Statement from CEO Paul Stewart to Klamath Falls City Council

Mr. Mayor, members of the City Council, and members of the audience, my name is Paul Stewart, and I am the chief executive officer at Sky Lakes Medical Center.

Let me say at the outset that I recognize that being an elected official in this community is by and large a relatively thankless job – and I want to thank you for your service to our community.

I also appreciate this opportunity to respond to concerns raised by Councilman Adams during a recent Council meeting. Some of the councilman’s comments seemed to be ignorant of the facts and presented a distorted picture, missing some facts, and I believe it is necessary to make the record accurate.

And for the record – no one in my Administration recalls being invited to a work session or a council meeting that we have not responded to. I do not recall Mr. Adams ever contacting me to ask questions or seek clarification of any item he may have been considering before the council – either in anticipation of the most recent bond issue he voted against, or at the one over 10 years ago, the last time we presented such an issue.

You all know where I work, I have a phone, and any member of this council is welcome to contact me at any time with questions or concerns and I will be happy to respond.

I am here tonight at my own request – I asked to come and provide an education on some of the issues we are working on, as well as set the record straight on processes and projects.

I’d like to start by providing some background about Sky Lakes. Sky Lakes is a stand-alone, internationally accredited, acute-care, community-benefit hospital. It is an IRS-designated 501 (c) 3 not-for-profit corporation, which provides an exemption from paying taxes. We are not-for-profit by design, not by circumstance.

Let me phrase it this way – we do not provide healthcare so that we can make money – we make money so that we can fulfill our vision and mission and provide the most needed health care services and improve the health and well-being of this community. It’s a subtle, but very important difference.

And instead of paying taxes, Sky Lakes has a longstanding program devoted to providing health care services and community health improvement programs free of charge. For example, if an individual or family in our community makes up to two times the Federal Poverty Level income for their size family, the bill from Sky Lakes for services rendered individual or family receives will be zero – a 100% charitable write-off.

In addition, for families whose income is between 200% and 400% of the Federal Poverty Level, we provide a sliding-scale discount on our services.

In other words, in lieu of paying property taxes, we provide every single year literally millions of dollars worth of free care to residents in our community who have no insurance and cannot afford to pay for their healthcare. Your local tax-paying retail establishments or grocery store or auto dealer have no such commitments and don’t do that – they expect to get paid for their services and goods, and rightfully so.

In addition, our programs routinely also include investments and contributions to activities and projects that have indirect effects on improving health and are not compensated by insurance programs.

Despite sweeping changes in the health care system in Oregon, Sky Lakes continues to be one of the most important drivers of health improvements locally. Over the past two years, Sky Lakes has provided over $67 million worth of charity care, discounted care, and other community benefit services – this amount of assistance back into our community outweighs foregone property taxes by a multiple of at least 10, if not more.

We take our mission to reduce the burden of illness, injury and disability very seriously in this regard and strive to align our programs with the needs of our community.

Mr. Adams is correct in that for most of our core facilities, Sky Lakes does not pay property taxes. He may not realize that neither does Sky Lakes receive tax revenues.

Rather, our income comes from patient care services, and our positive margin from the good and proper stewardship of resources. Were it not so, that $67 million of community benefit would become a burden on the City and the tax payers of this community.

It is our philosophy to be a good corporate citizen and, in that civic spirit, Sky Lakes invests millions of dollars annually in services and programs that are outside the medical center’s core responsibilities yet are nonetheless necessary and needed in our community. Many of those services would not exist at all if were not for our investment.

Klamath-Lake CARES – Child Abuse Response and Evaluation Services – for instance would not have survived over the past 20 years without direct support from Sky Lakes. Last year CARES staff investigated more than 300 cases of suspected sexual, physical, and emotional abuse involving local children.

Similarly, the Cascades East Family Medicine Residency could not survive without millions of dollars a year provided by Sky Lakes. Our commitment to that program ensures there are providers and support services and staff for the clinic that serves a growing population. There currently are 18 faculty, 47 nurses and other support staff at the clinic – nearly 100 employees total, providing primary care to literally thousands of our area residents, most of them underserved and often uninsured.

The residency program also boasts 25 resident physicians who relocated to Klamath Falls just to learn at Cascades East and serve patients. In its 24-year history, more than 80 percent of Cascades East grads have gone into practice in a rural environment, many of them in Klamath Falls. Four of eight graduates of the Class of 2016 will remain in Klamath Falls, joining eight other Cascades East residents who have graduated in the past three years and who are now practicing in local clinics.

