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Lodi Health at a crossroads

Local hospital, connected clinics look to save money, raise revenue

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Dan Evans/News-Sentinel

Fred Hoffman, who recently underwent bypass surgery, uses an exercise machine at the Lodi Memorial Hospital cardiac and pulmonary rehabilitation center on Wednesday, Aug. 1, 2012.

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Fred Hoffman recently spent some time in the new cardiac unit at Lodi Memorial Hospital. After open-heart surgery at a Sacramento hospital last year, the Herald resident drove to the center on South Fairmont Avenue and rode a stationary bicycle or walked on a treadmill while nurses monitored his heart rate, three days a week for 12 weeks.

But it was the nutrition class created to keep patients healthy that Hoffman credits with changing his life.

Registered nurses like Connie Marxmiller taught him how to read food labels and find alternatives to ingredients like sugar and flour.

“I just thought they wanted to exercise me,” Hoffman said. “The nutritional part came as a welcome surprise.”

He also learned that his Blue Cross health insurance would contribute toward a monthly gym membership in order to keep him well. Seven months later, he is 70 pounds lighter, goes to the gym regularly and has weaned himself off all seven prescription medications.

“I guess I’m an insurance success story,” he said.

The cardiac rehab unit not only offers private patient rooms, but it is also equipped with exercise machines and mini staircases so patients can get stronger and more mobile. Patients include those who have suffered strokes, amputations and brain injuries. Some are admitted, while others, like Hoffman, drive there for care.

Hoffman reflects the changing face of Lodi Health — patients who receive specialized services from an array of programs and clinics.

As reforms push forward finances tighten and census numbers drop, Lodi Health is reinventing itself. Modern marvels are being purchased to make surgeries more efficient and the recoveries shorter. Follow-up care is being refined to limit re-admissions, a major target of federal reform. Preventative care is gaining more focus — and alliances with other organizations are possible.

Affiliation an option?

Because of the economy and health care changes, Peter Hilsenrath, an economic professor at the University of the Pacific, would not be surprised if Lodi Memorial becomes affiliated with another hospital system or becomes a target for acquisition. As a stand-alone nonprofit hospital, there are fewer advantages than being part of a system where market power increases with vendors and suppliers.

“It will not be easy, and the independent status of Lodi (Health) is likely to be a problem,” said Hilsenrath, who has studied health care policy.

“Lodi’s hospital faces real headwind as an independent player,” he said. “Of course, many newly insured patients associated with the Medicaid expansion and the health insurance exchange next year should reduce bad debt, so perhaps the hospital would like to take a ‘wait-and-see’ approach.”

Chief Executive Officer Joseph Harrington said discussions with other hospitals and health systems for buy-outs or collaboration have been a way of life for all independent hospitals over the past 20 years — or longer.

“It would be irresponsible of Lodi Health not to explore every possible window of opportunity that comes our way, just as it would be irresponsible of us not to continue to seek windows of opportunity,” he said.

However, to date, Lodi Health has yet to be presented with an affiliation opportunity that fits with the organization’s mission, or one that the board feels is best for the community, according to Harrington.

Some say being purchased by another hospital system might be the only way to survive the forthcoming changes.

“It’s impossible to predict the future,” Harrington said. “Ultimately in health care, the environment changes constantly, and what’s good for our community today may be entirely the opposite in the future. It remains to be seen.”

Changes underway

In November, nudged by federal reform, Lodi Memorial started changing the way it was providing care. For example, patients who come into the emergency room are typically placed in a special area for monitoring instead of being admitted right away, which can minimize the number of inpatient services and keep costs down.

Additionally, the hospital has created a new second-floor observation unit filled with hospital beds set up specifically for pre-admission patients. These patients may simply need to be re-hydrated or receive some other medical stabilization as opposed to full in-hospital care, which is expensive, said Carol Farron, Lodi Health’s spokeswoman.

Patients in both locations can be housed for up to 23 hours before actually being admitted.

“We can treat them more cost-effectively instead of admitting them with the chance of readmission in 30 days,” Farron said, adding that the practice will also help these patients stay healthier than if they were admitted.

Other recent changes are related to what is known as “value-added” care. In sum, the federal government wants to know it’s receiving the most value, since tax dollars are paying for most of the care, according to Farron.

In October, hospitals across the country began receiving reduced reimbursements from Medicare under the Affordable Care Act. By 2019, it is estimated hospitals will receive approximately 25 percent less reimbursement than they received in 2010 to treat a larger aging population.

Medicare is the single largest payer for Lodi Health. About 70 percent of the hospital’s patients are on Medicare or considered poor or disenfranchised. Because of this, the hospital relies on being reimbursed by the government at set prices for everything from CT scans to acetaminophen.

However, the pay scale in the new year is now based on the outcome of patient care. For example, Farron said, if a patient is readmitted to the hospital within 30 days of discharge, the hospital will not be reimbursed.

“We have to provide the right care, and the patient has to be compliant in their discharge orders,” she said.

But this penalty will work against hospitals and patients alike, according to Harvard Medical School professor Stephen Soumerai and University of Pennsylvania sociologist Ross Koppel.

