Walk into any clinic or hospital in the Black Hills area and it’s likely to be owned or managed by Regional Health.
In Sioux Falls, the same goes for the Sanford Health and Avera McKennan health systems.
Nationwide, health care systems have gobbled up private practice clinics and hospitals, creating single systems that encompass entire communities.
It’s a trend that appears to be here to stay despite studies that suggest that health care consolidations increase costs for patients and don’t improve care, said William G. Vogt, a senior economist with RAND Corp.
RAND, a 60-year-old nonprofit organization, conducts research commissioned by governmental agencies, as well as by private firms, including the pharmaceutical industry.
In West River, Regional Health now owns, manages or leases 16 clinics, a surgery center, eight senior care facilities, five hospitals and five specialty care centers. Last year, Regional Health, which is a community-based system, also acquired the Heart Doctors, a Rapid City cardiac clinic. Regional Health employs 106 doctors.
At the other end of the state, the rapidly expanding Sanford Health now owns 128 clinics, 23 hospitals, 12 nursing homes, 18 assisted living facilities and employs more than 800 physicians.
The initial wave of hospital consolidations began nationally in the 1990s. By 2003, the Federal Trade Commission and the U.S. Department of Justice, agencies that monitor monopolies, began watching the situation. Recently, the agencies began reviewing the regulations that restrict buyouts and consolidations, Vogt said.
In November, Vogt published an analysis of hospital consolidations in Expert Voices, a publication of the National Institute for Health Care Management Foundation. The foundation says it is a nonprofit organization that conducts “nonpartisan” research. Its board of directors, however, is largely made up of health insurance industry executives.
In his essay, Vogt acknowledges that it is difficult to report on health care costs because patient populations and payment types vary among facilities. Yet, using data collected in California, Vogt reported that some outcomes seem to be clear.
For instance, after the consolidation wave of the 1990s, prices and “the pace of spending for hospital care rose markedly,” he said. And while most consolidated systems saw a small savings, they did not pass it on to patients.
Hospital prices for patients who aren’t covered by government programs increased by 20 percent between 1994 and 2001 and by 42 percent between 2001 and 2008. Per capita spending on hospital care also “spiked dramatically.”
At the same time, consolidation appeared to lower quality of care in the Medicare market, Vogt found. It appeared to have little effect on quality of care in the private payer market.
Despite those outcomes, Vogt believes the trend of health care systems will continue. And it’s a trend that “bears watching,” Vogt said.
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No single factor has pushed the move toward consolidation. Instead, it’s a “complex” situation, according to providers in the Black Hills.
Local physicians say three of the biggest factors are increasing government regulations, the resulting paperwork and low Medicare/Medicaid reimbursement rates. Increasing malpractice insurance rates also place private practice doctors in difficult financial situations.
Surgeon Terry Altstiel was an owner of Queen City Medical Center in Spearfish, which had satellite offices in Belle Fourche, Sturgis and Deadwood, when it was sold to Regional Health in 2007. “One of the things that we noticed as a private practice was that more and more, medicine was about managing business,” he said.
That’s not why most doctors go into medicine, Altstiel said.
“We got into medicine to deal with patient issues and help people get better,” he said. “You do it because you care about people.”
Queen City was on the verge of staff cuts when its owners made the decision to sell.
“We saw joining with a big brother organization as something that was inevitable for us if we were going to continue to do medicine,” Altstiel said. “What is happening is that free market forces are pretty much non-existent in medicine anymore.”
Dr. Stephen Eckrich of Black Hills Orthopedic & Spine Center in Rapid City believes low reimbursement rates for Medicare and Medicaid bear a lot of the blame for the consolidation trend.
Eckrich said doctors in specialties such as urology and primary care are reimbursed at such a significantly lower rate than other specialties that it’s difficult to survive. Medicare/Medicaid rates, which are set by the government, tend to pay larger rates for procedures rather than general care, he said. Because primary care
physicians perform fewer procedures and practice more general and preventative care, they get reimbursed less. Rates also vary state to state, and often, rural states receive a lower reimbursement rate.
Health care systems, by contrast, can guarantee a salary to a physician and manage the growing health care regulations with large accounting offices.
“They are almost forcing this to happen,” Eckrich said of Medicare and Medicaid. “It’s unfortunate, I think. But it makes sense. The primary care docs can’t do it unless they’re in a big group. You have to be in a big group to pay your overhead and make a living. It’s kind of an economic reality.”
Dr. Charles Hart, Regional Health chief executive, also sees the consolidation trend as the
reality of doing business in today’s market. “It’s very difficult to survive” without consolidation, he said.
Hart said if Regional Health had not stepped up to buy many of the facilities and private practices it has over the years, communities would have lost them altogether.
“We have a whole raft of physicians who wouldn’t be in this community if it weren’t for us,” he said. “We’re able to support multiple entities that can provide care. The smaller you get, the harder that is to do.”
Hart expects to see more “forced consolidations” throughout the country in the coming years as the economic challenges for health care providers continue.
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Consolidation may be the reality, but it doesn’t come without challenges. The biggest may be maintaining quality and keeping prices down with no competition.
Eckrich and other Black Hills providers worry that consolidation means an unhealthy lack of competition.
“In western South Dakota, it does foster a monopoly,” Eckrich said. “I think competition is a good thing, and it does stifle that.”