In the context of how we benefit the community beyond our health care services, let me remind the Council of the investments Sky Lakes has committed to making that will enhance the livability of the city and make it more attractive to business.

In the past year, Sky Lakes has committed:

• $100,000 to upgrade the city swimming pool (this in addition to an earlier $50,000 to cover a city shortfall for pool maintenance items);
• $28,000 to fund no-charge swimming lessons for area third-graders for four years; and
• $200,000 to enhance Kit Carson Park to make it more inviting and appealing.

With all due respect, I have to admit that as I read Councilman Adams prepared criticisms of the hospital from the last meeting, it crossed my mind: Why has the city been unable (or unwilling) to adequately maintain Kit Carson park on its own?

Maintenance goes beyond just cutting the grass and emptying the trash. It also means addressing the needs of the community and then responding to those needs.

The Sky Lakes investment does just that – it responds to needs in the community — and it provides for innovative uses that will again make the park a gem for that neighborhood and enhance a major section of Crater Lake Parkway.

Speaking of enhancements, recent Sky Lakes investments also include:

• $250,000 committed to develop two new green spaces downtown to replace empty dirt lots and to help beautify the downtown core so it will be more attractive to commerce; and
• $25,000 committed to develop a hiking/biking trail outside of Klamath Falls to further encourage tourism and economic development.

Additionally, Sky Lakes staff are managing an $85,000 grant for a hiking trail overlooking the city (Sky Lakes will provide additional funding as required), and a separate project to create a protected bike lane between downtown and Moore Park.

Research indicates the bike lane will boost the local economy by stimulating tourism, will increase property values, and will mean more opportunities for safe physical activity.

On that note, you will be presented later this evening with the opportunity to endorse the Klamath Falls Urban Trails master plan. This is a guiding document to help make our community more attractive by enhancing the overall trails infrastructure – taking advantage of the beautiful out of doors we all call home. Support of this plan – which has already been reviewed, modified and now supported by numerous organizations and committees – is a vote in support of our community – a vote in support of health and activity and economic development. I trust this will pass unanimously by this council as a show of support for the hard work that has already gone into its development.

As you recall, Sky Lakes provided the spark that led to the Klamath Works Human Services Campus, which will consolidate a variety of social service agencies in a central 18-acre location – an 18 acre parcel that has sat vacant for years now and has become an eye sore on one of the main thoroughfares through our city. The campus is about to become a shining star of services aggregated into one location to help the most vulnerable in our community get the help they need and deserve.

Putting those services in one place will make access easier for clients and better for the agencies responsible for those services. We have already opened on that campus a non-emergent medical transport service, helping those without transportation get rides to appointments with their doctors or to the pharmacy to pick up their medications; our community health workers help assess needs and hook clients up to resources before a crisis occurs; our case managers are helping those with severe chronic conditions get the support they need to proactively manage their health and prevent hospitalizations and visits to the emergency room.

As you likely know by now, Sky Lakes is committed to investing $200,000 in a sobering station there and will help support its operation with ongoing funding. This is a service that arguably the City and the County should already be providing with tax payer funds – but is not. The sobering station will offload a certain clientele from the hospital’s Emergency Department, and that will mean care there can to go to patients who are not just drunk but really do require attention.

The sobering station also will provide alcohol- and drug-counseling services in a safe environment so clients are more likely to break the chain of dependency.

To help the overall well-being of the people in the region, Sky Lakes has played a leadership role in attracting the Blue Zones Project to Klamath Falls, making it the first Blue Zones demonstration community in the Northwest. Sky Lakes will be providing $600,000 over three years to leverage $1.2 million in outside funding in support of the Blue Zones Project in Klamath Falls. That is helping fund five full-time jobs that did not otherwise exist, as well as other programs that will benefit the local community.

Of note: Sky Lakes will be the first Blue Zones-designated worksite in Oregon and the entire Pacific Northwest. A formal announcement will be forthcoming.

Sky Lakes also supports a variety of regional social, civic, academic, and sports programs, as well as the arts, to further benefit the community.

