As Healthcare Paradigm Shifts, NJ Hospitals Face Uncertain Future

Andrew Kitchenman | May 30, 2014 | Health Care
Experts say survival may depend on ability to refocus on outpatient services, partnerships

Former state health commissioner Heather Howard, Princeton University healthcare economist Uwe Reinhardt and former hospital executive Judith Persichelli

New Jersey hospitals are in a bind. Some of them may close in the next few years, experts say, unless they find a way to transform themselves into healthcare systems that focus on keeping patients healthy in an outpatient setting, while dealing with the reality that most revenue is still based on in-hospital services they provide.

Hospitals must have cash reserves and an operating margin of at least 3 percent or they may face a financial crisis, according to current and recent hospital executives.

“If you’re not in a system that has that financial foundation, I don’t know how you manage the next three to five years,” said Judith Persichilli, recently retired president of Catholic Health East-Trinity Health, a national hospital system.

The hospitals that survive this transition period will look very different from the hospitals of the recent past. They will have fewer beds, more links with primary-care and medical specialty providers, and more partnerships with other hospitals in which each hospital only provides specific services.

That was the verdict of a panel assembled yesterday by the New Jersey Health Care Quality Institute in Ewing.

“I think a lot of smaller community hospitals disappear,” predicted Richard Miller, president and CEO of Virtua Health. Miller added that while there may be more mergers of multistate hospital systems, he said the trend of New Jersey systems buying smaller community hospitals has largely ended.

“There may be certain markets, even in New Jersey, where there won’t be an acute-care hospital,” Miller said.

Virtua now generates half of its revenue from outpatient services, which Miller said he wouldn’t have thought possible a decade ago.

“Everyone wants to be part of primary care, whether it’s CVS,” Walgreens or Walmart, Miller added.

Princeton University healthcare economist Uwe Reinhardt said doctors have traditionally driven the bulk of healthcare spending by ordering expensive, unnecessary services and threatening to leave for a rival hospital if hospital executives don’t agree.

Miller said Virtua is taking a stand against this as part of its effort to make care more efficient.

“I don’t want high-cost physicians in my hospital anymore,” Miller said.

He said Virtua may need only half as many inpatient beds in 10 years as it has today, so it’s planning to build its outpatient capacity.

He added that every hospital CEO must consider partnerships – for example, a hospital may reach an agreement with a neighboring healthcare system to provide neuroscience-related treatment to the hospital’s patients.

Persichilli criticized state regulations for making it difficult for hospital systems to make changes. She cited the 15-month process that St. Michael’s Hospital in Newark has been going through as part of her system’s proposed sale of the hospital to for-profit Prime Healthcare of California. She said state officials have indicated it will take at least another year for that to be resolved.

“We need to collaborate and only have fierce competition for what’s right for the community,” Persichilli said.

Opponents of the sale, including a union representing nurses at other hospitals, have questioned Prime’s business tactics and have called for state monitors for Prime’s acquisitions.

Heather Howard served as the state health and senior services commissioner during the last wave of hospital closings that took place late in the last decade.

During that time, she said, the state was trying to move from “crisis management to strategic planning,” in part by asking Reinhardt to lead a commission that recommended ways to “rationalize” the state’s healthcare system.

Howard recalled receiving phone calls during that time on a Friday afternoon from hospital officials saying they would have close on Monday if it didn’t receive a bailout.

Howard’s comment prompted Persichilli to predict that “there are going to be more Friday afternoon phone calls, and we’re not set up as a state in New Jersey” to handle those calls.

Howard said the state has made progress, based on the work of the commission, which recommended assessing whether hospitals should receive state aid based on a combination of whether they provide essential services and whether they are financial vulnerable.

Howard said the state saw nine hospitals close after the commission completed its work, but the state was able to maintain needed services by analyzing each case. For example, Passaic County went from five hospitals two hospitals, both of which were Catholic-affiliated. But the state was able to maintain reproductive health services that those hospitals wouldn’t provide since Planned Parenthood moved into one of the vacant buildings.

Howard pointed out that even with an increase in the number of insured patients as a result of the 2010 Affordable Care Act, government still must provide charity care and other aid for hospitals that serve those who remain uninsured or underinsured.