Affiliation boosts financial prospects for critical access hospital

How do hospitals survive if they keep patients healthy and at home? For New Hampshire’s New London Hospital, the answer is to partner with the largest hospital in the state to keep costs low and possibly boost patient volume.
The nonprofit, 25-bed critical access hospital in Central New Hampshire expects to report a loss this year, but CEO Bruce P. King is confident that affiliating with the 396-bed Dartmouth-Hitchcock Medical Center is central to its survival. The affiliation is the first of at least four that Dartmouth-Hitchcock is pursuing with smaller rural hospitals, three in New Hampshire and one in Vermont.
In January of 2013, New London Hospital joined Dartmouth-Hitchcock’s Pioneer Accountable Care Organization—called allwell. Then in October it became the first hospital to affiliate with Dartmouth-Hitchcock. To date, the affiliation and its membership in the ACO have yet to pay dividends.

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Through the first quarter of this year, patient volume declined by 6 percent and revenue was down by $1.9 million, or 7 percent, King reports. At the same time, expenses rose by $500,000. When the fiscal year ends June 30, New London Hospital will report a loss, as it has in three of the past four years.
In 2012, the hospital reported $3.2 million in profit on $60.9 million in revenue but in the previous year (fiscal 2011), it ran a loss of $260,058 on $58.1 million in revenue; in 2010, it had a loss of $180,330 on $58.9 million in revenue, according to GuideStar filings of IRS Form 990. The 2013 numbers are not yet available.
In addition to its 25 beds, New London Hospital also manages a 45-member physician practice; an ambulance business for seven of the 15 towns it serves; and the 58-bed William P. Clough Extended Care Facility.
Only the hospital itself makes any money, but not much, due, in part, to low rates from government payers Medicare and Medicaid, King says. Under federal sequestration, critical access hospitals get only 99 percent of usual Medicare rates, and the state’s Medicaid payments are the lowest in the nation, King adds.
Medicare and Medicaid income represent about 60 percent of the total revenue from the four business units. Most of the rest comes from commercial payers Anthem, Cigna, Harvard Pilgrim Health Plan and MVP. On the commercial business, the hospital turns a slight profit, but the physician practice, ambulance service, and long term care facility all lose money, he said. “We have some self pay (about 8 percent), which can become no-pay for us.”
Challenged, but hopeful
Even before agreeing to affiliate, New London Hospital had strong ties with Dartmouth-Hitchcock, the state’s only Level 1 trauma center. Since 2003, King has been New London’s CEO but is technically a Dartmouth-Hitchcock employee, leased to New London under a management services agreement.
Dartmouth-Hitchcock also has pending affiliation agreements with Mount Ascutney Hospital and Health Center, a 25-bed critical access hospital in Windsor, Vt.; Cheshire Medical Center, a 169-bed acute care facility and multispecialty group practice in Keene, N.H.; and Alice Peck Day Memorial Hospital, a 25-bed critical access hospital in Lebanon, N.H. Attorneys general in both states are reviewing the proposals.
Under the New London affiliation agreement, the smaller hospital retains its corporate leadership, separate finances, and control over day-to-day operations, but Dartmouth-Hitchcock can name one-third of the hospital’s trustees and has final say over governance issues, budgets and borrowing.

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Affiliating with Dartmouth-Hitchcock may help New London Hospital cut costs on malpractice insurance, employee benefits and volume discounts from vendors. King also could reduce staff in, or close, certain departments by using Dartmouth-Hitchcock’s services, such as legal, finance and information systems.
The affiliation gives New London access to capital needed to expand the Newport Health Center, a project put on hold this year due to declining patient volume and lower reimbursement. King hopes the affiliation also brings more “heads in beds” when Dartmouth-Hitchcock needs to move out less-acute patients to free up space for those with critical-care needs.
A stronger negotiating position with health plans may also help New London Hospital drive up patient volume. But King cannot negotiate for higher rates because using such leverage is forbidden under the deal King made with the state attorney general during regulatory review.
Whether the affiliation helps New London Hospital report a profit in the coming years remains to be seen. But for now, it’s worth watching as a model for rural population health.