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Sky Lakes prognosis Financially healthy investing in equipment

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Sky Lakes prognosis: Financially healthy, investing in equipment

Hospital news | Saturday, August 2, 2014

H&N Staff Reporter

From a financial standpoint, Sky Lakes Medical Center is outpacing many other Oregon hospitals.

"We're actually doing very well," Sky Lakes CEO Paul Stewart told the Herald and News.

The 2014 Oregon Community Hospital Report, released last week by the Apprise Health Insights, a data subsidiary of the Oregon Association of Hospitals and Health Systems, places Sky Lakes operating margin at 8.18 percent in 2013.

That operating margin, or the balance between costs and revenue, is above both state and national averages for hospitals, Stewart said.

According to the report, the overall operating margin for Oregon's hospitals was 3.6 percent in 2013, the lowest the state's average operating margin has been since 2008.

Within the 26 larger, more urban hospitals paid under DRG (diagnosis-related group) reimbursement, of which Sky Lakes is one, the operating margin average was higher, at 4.44 percent, compared to small, rural facilities, which had an operating margin average of -0.96 percent in 2013.

DRG reimbursement, Stewart explained, is the fixed amount of money those hospitals receive from Medicare and Medicaid for patient care, no matter the length of stay. The smaller hospitals, or critical access hospitals, are refunded based on the cost of care instead, he said.

In the Community Hospital Report, the data show in 2013, Medicare paid only 78 cents for each dollar hospitals spent caring for Medicare patients; and Medicaid paid, on average, only 67 cents for each dollar hospitals spent caring for Medicaid patients. More than 60 percent of services provided in the state's hospitals are for Medicare and Medicaid patients.

Because of that gap, funding for Sky Lakes is dependent on patients choosing to receive care there, Stewart said.

New equipment coming

The operating margin allows the hospital organization to invest in technology, such as the new electronic medical records system it will begin implementing this year. It will update equipment, including a new CT scanner and linear accelerator at the Sky Lakes Cancer Treatment Center and a new MRI machine in the diagnostic imaging department, as well as work on recruiting new physicians to the community, Stewart said.

Other projects, such as building renovations, are built in to the yearly operating budget, he said.

"We've got enough cushion, if you will," he said. If the hospital had a low operating margin, it would have to dip into cash reserves to be fully functional, which would not be sustainable in the long-term, Stewart said. The community should be concerned if the hospital were operating in the red, he said.

The finances though, are a means to an end, Stewart said. Much of the money Sky Lakes makes is reinvested in the community in some way, even if it doesn't generate direct revenue, he said, either through charitable giving or other services, such as the support of Klamath-Lake Child Abuse Response & Evaluation Services (CARES).

Stewart said the hospital is regularly evaluating its charge structure in comparison to the national average and to other regional medical providers.

Competitive pricing formula

There are many moving parts that factor into pricing, he said.

The goal is to offer quality, affordable care so people don't have to travel out of town, and still support the hospital's variety of services, he explained.

For example, usually a hospital similar in size to Sky Lakes would not have a Cancer Treatment Center, he said.

The pricing structure is something he struggles with, Stewart said. He understands it can be difficult for a patient to understand and justify paying more to have an MRI done on their knee at Sky Lakes, when they could potentially travel to Medford and have the same scan for less.

The difference, he said, is some small, independent clinics that only offer one type of service, such as diagnostic imaging, don't have the same type of overhead costs as a hospital.

The hospital also has an emergency room to support, for example. A patient wouldn't be "driving over the hill" if they were having a heart attack, instead of just being in need of an MRI, he explained.

Charity care misnomer

In addition, Sky Lakes also wrote off almost $30 million in uncompensated care, according to the Community Hospital Report. That includes more than $15 million in charity care, and more than $14 million in bad debt.

Charity care includes the difference between the cost of care and payouts for Medicare and Medicaid, patients who fall below 200 percent of the federal poverty level who are not charged for care, and those people below the poverty level who pay just a portion of their cost of care, Stewart explained. Bad debt means bills that have gone unpaid, he said.

The term "charity care," though is a misnomer, Stewart said. It does not take into account the amount of charitable giving or other community benefit money from the organization, he said.

Tom Hottman, Sky Lakes spokesman, said that in 2013, the hospital reported almost $32 million in community benefit money to the state. That number does reflect the amount of uncompensated care that includes the difference in cost of care for Medicare and Medicaid patients, he said."We are not in the business of health care to make money," Stewart said.