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President Obama and his health secretary, Sylvia Mathews Burwell, might want to visit Indiana to hail Franciscan Alliance as the model hospital system for the Obamacare age.
The Mishawaka-based system, which runs three hospitals in the Indianapolis area, has done everything asked of hospitals in Obama’s Affordable Care Act. It has embraced Obamacare's accountable care concept, which calls for hospital systems to manage the health of a large group of patients and then offers them financial rewards when they provide high-quality care that reduces expected costs. Franciscan now oversees care for nearly 60,000 Hoosiers on Medicare via accountable care organizations, or ACOs, plus nearly 70,000 more for ACOs it formed with private insurers, such as Indianapolis-based Anthem.
Those efforts are at least partially responsible for Franciscan seeing overnight stays at its 13 hospitals drop 6.6 percent last year, according to Franciscan’s 2014 financial results, released publicly to bondholders a week ago.
That report also showed Franciscan is actually improving productivity—something Obamacare will force hospitals to do, because it ties future increases in Medicare payments to the rate of productivity improvements in the economy as a whole—not the paltry productivity improvements that have characterized the health care sector for decades.
Franciscan did all these things while quintupling its profits for 2014, compared with 2013. Adjusting for differences in the size of irregular payments from the state Medicaid program, Franciscan’s health care operations turned a profit last year of $194.3 million—a whopping 430 percent increase over 2013.
In spite of the decline in hospital stays, Franciscan's revenue from patients grew 3.9 percent to $2.4 billion.
Which begs the question: Can Franciscan keep this up? Or is this stellar financial report just a fluke because Franciscan chopped 925 jobs out of its system in late 2013?
The same questions apply to all major hospital systems in the Indianapolis area? Nearly all of them cut significant numbers of jobs in 2013, among other cost-saving moves. Those moves have greatly boosted the bottom line this year, as patient visits have stabilized for most hospital systems.
But as profits have surged this year, hospital executives tell me it’s hampered their momentum internally on finding ways to reduce spending.
Traditionally, hospital leaders said they were running things as tightly as possible—usually while arguing that any cuts to their reimbursement would certainly drastically hurt patient care or force them to raise prices for private insurers.
But a 2013 study by the Center for Studying Health System Change found that hospital spending has, historically, gone up whenever increasing Medicare payments allowed it, and only went down whenever Medicare forced it to go down.
Hospitals even made greater gains than anyone thought on productivity from 2002 to 2011, according to a study published this month in the journal Health Affairs.
But the recent job cuts have created widespread pain—for those laid off, for those who remain with more work demands than ever and, in some case, for patients themselves.
My wife and I noted how different things were at St. Vincent Carmel Hospital in September 2013—when our second son was born—compared with the situation four years earlier, when our first son was born at St. Vincent Carmel.
During the first birth, we saw the same nurses by day and the same nurses at night, during the four days and three nights we were there. But on the second stay, we never saw any of the nurses for more than one shift.
It's a sign, I've been told, that all hopsitals rely more heavily now on outside firms to provide nurses, so the hospitals can move staffing levels up or down to stay in line with patient volumes. That's smart busienss, I told my wife. But she preferred the older model in terms of quality of experience.
Also, some hospital employees have written to me privately, or commented anonymously on this blog, expressing their frustration at being short-staffed and overworked.
Cutting their way to greater productivity probably won’t be enough to make hospitals increase productivity like they need to under Obamacare.
But it is amazing to me that when the biggest source of hospitals' revenue—Medicare, which accoutns for 44 percent of Franciscan's revenue—says, “No more,” that hospitals find ways to save money and keep their profits up.
Franciscan, as I said, is the perfect poster child.