Dr. Will Waller, a Rapid City urologist, and Dr. Ed Picardi, a Rapid City surgeon, agree.
“Competition always improves quality of service and lowers prices,” Picardi said. “Any time there’s been a monopoly, the people who are served … always get lesser quality service …. There’s never been an exception to that.”
Waller, who was recently elected to chief of surgery at Rapid City Regional Hospital, said competition by its very nature raises the bar and makes everyone better. He believes that the creation of Black Hills Surgical Hospital in 1997 has proved that, pushing Regional Hospital to improve its own services.
“Competition would be the best thing that ever happened to this area,” Waller said.
Hart argues that there is already plenty of competition in the Black Hills health care community, but it’s mostly in profitable health care areas. He names the Surgical Hospital, the Same Day Surgery Center (jointly owned by physicians and the hospital) and Children’s Care as examples.
Hart said nonprofit hospitals such as Regional are required by law, in exchange for their nonprofit tax breaks, to provide emergency and psychiatric care. Regional’s emergency department and psychiatric department provide almost 100 percent of the emergency and psychiatric care in western South Dakota, which means they also serve nearly 100 percent of the Medicare/Medicaid patients as well as the uninsured patients, said Jennifer Horton of Regional Health.
For-profit hospitals, which don’t get the same tax breaks as nonprofits, are not required to provide such care. They can focus on profitable procedures such as cardiology and orthopedics, which they do. As a result, they skim profitable business away from nonprofits, Hart said.
Picardi challenges that notion.
“I don’t think there’s as much cherry picking as Regional says there is,” he said.
Picardi said statistics indicate that specialty hospitals like Black Hills Surgery Hospital carry their fair share of uninsured and Medicare/Medicaid patients, even though they are not required to do so.
At the physician-owned Black Hills Surgery Hospital in Rapid City, 2.2 percent of its net revenue annually goes toward charity care and bad debt, chief executive Bill May said. May said the percentage increases to 10.7 percent when taxes are included.
At Regional Hospital, 10 percent of the net revenue goes toward charity care and bad debt, Horton said.
Waller believes for-profit facilities are doing their fair share. “I take my Medicaid patients down there (to Black Hills Surgery Hospital), my Medicare patients. They cherry pick a whole lot less than Mayo Clinic,” he said.
Some doctors also worry that referral restrictions within big systems may affect quality.
Eckrich said doctors inside health systems often make referrals to doctors within the same system rather than to the best physician for the job.
“By controlling the physician’s side of the equation, I think there’s potential for decisions being made that are not necessarily in the patient’s best interest,” he said.
Eckrich said he has seen it happen. So has Waller.
“That happens all the time,” Waller said.
By referring within a system, the money stays within the system, Picardi said. “Regional has one of the largest referral patterns in the nation,” Picardi said. “You can literally see the service area that Regional serves on the map of the United States.”
As a private practice surgeon not connected to Regional, Picardi said he has been affected by the referral practice. Doctors who once referred to him stopped doing so once they became part of the Regional system. “It’s been a very deliberate thing,” he said. “There’s a concerted effort … to funnel things into Regional.”
Hart adamantly denies that charge. He said Regional has never required physicians in the Regional Physicians Group to refer within the Regional Health system. If that occurs, it’s a decision made by the individual doctor, he said.
Although doctors can refer to any physician they choose, insurance coverage for care will be based on individual insurance companies and their preferred providers lists. Patients who see a doctor outside of their insurance companies’ provider lists will pay more out-of-pocket costs.
Hart also points out that doctors outside the Regional Health system can and do refer patients to facilities in which they partially own, ensuring that profits return to them. “Which one has a higher incentive?” Hart said.
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Since large health care systems are here to stay, physicians need to work together with health care management to ensure the best possible outcome, Altstiel said.
A common complaint of large systems is that they become administratively top heavy rather than physician-driven. Regional hasn’t been immune to such complaints.
Waller said he has been frustrated over the years with top- heavy management and decisions at Regional Health that seem to have little to do with patient care.
“I love the hospital, but I’m really frustrated by the way it’s run,” he said.
But doctors can and should make a difference in those management issues, Altstiel said. “The boots on the ground have got to be about the quality of patient care,” he said.
In 2007, members of Regional Health Physicians group, comprising 70 physicians employed by Regional, created the Board of Physician Governors. Altstiel is now chairman of that 12-member doctor board.
The group reports to the Regional Health board of directors with recommendations.
Other large successful systems function with such a board, including Mayo Clinic, Altstiel said. Mayo is a nonprofit organization and pays its doctors a fixed income regardless of patient load. The Mayo Clinic Board of Governors has full authority in the “charitable, clinical practice, scientific and educational mission and purposes of Mayo Clinic …” according to Mayo’s Web site.
“This isn’t a new idea. You have places like Mayo, which has basically overcome that battle and maintained quality,” Altstiel said. “It can be done. It doesn’t mean it’s going to be easy.”
Altstiel admits it takes time to turn the ship, but he believes that Regional Health is becoming more physician-driven all the time, with a continuing focus on patient care.
And he sees the governors’ group as an essential and continuing piece of that puzzle.
“It’s having visionary doctors looking at the future of medicine and how you maintain quality at patient care level, how you can safely cut costs … but make it about good medicine,” he said.
Contact Lynn Taylor Rick at 394-8414