For example, Sky Lakes is:

• The title sponsor of this summer’s Northwest Tandem Bike Rally, which will attract hundreds of couples from the West over the July Fourth weekend;
• A proud supporter of the annual Iron Owl competition, which brings teams of leaders to the community in May;
• A partner with Kingsley Field for the annual Duathlon competition at Running Y, bringing hundreds of athletes to the area for the summer competition;
• A major contributor to the local CASA program, to Friends of the Children, to Klamath Promise, the Red Cross bloodmobile, the Senior Citizens Center, the Gospel Mission, and dozens of other similar projects that help children and youth and families.

Councilman Adams in a prior meeting erroneously inferred that the $50 million bond issue he voted against was going towards a $50 million expansion of the medical center. This is not correct.

Mr. Adams voted against a refunding of prior debt issues that will save Sky Lakes, and therefore our patients, over $7 million in decreased interest expenses. The majority of the $50 million bond issue he voted against is refinancing prior indebtedness at lower interest rates. Less than half of the bond issue will go towards new capital spending – and that by the way is spending that will create jobs in our community.

Councilman Adams also expressed concern there would be no additional property tax revenue on the recently announced Sky Lakes-OHSU collaboration building. This new combination clinical services-educational support building — made possible by the partnership of Sky Lakes and Oregon Health & Sciences University and by investments in health care services locally by Sky Lakes — will be on the Sky Lakes campus.

That means no additional property will be required. And we’re still a not-for-profit corporation, still exempt from property taxes.

There will however be hundreds of jobs associated with the various phases of its construction and ongoing operation. The Klamath County Economic Development Association estimated more than 300 jobs, direct and indirect, will be associated with the project, and some 240 students per year who could be expected to spend upwards of $3 million a year with local merchants.

KCEDA also notes the $50 million project, during the construction phase alone, will generate additional economic activity in the area amounting to upwards of $67 million, with another $20 million a year after it opens. I believe no other single private project has had an impact on local building and related jobs this significant since the new medical center, which opened in 2007.

Let me ask this: How many similarly sized projects with as much potential have others, public or private – the city included – launched recently?

Sky Lakes has pledged to the project $15 million from the bond reissue the Klamath Hospital Authority recently authorized and the Council ratified. The remaining $35 million of the Sky Lakes/OHSU collaboration will be funded by philanthropy – not by taxpayers as Mr. Adams alluded to.

Mr. Adams said he was uncomfortable approving bonds “that are equal to $3,000 for every citizen of Klamath Falls.” That, in my opinion, erroneously suggests the city would be left to pay the bonds in the unlikely event the hospital defaults on the debt.

The city of Klamath Falls is not obligated by the bond issue.

Mr. Adams has been on the council long enough that he should know his suggestion was not well-considered.

Sky Lakes and its assets are obligated to the bond – not the City. The Hospital Authority is the vehicle used to create tax exempt financing for the hospital – I don’t necessarily wish that to be the case, but it has been so for decades.

The issue is brought before the City council by and large as a courtesy, because issuing of debt in any given year by the City and the Authority has practical limits – we therefore bring the Authority debt issues to the City Council to ensure it does not get in the way of any debt the City also may contemplate issuing in a given year.

Again, it does not obligate taxpayers to the burden of the debt issued by the Authority.

Fitch, a major national bond rating agency, recently upgraded the Sky Lakes rating to A-minus, which puts it on par with some of the most successful for-profit hospitals in the country.

Fitch pointed out the “excellent balance sheet” and fiscal responsibility of the Sky Lakes organization as among the reasons for the upgrade. y reissuing the bonds at a lower interest rate – made even better by our stronger bond rating — Sky Lakes over the term will save millions of dollars allowing us to continue to invest in staff, in new equipment, and in our community.

Mr. Adams also wondered how much property Sky Lakes has purchased thus removing it from the tax rolls. ell, I will tell you – over the past 2-3 years, Sky Lakes has purchased facilities – most of which incidentally were sitting vacant – that has taken a grand total of $34,000 per year off of the property tax rolls.

Sky Lakes continues to pay taxes on other properties we have purchased – to the tune of $136,000 per year. In addition, a number of the clinics that we operate, including the Klamath Medical Clinic, the Sky Lakes Adult Medicine Clinic, and the Sky Lakes Family Medicine Clinic, are in buildings we do not own, but lease, and therefore remain on the tax rolls of this community.

A better way to frame the question would be “With its growth over the last few years, how has Sky Lakes improved conditions in the community?”

