January 7, 2008

Public comment on the Preliminary Draft Report of the Community Hospital Task Force by Ted Almon

Let me start with full disclosure. My regular attendance at the meetings of the task force has not been entirely a humanitarian gesture. I truly believe the hospitals are an important element of the social fabric of the community and that they should be preserved, BUT, they are also customers of my company and we have millions of dollars invested in accounts receivable from them at any given time. So let's just say my interest in them isn't entirely social idealism, there's a healthy dose of pragmatic business sense involved too.

With all due respect to the volunteer members of the group, I would have to say that from either perspective I have found the proceedings rather disappointing. Upon more serious reflection, I believe the group has never really come to grips with the gravity of the situation they face, or with the consequences of ineffectual or pusillanimous remedies. By any objective business standard, more than a few of the community hospitals are failing businesses; at least one is unlikely to survive on its own even in the near term. Nothing I have heard in the discussions of the group has any chance of changing that.

Back in July when the group formed I wrote a rather hopeful Op-Ed piece that assessed the challenge as rather straightforward. The hospitals lack pricing leverage in a market that is payer-centric. Together they lost about $15MM in 2006 while the insurers made more than $75MM in profits. We are putting more than enough dollars into health insurance, but too few are making it to actual health care. How difficult can this be?

Of course, if this really were the stark world of business in which many of us survive, some of the hospitals would simply perish. The Task Force exists because of the prospect that pure Darwinian competition is unlikely to leave the community with a provider network that matches the health needs of our communities. It is hardly coincidence that the forces of competition took the former St. Joseph site, in the heart of perhaps our most vulnerable population as an early victim. In fact I have been surprised that a more overt recognition has not arisen from the discussion that the competitive model for our hospitals is simply not working. I know there are members who know this as an incontrovertible fact.

The Op-Ed concluded that in order for the Community Hospitals to survive there were only two possible solutions at which the Task Force could arrive. Allow the hospitals to band together into a network such that the pricing leverage swings to their advantage over the payers, or recommend a rate setting commission to regulate an equitable distribution of the more than adequate revenue that is already in the system. I have heard neither discussed.

We must recognize that the hospital network is a public utility and regulate it accordingly, or we should get out of the way and let the mergers proceed. Either way is fine with me, but caviling over the vagaries of case based reimbursement for Medicaid, a Trojan horse for even further cost shifting onto the private sector by the State if I ever saw one, is just such a waste of time.

I believe the acute care infrastructure in our State could be re-engineered to produce dramatic savings while improving both quality and access for all Rhode Islanders. The model I envision is called "Centers of Excellence" where essential, non-redundant programs and services are distributed according to the core competencies of the institutions and the needs of the geography and population they serve. These changes can only result from coordinated planning and collaboration among the hospitals, payers, and regulators. Competition will never get us there because the foundation of the competitive model is fundamentally flawed. Insurers compete not on rates but to insure only the healthiest groups, while providers compete to provide even more of the most remunerative procedures, regardless of the needs of the population or its health status. It simply will not fix itself.

I realize this is a critical assessment and that the volunteer members deserve our appreciation and respect for their efforts. I hope it is clear that I am finding fault with the process and the apparent direction of the outcome to this point, while recognizing the earnest effort and at times striking insight of the participants.

Thank you for the opportunity to share these thoughts,

Ted Almon
President, CEO
Claflin Company
401-739-4150 X8237 tedalmon@claflin.com