Where Critical Access Hospitals Fit in Healthcare Reform: Q&A With West Park Hospital CFO Pat McConnell

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For the state of Wyoming, healthcare may seem rather simple.

It is the least-populous state in the country, with only 576,000 people living within its borders, and there are less than six people for every square mile — second to only Alaska.

With such a small population, delivering and coordinating healthcare services does not seem like such a difficult task, but that couldn't be farther from the truth. Just ask Pat McConnell, CFO of West Park Hospital in Cody, Wyo. — a city with less than 10,000 people but one of Wyoming's top 15 most-populous areas.

Here, he explains why rural healthcare is such a big part of his life, why critical access hospitals are just as vital as large tertiary centers and what other rural hospital CFOs need to concentrate on.

Question: How did you get to where you are today? Have you always worked in rural communities?

PatMcConnellPat McConnell:
I'm from a small farming community in northern California called Gridley, where there are about 5,000 people. When I graduated from UC Davis, the California economy was not doing well. I had an uncle living in Anchorage, so I went up to Alaska and got a job with the state Department of Health and Social Services auditing hospitals for the Medicaid program. I also got my CPA while I was up there.

I went to work for Bartlett Regional Hospital in Juneau from 1987 to 1991. I was the chief accountant, or controller, working just under the CFO. Then I became CFO of North Valley Hospital in Whitefish, Mont., stayed there as CFO for eight years, and then moved down to Cody where I have been now for 14 years.

I did not want to live in a large town. One thing that is nice about healthcare is you have a lot of options on where to work. Most towns have hospitals, so you can pick and choose what kind of environment you want to live in.

Q: Can you explain what West Park Hospital is like in terms of finances, payor mix and overall scope?

PM:
We officially are a 25-bed critical access hospital, but we have over $100 million in gross revenue that we generate. That's on the large side for critical access hospitals. The phrase that keeps getting thrown around by consultants and auditors is, "Boy, you guys are a critical access hospital on steroids." We also have a 95-bed long-term care unit, 18-bed chemical dependency unit, six-bed outpatient dialysis, eight-bed hospice house and a home health program.

Wyoming is one state that does not have an income tax, so we are seeing a migration of retirees into the state. Our payor mix does tend to tip more toward an increasing Medicare volume, but our commercial insurance volume has not declined on us. We are in an energy belt, and that is one area of the economy that has continued to fare well in this downturn. Overall, more than half of our patient days are Medicare and Medicaid.

Q: During the fiscal cliff negotiations, several programs that are vital to critical access hospitals like yours were renewed — including the Medicare Dependent Hospital and Low-Volume Hospital programs. What does it mean to have these types of Medicare programs renewed?

PM:
Being in a small community where we tend to see a growing Medicare population, we are not large enough with the things we do that we could make up any Medicare losses on volume with [commercial] insurance. Currently, the amount we would lose on Medicare we could not make up with commercial insurance patients, if we were a prospective payment hospital. Every time we look at it, being an inpatient prospective payment system hospital versus a critical access hospital, we gain $4 million in value to be a critical access hospital.

The way I have described this to our hospital board is if we were not a critical access hospital, then there are certain procedures we would not do here, such as some of the orthopedic procedures that are high-cost. That would force patients out of our community. They would have to make the 100-mile drive to Billings, Mont., or the 215-mile drive to Casper, Wyo. The benefit to the community to have critical access hospital status has been tremendous. It would ruin communities like ours [if those programs were not renewed].

Q: It seems as though for many hospitals, especially smaller, independent ones, the number of challenges outweigh the opportunities. How do you see challenges and opportunities from healthcare reform affecting West Park Hospital?

PM:
One of the biggest financial issues we're having is increased pressure on reimbursement issues. There's not a lot of love for the [Patient Protection and] Affordable Care Act in this area. It has increased the costs of insurance companies to provide their product, and insurance companies have tried to garner further discounts from hospitals — and we see that pressure. We also see it with the state Medicaid. State Medicaid agencies will increase their enrollee base under the ACA. Our state Medicaid plan has reacted by freezing reimbursement rates. For the past three years, we have not had inflationary increases. I don't see where this is going to make things better for hospitals.

The other challenge for rural facilities is staffing. We don't have large labor pools to draw from, so that does, at times, increase costs. We have been successful in staffing, but it does come at a cost. For instance, if you were to pull financial statements of investor-run companies, like Tenet Healthcare and HCA, you'd probably find that their salaries and benefits to net revenue are somewhere in the low 40s [percentages]. Rural, non-profit hospitals — that ratio runs well over 50 percent. That's just a function of where we are located. We are not by labor pools where it's easy to manage that figure.

I remember having a discussion with one of my CEOs who came from a larger facility, and he was questioning our staffing ratios. Finally, I said to him, look at the place you came from. The low census was 180 [beds filled] and high census was 220. OK, what was our census yesterday? Twenty-two. Last week? Eight. He stopped and said, "OK, McConnell, I see where you're heading with this." Our [filled] bed counts fluctuate too much.

The opportunities we have are to become centers of excellence. We have five orthopedic surgeons in our area and at our hospital. That's one of the reasons our revenue is at what it is. We've become a center for orthopedic surgery. We tend to get referrals from the Bighorn Basin, which is the northwest section of Wyoming, because of that. There are still opportunities for hospitals to pick up certain specialties and do them very well.

Rural hospitals can't compete with the big hospitals, but we can compete with them on how we care for patients. Sometimes, that is missing at a larger facility. We can carve out our niche there. We can offer a lot better bedside care, and our physicians can spend more time with patients — and patients leave feeling they were really tended to quite well.

Q: There's never an easy answer to this, otherwise it wouldn't be asked anymore: What are some of the main problems with our healthcare system in your eyes, and what would you do to fix them?

PM:
My degree in college was in economics, so I look at this from an economic standpoint. The biggest issue that is driving the industry is hospital inflation, or healthcare inflation, compared with the consumer price index. If you pull up the CPI from the U.S. Bureau of Labor, you'll see hospital and healthcare inflation is almost always double what consumer price inflation is. The issue is for most of the hospitals in the country, they are running negative Medicare and Medicaid margins. So they shift that cost to other payors, and our input costs are not going down. When half of your patients do not pay you more — Medicare and Medicaid — you have to double your charge increases to the remaining patients just to cover your increased costs, like wage increases.

There was a May 1993 article in the Wall Street Journal. They quoted an economist named James Ukockis and accurately quoted him as saying you can't sufficiently suspend the laws of economics to control both price and quantity at the same time. And when I look at healthcare reform, the goals are high-quality healthcare at a low cost and access for all. Everybody wants that, but the problem is that violates the laws of economics. You can't control price and quantity at the same time. The ACA is a good first step to increase access, but you can't control price and quantity at the same time

Q: What advice can you offer to other critical access hospital CFOs?

PM:
With increasingly more complexity and the evolution of regulations and pressures we have, I don't see how a hospital can survive as a standalone facility. I would strongly encourage other rural hospitals that are having some difficulty to reach out to larger management companies to see if they can support them. I'm employed through Quorum Health Resources, and it would scare me to death to be a CFO in a standalone hospital without the resources that I have. You can still maintain your independence and be autonomous, but we still have the benefits of a large organization to help support us.

Also, do everything you can to provide the best patient care. At the end of the day, that will determine your survivability. It's how your patients react to the care you provide.

More Articles on Hospital CFO Issues:

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The Value Behind Small Hospitals: Q&A With Marc Nakagawa, CFO of Transylvania Regional Hospital

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