Healthcare Task Force moves toward alignment model

The Kenai Peninsula Borough’s Healthcare Task Force is asking the boards of the peninsula’s three hospitals to look at ways they can share services to cut costs.

It is the first concrete step forward for the task force, which has been meeting monthly since August. After many hours of presentations, discussion, subcommittees and the presentations of two professional health care consultants, the task force has drafted a charter and will move forward with an objective in mind: pursuing a regional alignment of the hospitals in Soldotna, Homer and Seward.

Two consultants from Stroudwater Associates, a Portland, Maine-based firm, who the task force opted to hire in November, suggested the alignment strategy. After an initial visit and evaluating the financials and outlooks of Central Peninsula Hospital, South Peninsula Hospital and Providence Seward Medical Center, the consultants returned with their recommendations.

Eric Shell, one of the consultants, said the peninsula does have a need for three hospitals and they all have strong support within their communities. Those communities also want to maintain local governance and control of the hospitals, he said.

“You guys operate in a geographic area the size of West Virginia, with 57,000 people and three hospitals,” Shell said. “We need three hospitals … there is no denying that.”

From the financial picture the consultants presented, the borough’s two hospitals are covering their expenses with revenue, and Seward’s hospital relies on its partnership with Providence Health & Services in Anchorage.

Although all three have decent cash reserves on hand, if the hospitals continue on without changing anything, they’ll all begin to lose their operating margins, Shell said.

The study highlighted three options for the borough: to do nothing, to choose an operating partner or to pursue the regional alignment strategy.

Under a system partnership, the borough would seek an operator to either partner with Central Peninsula Hospital and South Peninsula Hospital or to purchase the hospitals outright.

Shell urged the task force not to sell the hospitals for fear of losing control of pricing.

“We think that this shared service organization as part of that regional alignment strategy has the opportunity to reduce costs,” Shell said. “If we were to spin off our hospitals to somebody else, Anchorage or a for-profit or somebody else, they would quickly come in and recognize the geographic monopolies and what that could do for price.”

Instead, the consultants urged the task force to consider a strategy where the hospitals align their interests, services and resources in an effort to reduce costs.

Other small rural hospitals have done similar things and have seen successes, Shell said.

The strategy would be in line with the national effort to transition the health care payment system from fee-for-service — where each individual item on a doctor’s bill is paid for — to a population-based payment system, where hospitals are paid a certain amount to care for a set group of patients and keep them healthy.

Shell called the two models a “sick care” system and a “health care” system, respectively.

However, he said the health delivery system and the payment system have to move together for it to work.

“This thing really gets up and running when we create real economic incentives for people to want to work together and start moving payments through there,” Shell said.

The task force members generally agreed with the sentiment that the hospitals needed to transition and no one objected to the idea of pursuing the regional alignment strategy. What is less clear, however, is how to implement it in the first place.

Task force chairman Rick Ross suggested that the first step could be to ask the three hospitals’ boards of directors to consider ways to cut costs by sharing services as part of a shared services organization.

“(It is) something the task force can engage in with our hospital boards as a means to starting some kind of a regional alignment strategy,” Ross said. “I grant you, it’s a small step … but it’s a way to start the process of doing this, and we have the talent on the board to do it.”

Shell and his associate, Matt Mendez, are finished with their project for the Kenai Peninsula Borough but said they would be available for follow-up if necessary.

Mendez said at the meeting that the actual decisions would be in the hands of the task force and assembly.

“It’s really our focus and our recommendation … to align and come together in a way that allows you all to collaborate and find the opportunities to coordinate care,” Mendez said. “The beauty of this model is it is low-risk in a lot of respects, and it can still allow all these communities to maintain autonomy and maintain local governance.”

The task force will provide coordination, but ultimately, the burden to coordinate will fall on the hospitals and the providers themselves.

Steve Horn, a task force member and a member of Central Peninsula Hospital’s Board of Directors, affirmed that the initiative will at least partially rest with the provider community.

“When we talk about low-hanging fruit and shared services, we’re talking about some efficiencies between the three hospitals, but when we talk about this final end product of a population payment system, the hospitals aren’t going to be the drivers of that,” Horn said. “To look at some efficiencies between the three hospitals doesn’t mean the end product is going to be hospital-driven.”

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