Northwest Health Takes ‘Stock’ in Hospital’s Future

More than half of Northwest Health System’s $180 million budget depends on Medicare reimbursement payments. Northwest CEO Greg Stock is acutely aware of the possible ramifications of further reductions.

Nationally, more than $6.3 billion already has been sliced from the nation’s hospitals since the Balanced Budget Act of 1997 became effective Jan. 1, 1998. Stock and his colleagues believe the results have scarcely begun to be realized.

Stock came to Northwest Arkansas in 1997 when the hospital system’s board decided to use the management services of Quorum Health Group Inc. He has weathered the transition from community-owned, not-for-profit hospital to becoming part of a for-profit, publicly traded Quorum.

He’s clearly concerned, however, about the effect of reduced Medicare payments, and he has plenty of company from his colleagues across the nation.

The American Hospital Association estimates that the Balanced Budget Act will cut $71 billion in Medicare payments

to hospitals.

Stock nonetheless seems confident that Northwest’s two hospitals – Northwest Medical Center at Springdale and Bates Medical Center at Bentonville – will increase and retain their market share.

This won’t be done in the way the health care industry operated for decades, however, because that way doesn’t exist any more. These days, there’s competition, even in the hills of northwest Arkansas. That means competitive pricing while adapting services to meet market demands and sometimes reducing or eliminating services.

Planning for the Future

Certainly the time frame for planning ahead has narrowed sharply.

“Twenty-four months in our business … is considered appropriate [for planning],” Stock says. “Five years is way, way out there.”

That’s not the kind of health care industry the nation grew up with.

“For years, things were pretty much the same. If you were just there, providing good care, you were probably OK,” Stock says. “Today, you really have to be flexible. Even if you are providing the same type of care, you have to understand how to do it in a different way than you’ve done it in the past.”

Many hospitals have responded to increased competition by adding specialized services. That’s been true of the Northwest System, which in the past couple of years has added such specialized services as in-patient rehabilitation, a women’s breast center outside the hospital and, at Bates, reintroduced obstetrical/gynecological services.

Stock declines, for competitive reasons, to say just how much Quorum has spent or has budgeted for future capital expenditures. He acknowledges that the company will have invested $7 million in the Northwest system between December 1998 and June 30 this year.

Flexibility remains important to survival. The market that exists now for some types of specialized care may dwindle a few years down the road. Economic necessity may require that some services be curtailed or reduced.

That’s a fact the general public may not always understand, Stock realizes.

“A year ago, we didn’t have the 40 or 50 employees [that staff the in-patient rehabilitation center],” he says. But “another program may be one where we have to reduce staff.”

In fact just days ago, Northwest closed its wellness center, eliminating 12 positions, although a spokeswoman says at least two of those people were offered other jobs within the system.

And Northwest has seriously curtailed its home-health program, which Stock says was once among the largest in the state. At its peak, the service did about 125,000 visits annually, he says. Now, that number is nearer 40,000 to 50,000, a direct result, Stock says, of reductions in the federal reimbursement program.

The health care industry is constantly moving. “That’s something health care managers now have to deal with, and that’s constant change,” Stock says. “You can’t just go on, same-old, same-old. You have to be willing to make changes.

“If you don’t, you jeopardize the financial viability of the entire facility.”

Brand Loyalty

One way Northwest hopes to build market share is by getting patients’ business early – or at least, that of their mothers. Bates Medical Center reported its first delivery in 14 years just a few weeks ago, shortly after the opening of a new $2 million women’s center there.

The Springdale hospital is continuing to build its share of the delivery market, officials say. Last year, 1,299 babies were born at Northwest Medical Center, up from 1,084 the previous year.

Obstetrics then is obviously a profit center?

“Sure,” Stock says. But, he adds, the reasoning behind the decision to add obstetrics is more complicated than that.

“You have to look at it [as an] entire package. Very frankly, part of that package is [gynecological] surgery. We do a fair amount of that, when it’s appropriate, and that helps us.”

More difficult to quantify is the effect of the connection, the brand loyalty of a particular health system.

“Where children are born, they tend to have some [connection],” Stock says. “Therefore, providing [obstetrics] is very important.”

Also, women tend to make the family health-care decisions as to location or facility, thus, the decision to add more women-friendly units, such as Northwest’s breast center.

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Duplicated Services

Of course, the region’s other hospitals haven’t been idle. Fayetteville’s Washington Regional Medical Center now has a cardiac unit, an area of care that Northwest Medical Center – then known as Springdale Memorial Hospital – had offered exclusively for several years. More recently, Regional has announced plans to add a $10 million women’s facility.

And Mercy Health System, which owns St. Mary’s Hospital in Rogers, opened a $17 million clinic in Bentonville last year.

It seems that many of the same services are available at all the region’s major hospitals.

Russ Sword, Stock’s predecessor at Northwest, had argued that duplication of services was costly and inefficient. He suggested that the region’s hospitals cooperate, each specializing in its own areas of care. None of the area’s other hospital chiefs was swayed.

So, does Stock think the region can afford duplicated services?

He suggests there are positive and negative effects.

On the positive side, patients may choose which facility they want to use. Also, Stock suspects that big business likes the health industry competition, which has given them competitive bids for their business.

At the same time, he’s not sure the money needed for duplicating services is always money that’s well spent.

Still, health care has never been subject to the same rules as other businesses.

“Health care doesn’t tend to behave like all the normal economic curves of other businesses,” Stock explains. “Price doesn’t [always] apply,” and that’s made it difficult for government to “get a handle on costs.”

Increased competition delivered at least one economic blow to Northwest when Arkansas Blue Cross and Blue Shield closed its network to the system. Washington Regional and Mercy, which had already formed an alliance for competitive reasons in the market, were included in the network. As the insurance provider of choice for many of the state’s employees, including public school teachers, Blue Cross and Blue Shield had provided a significant number of patients to Northwest.

At the time, hospital officials said the business was worth at least $6 million annually to the hospital.

Northwest’s own network of providers, PremierCare, is owned jointly by the hospital and QualitiCare, which represents Northwest physicians. Stock says the network is growing and now covers some 50,000 people.

“We think we can continue to grow in certain areas, and we’re working at it,” he says. Bentonville is one potential area for substantial growth.

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Nonprofit Conflict

Northwest’s sale meant that the hospitals, which were built by community and private donations through the decades, became the first for-profit facilities in the region. It’s a designation that’s not always looked upon favorably.

But Stock has worked both sides of that deal.

“As a CEO that’s run more ‘nonprofits’ than ‘for-profits,’ I think I can say I’ve seen both sides,” he notes. Some of those “nonprofit” hospitals were “every bit as aggressive” and competitive as so-called “for-profit” facilities, Stock adds.

“In today’s world, I don’t see a great deal of difference.”

He notes that Northwest provides more than $70 million in free care annually – and at least another $10 million for which the fees cannot be collected. Its annual payroll is $40 million, money that can be expected to roll through the community several times.

“Sometimes I think it’s a little hypocritical on their part [to bring up the issue of nonprofit status],” Stock says. “It’s talk and smoke. I find some hypocrisy in that. When I did work at a nonprofit, we never used [that designation] in that sense. But there’s some that do, and there are some in this market place that do.”

Stock says he considers it a privilege to be associated with the physicians and other staff members of the Northwest system. Quorum, too, he says, is a “great” company and one of the best in its field.

“In spite of the challenges and difficulties, there’s the opportunity to grow and learn and do better,” he says.

Patients will continue to see investments in new technology for the hospital, Stock says.

“We’re investing in that for the future,” he says.