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Hometown hospitals fight for future
Local control, professional help from outside make it possible to meet a community's needs
Journal Photo by Lauren Carroll
Construction on Northern Hospital of Surry County in Mount Airy is under way. Northern is spending $22 million to more than double space for operating rooms and outpatient care.
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Published: August 10, 2008
The construction at Surry County's two hospitals is more than just a sign of expansion.
It demonstrates the steps they are taking to remain independent when higher costs are prompting some community hospitals in the region to sacrifice local control to bigger health-care institutions and corporations.
Northern Hospital of Surry County, in Mount Airy, is spending $22 million to more than double its space for operating rooms and outpatient care. Hugh Chatham Hospital, in Elkin, is spending $41 million on its emergency department to expand capacity by six rooms to 23. The emergency-department expansion follows a $20 million project in 2006 that added surgical suites and new imaging equipment.
Even with such building projects under way, though, independence is a relative term for most community hospitals these days.
"The truly independent community hospital is becoming an endangered species because of costs," said David Meyer, a health-care consultant for Keystone Planning Group LLC of Durham. "It's been debated for years whether these partnerships with larger hospitals are good for the local community, but the trend is going on nationally and it is expanding."
Hospitals that are considered independent typically are nonprofits owned by either the local mu-
nicipality or local shareholders or both. The main reason for such strong local support is that hospitals are often the first source of emergency care for rural communities. Over the years, many rural hospitals have added high-demand services such as cancer, rehabilitation and birth centers.
Many hospitals in Northwest North Carolina, such as Alleghany Memorial, Ashe Memorial, Hugh Chatham and Northern, have turned to partnerships with national health-care consulting companies for management expertise and reductions in supply costs that smaller hospitals likely couldn't afford on their own. Other hospitals, such as Watauga Medical Center in Boone, have joined national purchasing networks that can offer 20 percent or more in cost savings for supplies by buying in bulk.
Quorom Health Resources in Brentwood, Tenn., has nearly 200 hospitals as clients of its management services, which include handling the placement of the chief executives of Alleghany, Ashe and Northern hospitals.
Susan Hassell, a vice president of marketing at Quorom, said that the company "believes this local-control option for hospital management allows the hospital to address the needs expressed by the local community, while receiving from Quorom the strategic, financial and operational direction to be successful."
Local care
Officials at Hugh Chatham and Northern say that their expansions are needed as the hospitals attempt to buck an industrywide trend of fewer and shorter hospital stays in favor of more outpatient procedures.
Managed-care companies, as well as Medicaid and Medicare, "have become more powerful, increasingly mandating that the length of inpatient hospital stays be minimized and that procedures be performed in the most cost-effective settings, which are often outside the traditional inpatient hospital setting," according to a 2007 Standard & Poor's report.
However, Northern has had a 14 percent increase in surgeries since 2004, performing 3,574 in 2007.
Hugh Chatham had a 41 percent increase in surgeries since 2004, to 3,760. Its emergency-department visits have risen from 17,000 in 2004 to more than 23,000 in 2007.
Stephen Pennington, the chief executive of Hugh Chatham, said that the 2006 surgical expansion has succeeded in attracting more residents who likely would otherwise travel to Winston-Salem for care. The hospital also is gaining patients from Alleghany County and eastern Wilkes County.
Bill James, the chief executive of Northern, said that Quorom backed Northern's expansion to accommodate the preference of county residents to have surgeries performed closer to home.
"You're going to want to be cared for where your family is close at hand," James said.
"We do compensate by having arrangements with Baptist Hospital for cases we can't handle locally," James said. "But we know that community hospitals can be competitive in this day and age with the right mix of physicians, staff and operations."
There is also a spinoff benefit for bigger, regional hospitals, such as Wake Forest University Baptist Medical Center. A spokeswoman for Baptist said that rather than taking away potential business, a strong network of community hospitals helps ease the burden on bed space available in regional facilities, especially emergency departments.
Smaller hospitals that want to keep their patients local "must keep their capacity in place," said Jeff Spade, the executive director of the N.C. Rural Health Center. "You need to keep it modern, and you need to keep surgeons and physicians.
"Surgery is one of the few things that a hospital can do well and do well for their community. So surgery is actually a strength. The hospitals that have problems in all kinds of areas have lost their surgical volume."
Ralph Castillo, the chief executive of Alleghany Memorial, said that the hospital and its local community are realistic about the level and volume of health-care services that can be provided.
"We have a great general surgeon who is capable of doing a lot," Castillo said. "But there are specialties, such as orthopedics, neurology and cardiac surgery, which are not done here, so patients have to go off the mountain to get those services.
"Certain surgeries will never be done here. Others can be done here, but they don't generate the volume that could sustain a full-time position. In those cases, we try to work with surrounding physicians to try to meet the need locally."
