 4,500 hospitals. It found that "more than half are technically insolvent or at the risk of insolvency."
Interestingly, as if discussing the Hampton Roads market, they suggest that "similar to competitive markets in other industries, second and third-tier competitors (small and midsized urban hospitals) are rapidly losing ground to the dominant medical centers and integrated delivery systems in their service areas.
"A 'flight to (perceived) quality' is occurring by both physicians and patients creating a bigger gap between the financially strong and financially weak hospitals in a given market.
"Lower-tier hospitals cannot offer the competitive equipment and amenities available from the larger, better-capitalized rivals. Physicians cannot justify admitting to second- and third- tier hospitals when the market-leading hospital has beds available."
Given the understandable concern of Norfolk citizens, and the need for greater appreciation for the financial plight of institutions like DePaul, it seems that the standoff over the number of beds should be replaced by a collaborative approach.
A better question than "how many beds?" is "how do we come together to develop a sustainable model of quality care that will best meet the needs of our community?"
Jack McNamara of Virginia Beach is a health care consultant to hospitals and physician groups. He spent much of his career as a senior administrator at Sentara Norfolk General and helped launch Optima managed care. He has also served as interim administrator for Bon Secours at both DePaul and Maryview.
(c) 2008 Virginian - Pilot. Provided by ProQuest Information and Learning. All rights Reserved.
Source: Virginian - Pilot
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