PMC’s next boss faces challenges from all angles

April 27--Pocono Medical Center's former president and CEO may have been small in stature, but she'll have some big shoes to fill.

Kathy Kuck, who unexpectedly stepped down Tuesday, leaves an institution in the middle of an industry transformation that promises to challenge the viability of community hospitals like PMC.

The big picture is this: Health care is going small to meet patients needs. But it's also going big to survive.

Put another way: David is slaying Goliath. But Goliath can have an army of Davids.

Anyone living in or traveling to the Poconos has seen it -- a growing presence of other medical providers moving into PMC's turf.

St. Luke's of Bethlehem, with its own aggressive expansion plans in the Lehigh Valley, has bought several local medical practices and opened diagnostic centers here.

It also won conditional-use approval this year from Stroud Township supervisors to build a 189,320-square-foot main hospital along Route 611 near Bartonsville.

A hospital extension and a third building of medical offices are proposed in later phases.

Geisinger Health System from Scranton and Wilkes-Barre and farther west has a presence here, too.

And then there's the proliferation of private and hospital-run urgent care centers to attract a consumer looking to avoid the emergency room.

Even PMC is evolving toward a more localized, community- based treatment and prevention model.

Economic, legislative and long-term challenges are pushing the health care industry into a consolidation that may be the only way to survive and thrive.

Less in-patient care

Kuck's successor will face a number of challenges, according to Dr. Richard Martin, medical director of Geisinger Medical Groups in Lackawanna, Luzerne and Monroe counties.

"A competitive environment, pressure from payors, physician retention challenges, quality patient experience goals and reimbursement for quality (pay for performance) are all critical issues to be managed in order to achieve health care success in today's environment," he said.

Outpatient surgeries have moved from hospitals to ambulatory surgical centers over the past 10 years, according to the Hospital & Healthsystem Association of Pennsylvania.

Hospital admissions have declined, along with the length of in-patient stays.

Although the use of emergency room visits has increased significantly, the number of emergency rooms fell.

And for the last eight years, the number of non-acute and specialty hospitals in Pennsylvania has surpassed that of general acute centers, like PMC.

The number of licensed general acute care hospitals declined 13 percent since 2003. Fewer hospitals are serving more patients. Yet the number of specialty hospitals has increased 8 percent.

Revenues from inpatient care have crashed over the past 10 years, with that business shifting to less expensive, outpatient care.

Making matters worse for hospitals like PMC, limited service providers like these outpatient centers draw well-reimbursed cases away from hospitals.

That's led to financial losses, a reduction of services, staff layoffs and more dependence on technology, according to the Hospital and Healthsystem Association of Pennsylvania Pennsylvania Hospital Perspective, 2003-2013 report.

Procedures vs. results

New reimbursement rules for medical providers and changes in individual insurance purchases is changing the delivery of health care for the better, Martin said.

Uncle Sam is behind much of that.

"The federal government is the largest payer for health care through the Medicare program," said Paula Bussard, senior vice president, policy and regulatory services for The Hospital & Healthsystem Association of Pennsylvania.

Medicare is shifting its reimbursements to providers like PMC from a treatment model to one of performance and outcomes. It's based on getting providers to deliver high-quality care at lower costs with a better medical outcome.

"If a person discharged comes back within 30 days with the same problem or complications from the problem (Medicare is) not going to pay for that. So now (providers) don't only have to provide high-quality care, they have to follow up with home health care providers, nursing homes or even family members who may be managing the follow-up," Bussard said.

All medical systems are looking for ways for hospitals to reduce readmission, which under the new rules is an economic loser.

Insurance shapes market

The Affordable Health Care Act is also playing a role in how individuals seek medical treatment. That, in turn, affects how providers like PMC deliver services.

A difficult economy and historically rising health care costs forced some employers to offer less insurance to its employees or at a higher rate, Bussard said. So more individuals are getting insurance on their own and are becoming smarter health care consumers.

They've become more aware of their deductibles, out-of-pocket costs and procedures covered.

"When you have patients more involved in decision-making you have to be more responsive to the things they want," Bussard said.

And they want things like same day care and greater comfort.

Consolidation

Changing insurance coverages, reimbursement rates and consumer preferences all mean changes in the economics of health care delivery.

Nationwide, hospitals are joining multi-hospital systems like Geisinger.

Why?

It provides access to capital to invest in electronic records, new and better technology and expert clinical resources.

"If you're a community hospital, having access via tele-medicine to experts at a bigger hospital (means the patient) can have the access to the kind of innovations without traveling," Bussard said.

PMC has several affiliations with Lehigh Valley and Philadelphia medical centers to supplement its expertise.

Spread the costs

Consolidation is also happening because of the enormous costs of sustaining the needs of a community hospital with a 24/7 emergency room.

A multi-hospital system is better equipped to handle that because it has a larger service base to draw revenue from and spread resources and costs.

Small rural hospitals take on additional financial risk because a smaller patient base means less predictability in the number of patients served.

Multi-hospital systems can spread those risks out over several facilities. It's the same concept of diversifying a business as a hedge, so when one segment of the business is slow, the other might take up the slack.

Loss of federal aid

PMC faces other challenges as the nature of the Poconos evolves.

The hospital may lose Medicare subsidies for unprofitable services including pediatric, obstetrics and behavioral health care.

That's because it receives the subsidies as a rural hospital with no other comparable hospitals within a 25-mile radius.

But when St. Luke's opens its proposed hospital in Monroe County, PMC stands to lose that designation.

PMC didn't disclose how much that might be, but a PMC official in 2008 pegged the annual subsidy then at about $10 million.

PMC already is slated to lose a $2.5 million federal "wage index adjustment" for rural hospitals that compete for higher-paid employees who are commuters to higher-pay areas.

It will likely lose that rural wage adjustment in 2015, when PMC is reclassified as an urban area due to county population growth in the last decade.

What's ahead for PMC?

PMC has already made moves toward specialization with its cancer and heart centers. It's built smaller outpatient facilities to draw patients avoiding hospital stays.

But is it enough?

"As this occurs, health care systems need to increase its patient base, coalesce with physicians and other providers of care and have their goals and care processes aligned," Geisinger's Martin says.

"Ultimately, you can get the best outcomes at high volume hospitals and many local community hospitals just can't sustain themselves financially because of the reimbursement and market pressures."

PMC's competition is well financed, resourced and expertise-rich, as well as experienced in expanding into new markets.

The question is: Will PMC remain a David or join Goliath's army?

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