Under the Affordable Care Act, hospitals that re-admit excessive numbers of Medicare patients within 30 days of discharge will face significant penalties. The maximum penalty is withholding 1 percent of a hospital’s Medicare reimbursement, increasing to 3 percent in 2015.

“That may not sound like a lot, but for hospitals already struggling financially — especially those serving the poor — losing 1 to 3 percent of their Medicare reimbursements could put them out of business,” the professors wrote recently in an opinion piece published by The Wall Street Journal.

“Giving hospitals an incentive to improve the quality of care and reduce the re-hospitalization of patients, thereby lowering Medicare costs, is a worthy goal. But the current approach flies in the face of the best medical science and jeopardizes the health of patients and the bottom line of hospitals,” they wrote. “Small and financially struggling hospitals lack the resources to effectively manage their discharged patients at home.”

Enhanced care

Meanwhile, Lodi Health is also continuing to develop its home health care program to be ready for the new national model, which requires additional options for aging patients to receive care at home.

Under this service, registered nurses, home-health aides, physical, occupational and speech therapists, and social workers visit and provide assistance with everything from wound care and medication instruction to pain management and end-of-life care. Many patients are elderly, and as the Baby Boomer generation ages, their in-home care needs are likely to increase.

Because health care reform requires everyone to obtain health insurance or be taxed, Hilsenrath thinks it could be a boon for the Lodi Health organization, since much of its funding comes from lower-income patients.

“This will be most pronounced in areas with high percentages of (currently) uninsured people,” he said. “These are often areas with high percentages of Hispanics, such as found in California and Texas. We will benefit disproportionally from this.”

Lodi Health reported more than $30 million in bad debt in its last annual report, and more than $40 million the previous year.

“Hopefully bad debt will decline even more going forward,” Hilsenrath said.

Until then, hospitals will have to find new ways to operate, probably with a greater shift to outpatient care and community-based approaches, he said.

Lodi Health has a lot going for itself, according to Joseph Woelfel, University of the Pacific Department of Pharmacy vice-chairman. Woelfel was the former chief patient safety officer at Lodi Memorial for 25 years and still serves as a member of its Community Advisory Board.

“With the new south wing addition and the new emergency department, Lodi Health is equipped and prepared for the future,” Woelfel said, adding that he is confident the hospital will remain solvent. “Their network of community clinics provides access well beyond the hospital walls.”

Additional revenue may be sought through treatments that private insurers pay a premium for, using big-ticket machines like a CT scanner acquired in 2009 for about $250,000 and the robotic da Vinci Surgical System, purchased last year for $1.6 million. With it, doctors completed 75 surgeries in gynecology, urology and general procedures in its first three months of operation.

On average, Lodi Health performs 36 CT scans per day, according to the most recent financial report. A McKinsey study of the medical market place found a typical piece of medical equipment will pay for itself in one year if it carries out between 10 and 15 procedures a day.

Then there’s the idea of acquisition by another health care system which could improve the hospital’s financial status, but it would mean loss of control, change of culture and maybe staff realignment, according to Hilsenrath.

He said he has no knowledge of any potential transactions, but would imagine the leadership has given the issue some thought. But if acquisition were to occur, he hopes terms would be public.

“The community owns the hospital, not management,” he said. “We, the community of Lodi, should get a fair price.”

‘In it for the long haul’

Meanwhile, as evidenced through its newly revamped website, Lodi Health is focusing on wellness and keeping community members healthier — another health care reform mandate. By this time next year, as health care reform continues to move forward, Farron said the fewer patients in the hospital, the better off financially the organization will be.

But, she cautions, it’s a careful balancing act: “If we’re not making our budget, that’s not good news because we have to keep the doors open for this community.”

In 1952, there were 14,000 residents in Lodi. Today, there are 65,000 — and the area served beyond Lodi’s boundaries has grown to more than a quarter-million people.

The hospital still remains on the original site, although it has undergone a number of modernization projects. Today, the old and new wings are bridged by a wooden footpath, flanked by a flowing fountain and teak patio furniture that hospital employees and visitors share. Plants like mini-lilies add to the peaceful ambiance, created by the new outside teal and terra-cotta walls that seamlessly tie together the old and the new.

Inside, a quiet elevator whisks a guest up to the new wing’s four floors, each named after local families that helped build it. It is clear this is still not only a community hospital, but a beloved local charity that solicits contributions at fundraisers held throughout the year.

Hospital board director Elizabeth Aguire, too, disputes rumors that the hospital could close its doors or be sold off.

“We’re in it for the long haul,” she said, adding that she believes the hospital’s finances are looking up. “We’re going to go with that plan and not deviate from serving the community.”

In the end, will Lodi Health survive the national health care shift as an independent nonprofit facility?

It’s impossible to predict the future, Harrington said.

However, pointing to the steps the organization has taken and achieved in order to hit the ground running once health care reform goes into place in January 2014, he is confident.

“From where we sit now, the outlook is quite positive,” he said.

Contact reporter Jennifer Bonnett at jenniferb@lodinews.com.

7 images

Dan Evans/News-Sentinel

Fred Hoffman, who recently underwent bypass surgery, uses an exercise machine at the Lodi Memorial Hospital cardiac and pulmonary rehabilitation center on Wednesday, Aug. 1, 2012.

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