This would address the extent to which the efforts of Sky Lakes, in accordance with our mission, have benefited the community. A recent report by KCEDA indicates that the projects I’ve just described, plus anticipated growth in the health care industry locally, over the next 10 years will account for more than 1,500 direct jobs and 870 spin-off jobs.

Further, according to the report, over that period, the area could expect 134 new homes built and the purchase of nearly 900 existing homes as a result of the Sky Lakes investments. Conservative estimates also include $4.2 million in additional taxes paid to the city, and $4.3 million more to the county.

Bear in mind, the KCEDA figures do not include things like new businesses that we can expect to move to our community because of an improved quality of life rooted in the Blue Zones work, or the Klamath Works Campus. Or the additional tourism spurred because of the improvements to various trails and parks our investments have helped accomplish.

I would submit: the anticipated level of additional economic benefit, made possible because of investments made by Sky Lakes for the good of the community, is something to be celebrated rather than the subject of odious ridicule.

It would be a lot easier – and less expensive – to just write you a check for $34,000 – and I promise you, most of the things I’ve cited to you would not get done by you or anyone else in this community.

The Klamath Works Human Services Campus I mentioned earlier is another example of how Sky Lakes demonstrates its commitment to the region’s well-being. Local contractors and tradesmen helped Sky Lakes renovate a long-empty building and gave it a modern look and added energy efficiency, transforming it from an eyesore to a neighborhood and a community asset.

And we have committed substantial resources to the development of other community assets on that campus in order to help people who are not necessarily Sky Lakes patients.

Would the Council prefer that we not add enhancements that provide upgrades and potentially stimulate commercial development? Because I wonder on all of these things – if we didn’t do them, who would?

Let’s also consider this: Improving conditions also means employing providers. Klamath Medical Clinic is an example of that – the ability to recruit new providers who could be relied upon to care for a large number of families so that long-time physicians could, in good conscience, retire. That clinic tried for several years, unsuccessfully, to recruit providers to help replace Dr. Gailis and Dr. Kleeman, who were retiring.

Providers in that well-established clinic approached us and asked if they could join Sky Lakes – not the other way around — and take advantage of a large and robust support system with the resources to be successful in the highly competitive field of recruiting new family medicine providers. Had Sky Lakes not stepped in, that clinic potentially could have been reduced to half the number of providers there today and would have relatively dim prospects for recruiting more. As it stands, we were not only able to recruit replacements for Drs. Gailis and Kleeman, but are helping recruit additional providers to that clinic.

Fewer providers would make it even more difficult for new patients to establish there – and we are proud that we have been able to partner with that important clinic not only surviving but thriving in our community. Access to quality health care is a public health metric as well as an economic development necessity. Access in our community ranks favorably in the state largely because of Sky Lakes.

So I ask you, somewhat rhetorically: Which is the better choice — Sky Lakes invests hundreds of thousands of dollars to recruit high-paid professionals, provides assistance for them to relocate here, and employs them in accredited clinics to ensure adequate local access to health care, or – sit around and assume providers are going to find us on Google or randomly fall out of the sky and relocate here and occupy those vacant buildings that you’re worried are coming off of the tax rolls?

Also, not to pile on but rather to point out that medicine is much more complicated now than it was even a few years ago, and health care nationally is trending to employed physicians. Mr. Hart and perhaps others in the room grew up in an era when physicians came to town, hung up a shingle and went to work. Those days are over.

The New England Journal of Medicine reported in that “With increasing frequency, (physicians) are seeking employed positions. Regulatory and economic forces as well as lifestyle preference fuel these significant changes.”Another study indicated that over 200,000 physicians nationwide are now employed by hospitals, the trend will continue, and three out of four graduating residents plan on seeking employment by a hospital, group or university faculty plan.This is not a local phenomenon or a strategy to monopolize healthcare locally.

It’s a recruitment strategy that is by and large being demanded of us by newly trained physicians coming out of residency – we can either adopt this model and keep bringing providers to town, or we can turn them down and watch them go elsewhere. By choosing to be part of a hospital or a health care system that can more efficiently support the myriad tasks associated with scheduling, billing, payroll, and other technology-dependent functions, physicians are better able to concentrate on medicine and caring for patients rather than the day-to-day worries of business, or sourcing and financing technology.