Data crunch
Another challenge for smaller hospitals is handling the massive amount of information generated by the health-care system.
"More and more demand is being placed on systems for patient health records, e-prescribing requirements and tracking quality and price efficiency," said Steve Graybill, a senior health-care analyst for Mercer Human Resource Consulting.
"Private payers and Medicare are going to require much greater sophistication in tracking patient care, and these systems are very scalable for the larger hospital system."
Because of the complexity of managing patient information, Hugh Chatham turned to Alliant Management Services of Louisville, Ky., in July 2006. Alliant put Pennington in the CEO job in January 2007.
"Alliant provides more resources to Hugh Chatham than it could have accessed on its own," Pennington said. "But having a board of directors and a medical staff that is engaged in the local community, and a community that is supportive of the hospitals, is the key to maintaining independence."
Having local control "enables us to maintain a consistent culture throughout the system, as well as set up our own physician network," said Richard Sparks, the chief executive of Watauga and Appalachian Regional Healthcare System, which also includes Blowing Rock Hospital and Cannon Memorial Hospital in Linville.
Professional help
Community hospitals that have formed partnerships with bigger hospitals say that economies of scale are the main benefit for the arrangement.
Wilkes Regional Medical Center is owned by the town of North Wilkes-
boro, but Carolinas HealthCare System of Charlotte began overseeing daily operations, finances and overall strategic direction in February 2007. That arrangement allowed Wilkes Regional to have the money necessary to gain state approval to expand and upgrade its emergency department and add 11 observation beds as part of a $21.5 million project.
Wilkes Regional also has a partnership with Wake Forest University Baptist Medical Center to develop and support clinical programs and to recruit medical specialists to the community.
Likewise, Lexington Memorial Hospital is negotiating with Baptist on an operational partnership similar to those that Baptist has with Davie County Hospital in Mocksville, Hoots Memorial Hospital in Yadkinville and Stokes-Reynolds Memorial Hospital in Danbury.
Lexington officials said they wanted a partner that would be able to help the hospital expand and provide more services and physicians than it could on its own. A partnership with Baptist could even lead to a new hospital, such as Baptist is attempting to do for Davie Hospital in Advance.
And new hospitals are drawing the interest of health-care corporations.
Novant Health Inc., the parent company of Forsyth and Thomasville medical centers, has moved in recent years to open small suburban hospitals, such as in Huntersville and Matthews near Charlotte. Novant has received state permission to open a hospital in Kernersville and in Holly Springs in southern Wake County, and is pursuing approval for a hospital in Clemmons and a new 50-bed hospital in Southern Rowan County for Rowan Regional Medical Center in Salisbury.
Novant also spent $300 million in April to buy a 27 percent stake in seven hospitals owned by a for-profit company, Health Management Associates Inc. of Naples, Fla.
The ownership stake included four North Carolina hospitals, including two in Iredell County and three in South Carolina.
"Most everyone is lining up with one of the larger local health-care systems, which is understandable," Sparks said. "It's becoming more challenging for the independent hospitals to have access to capital to keep their facilities updated, buy new equipment and afford the increasing costs of employees."
Those challenges, however, did not keep Watauga from completing in 2006 a $22 million expansion project, which features state-of-the-art technology and enhanced facilities for cardiac catheterization and cancer care.
Staffing those high-tech facilities brings up yet another hurdle for smaller hospitals.
"The recruitment of physicians, nurses and therapists is getting fierce," Sparks said. "Some hospitals try to handle that by creating partnerships with hospitals that also have major medical schools, such as Baptist."
Baptist expects to gain from a partnership with Lexington Memorial through more transfer referrals for serious cases and the ability to spread its brand of health care into another suburban community.
"Seventy percent of our patient care originated outside Forsyth County, substantially because we're a level-one trauma center for the region," said Doug Atkinson, the vice president of networks at Baptist.
"We certainly welcome opportunities to explore management options where it makes sense for both hospitals. But we also believe it makes good sense to have thriving hospitals in local communities where we can complement them with specialized care and training expertise."
Castillo, the chief executive of Alleghany Memorial, said that partnerships with consulting companies and purchasing networks can go only so far in securing independence.
"It will be very difficult to remain an independent entity in the face of the changing health-care landscape," Castillo said. "All insurance companies are looking for creative ways to not pay us for the services we supply their covered folks.
"At the same time, the public expects a certain amount of sophisticated technology be available for them. If you are absorbed by a health system, your ability to focus on your community could be compromised, as well as your identity.
"It is a fine line to walk, and it will become more difficult as changes come down -- especially from Medicare and Medicaid," he said.
■ Journal reporter Sherry Youngquist contributed to this article.
■ Richard Craver can be reached at 727-7376 or at
rcraver@wsjournal.com.
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