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Rice posts record $3M loss for 2013: Shortfall reflects changing health care landscape

WILLMAR — Greater emphasis on quality care and less on volume is helping keep more patients out of the hospital, but the changing landscape of reimbursement also is bringing considerable financial pain to hospitals.

Rice Memorial Hospital posted a $3 million loss last year on revenue of $96 million. It’s the largest single-year loss on record for the city-owned hospital. Yet Rice’s position is far from unique, financial consultants told the hospital board of directors on Thursday.

Whether publicly owned or a privately held nonprofit, hospitals right now are all “under the same pressures,” said Dan Vandenberghe of McGladrey LLP.

“Many of them are achieving a slightly positive margin but many are achieving a slightly negative margin,” he said. “The real fear is what are the headwinds coming at us besides what we’ve already faced.”

The discussion came during a presentation of the 2013 audit to the finance committee of the hospital board. The audit will be accepted by the full board when it meets Wednesday.

The figures confirmed what hospital leaders and the board have been seeing for several months: declining patient volume, fewer surgeries, fewer outpatient procedures, even less use of the emergency room.

 “There’s no question there’s pressure on providers,” said Mike Schramm, chief executive of Rice Hospital. “Clinics are seeing it too but it’s really affecting hospitals.”

Health care is gradually moving away from paying hospitals and doctors according to how many patients they see and how many procedures they perform, and using value instead as the basis for payment. The goal is to financially reward providers for care that meets clinical guidelines, achieves good outcomes and promotes a positive patient experience.

Only this shift hasn’t fully happened yet, and health care meanwhile is working its way through an uneasy — and mostly uncharted — in-between stage.

“We’re in a transitional phase,” Schramm said. “We’re still living in a fee-for-service environment but we’re transitioning from volume to value.”

Although it’s financially challenging for hospitals, the move toward value-based reimbursement ultimately is better for patients, Schramm said.

Efforts to reduce disruptive and costly hospital readmissions, for instance, are resulting in fewer patients who go home and then end up back in the hospital three days later or three weeks later.

Emergency-room visits are another case in point. Use of Rice Hospital’s ER has dropped dramatically in the past year, especially since last fall. Dr. Ken Flowe, chief medical officer and an emergency-room physician said it’s at least partly due to aggressive efforts by local medical clinics to manage their patients’ care and reduce the need for emergency care.

Of those who do come to the ER, about 20 percent — at least twice the national average — are sick enough to be admitted to the hospital, Flowe said. “It’s really used as an emergency room.”

Efforts like these “have been good for patients,” Schramm said. “But that’s less volume and less revenue in the environment we’re living in. We’re experiencing the pain in less volume. That’s what’s putting pressure on our income statement.”

Auditors with McGladrey said that despite a $3 million loss last year, Rice remains sound.

“This organization does not need to panic,” Vandenberghe said. “You’ve got a strong balance sheet.”

It will be important for Rice’s future, however, to regain its financial footing and become profitable again, he said. “In order to be strong for the long term, you need to generate a margin.”

Rice officials said they’re continuing to look for ways to lower the hospital’s operating costs and increase efficiencies. A freeze was implemented this year on routine capital spending, and everything from the supply chain to vendor contracts is under scrutiny.

“It’s an ongoing process,” Schramm said. “There’s nobody that isn’t working on costs.”

Anne Polta

Anne Polta covers health care, business/economic development and general assignment. Her HealthBeat blog can be found at Follow her on Twitter at @AnnePolta.

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