Revenue pressures drive hospital merger
Even while revenue was dropping, the network pursued a strategy of promoting population health to avoid ER visits and inpatient stays
Franklin Memorial Hospital
The Franklin Memorial Hospital in Farmington, Maine, opened a new chapter in its almost 100-year history last month, when it became part of MaineHealth, the state’s largest health system.
Joining a larger health system is an important milestone for the 70-bed community hospital and its parent company, the Franklin Community Health Network. Over the past four years, revenue dropped by $15 million, mostly from Medicare and Medicaid, which represent 63 percent of the network’s income. The revenue declines forced the hospital to seek a strategic partner, said FCHN’s chief financial officer Wayne Bennett.
As the 13th member of MaineHealth, FCHN will pay $375,000 in annual dues to MaineHealth and expects to offset that fee by shifting work to the health system. Franklin Memorial aims to save $200,000 in laboratory costs and $75,000 in legal expenses, and MaineHealth will also pay FCHN’s property insurance premiums, generating another $100,000 in savings.
As revenue declined, Bennett cut an equal amount from the hospital’s operating budget. Still, FCHN reported a loss of $6.7 million last year, including a $6.1 million loss at the hospital alone. In 2013, the hospital had revenue of $78 million, down from $89.9 million in 2012, when it enjoyed a small net profit.
“In the past four years, the revenue decline has been happening a little faster than our cost reduction can [keep up with],” Bennett said. “But now we feel that we have right-sized the organization to about where it needs to be in the new environment.”
Cost savings came from eliminating nonclinical support functions, consolidating services and improving efficiencies. “About half of the savings were in labor costs and the other half were in non-labor costs,” Bennett added. “We restructured our retirement and benefit programs, for example, and renegotiated supplier contracts.”
One significant source of savings came from staff attrition rather than layoffs, said FCHN CEO Rebecca Arsenault. “We went from 700 full-time employees down to about 600 FTEs in the past three years, and most of those were in support and managerial positions,” she explained. “In any clinical area where the volume declined, we did not cut care-giving staff.”
The challenges of population health
Even while revenue was dropping, the network’s board of directors recommended pursuing a strategy of promoting population health to avoid emergency room visits and inpatient stays, cutting revenue further. Payment for keeping patients healthy is almost nonexistent, especially in rural areas, Arsenault said.
With 36,000 residents, or about 13 per square mile, Franklin County is one of the nation’s most sparsely populated counties.
“We asked our ER physicians to identify those patients they see most often because they have no other access point for care,” she said. “Mostly, they don’t need ER care. Instead, they need primary care or maybe care management for chronic diseases. We can get these people into our primary care practices where our employed physicians can give them the care they need in a timely way.”
[See also: The financial keys to population health.]
By shifting ER patients to primary care, volume in the emergency department dropped, along with revenue. While costly for the hospital, it’s best for patients, Arsenault said.
The network adopted a similar strategy with hospitalists and inpatient management nurses, asking them to avoid readmissions within 30 days of discharge. “Was there a lack of community resources for those patients that caused them to come back into the hospital?” she asked. “Did the patients not understand how to take their prescriptions at home? Did they even get their prescriptions filled? Or, did they have some psychosocial needs that were unmet in the community?”
The network’s seven providers in its behavioral health unit can address the mental health needs of these patients, she said.
One of FCHN’s most innovative strategies involves using the paramedics from its North Star Ambulance Service, which covers all 2,800 square miles of the network’s service area.
“We have a demonstration project with the state Department of Health to pay our paramedics to make home visits to high users of the health system,” Arsenault said. “These are patients they have transported numerous times. They can check on them to make sure they take their medications and have what they need. If not, the paramedics can call the patient’s physician.”
Now that FCHN has gained this experience implementing population health, perhaps the network can share with MaineHealth what it has learned about how to care for high-cost rural patients.