This is better for the practitioner and better for their patients. While it is true most local providers choose to be part of the Sky Lakes family, many are not and we have no objections to others establishing independent practices. Also, to make it easier for people in our community to access the health care they need, Sky Lakes has established primary care and specialty clinics, and hired several physicians, nurse practitioners, and physician assistants to provide that care.

Over the past 24 months, Sky Lakes has recruited 36 health care providers to this community — some in hard-to-fill specialties such as urology, otolaryngology, dermatology, and pulmonology – who have moved here, many with their families, and purchased homes here. They are among the nearly 1,400 Sky Lakes employees, yet they have the choice of eventually becoming independent practitioners. And I want you to know: our employment model makes it easier for the providers to see patients regardless of the patients insurance status – we pay providers to see patients – not worry about whether that patient has insurance, Medicare, Medicaid or no insurance at all.

Mr. Adams also attempted to make a connection between the medical center’s not-for-profit status and the rates we charge. This too is an incorrect assumption and not founded on fact. The fact is health care is expensive, and the reasons are many. I will be the first to admit that the pricing and charge structure that exists in healthcare is convoluted, confusing, and does not follow logic or sound principles.

That said, it is as it is largely due to government intervention – we are required to follow the coding convention included in what is called ICD-10 – a complex list of over 50,000 diagnostic and procedure codes that the Federal government requires us to use. Failure to use them would result in failure to be paid for our services.

Confusingly, hospitals are free to establish charges associated with each of those 50,000 codes in any way they want – which means hospital A, for example, that may be located in an affluent suburb of Portland with a high percentage of commercially insured patients and relatively no uninsured patients, can set charges differently than, say, hospital B, an independent rural facility with a high percentage of uninsured patients as well as Medicare and Medicaid patients – programs that incidentally do not cover the full cost of care – or hospital C, which might be a tax supported hospital – which again, Sky Lakes is not.

This leads to an inherent inability to compare charges – it just does not take into account the variability in service offerings, payer mix, and community socioeconomic status. Yet I believe Sky Lakes has kept charges competitive and in line with similar procedures at neighboring hospitals.

We use annually an independent third party to compare our charges to national, regional and local averages and in spite of having a disproportionate share of uncompensated patients, we keep our charges competitive.

Last year, in fact, we were successful at keeping our overall price increase at less than 2%.

And let me remind the Council that charges often have little to do with the payments we receive. Government payers – Medicare and Medicaid, primarily – reimburse us based on their schedule using those ICD-10 codes regardless of what we charge or how much it costs us to do a procedure. Those payments are generally less than half of what we charge, and Medicare/Medicaid accounts for about three-fourths of our business.

Let me give you a more appropriate comparison on costs rather than the one Mr. Adams referred to – it’s a Medicare metric, so it is standardized across the country. It is a measure that Medicare uses to account for the overall average total cost per Medicare beneficiary by geographic region. Using 100% as the national average spending level, the overall spending per Medicare beneficiary in Oregon as a state is 12% below the national average. The overall total spending for a Medicare beneficiary in Klamath County – where more than 85% of care is being delivered at Sky Lakes – is 17% below the national average.

Despite this and because Sky Lakes leaders at every level treat the business as our own and strive to make good business decisions, we enjoy good fiscal health. This has allowed us to invest in the enterprise as well as in the future of our community, as I have tried to illustrate tonight.

Sky Lakes is proud to help make our community healthier by being an economic and social asset, by making investments and providing leadership, and by demonstrating our commitment to being a responsible corporate citizen.

To think we are “in it for the money” is wrong-headed and displays a profound lack of understanding and gratitude.

All of us at Sky Lakes appreciate the support from people in the region and trust they place in us. We are solidly committed to helping the community we serve and making investments so it’s an even better place to live and work and play. It is sometimes easy to stand on the sidelines and cast dispersions at what is perceived to be an inanimate institution – I remind you that Sky Lakes is not an inanimate institution – it is a collection of 1400 employees, 150 medical providers, 350 volunteers, who come together and day in and day out, 24 hours a day, 7 days a week, 365 days per year, to serve the people in this region with compassionate and quality care.

We are working hard to make our community a healthy community – both in terms of physical health and economic health – an attractive place to live and work and raise our families. We live in a free country where Mr. Adams and others are free to voice their opinions, and I have my opinion as well — those of us doing this work would simply appreciate it if our elected officials would show a bit more support and encouragement, rather than tossing stones from the sidelines.

Thank you for your time tonight, and thanks for all you do.