In the first part (published last Friday) the background of the issue was laid out in some detail. Marshfield Clinic has a serious problem of organization, finance and competition. The following, Part II looks at further details and issues in the evolution of health care services in the Lakeland area.
MC has borrowed, so far, $523.3 million, and is seeking an additional 200 million from the WHEFA. This lending organization is best described on its website.
"In order for non-profits to access tax-exempt financing, a governmental entity must issue bonds on their behalf. The Wisconsin Health & Educational Facilities Authority (WHEFA) is such an entity. Created by the Legislature in 1973 (Chapter 231, Wisconsin Statutes), WHEFA is a conduit issuer of tax-exempt revenue bonds for all non-profit organizations in the State of Wisconsin. WHEFA has been the conduit issuer for 839 financings in excess of over $25 billion over its 38-year history."
In their original proposal MC wanted to borrow $1.5 billion. This would be equivalent to six percent of the total the agency issued in its 38 year history. These bonds are exempt from both federal and state income tax, and being state issued is safe, but pays a low interest rate. Such bonds are commonly purchased by large financial organizations as part of various investment plans, or by high net worth individuals seeking tax-exempt income.
Of the funds borrowed so far, 300 million will be used to restructure existing debt and pay for the purchase of St. Joseph's Hospital in Marshfield, and to modernize that facility. Additional moneys will build facilities in Eau Claire, Ladysmith, Minocqua and, Wausau along with a wide variety of other projects. Mr. Moore sums up the ultimate financial stress MC faces after borrowing a total of $523.3 million.
"WHEFA issued $314,315,000 in September of this year, ostensibly to refinance a portion of debt incurred with the purchase of St. Joseph's Hospital, as well as certain other capital expenditures. That increases the clinic's annual debt service requirements from about $23 million a year, or $716.6 million through 2046, to approximately $45 million a year, or $1.5 billion through 2050."
Too, the bonds, over time, must be retired at their face value. If reimbursement by Medicare, Medicaid, or the health insurance industry declines to any significant extent, MC will be under severe pressure to meet their obligations. It is no understatement to call this a very high-risk strategy in uncertain times.
Paying all this back over 30 years will be costly. Here's where the "hard part" comes in: paying back the borrowings while offering lower cost and better care. Very hard work and managerial finesse are a given. Another point, perhaps the most important, is the high proportion of medical assistance and Medicare beneficiaries in the service area. The high cost of care will sooner or later lead to significant cuts in reimbursement. Such changes can cause an unwelcome financial embarrassment. Should this occur, MC would be forced to cut labor costs and/or raise their fees. And, all the while the public will be counting on MC to make good on their offer of lower prices and better service.
These are bold moves, but when Obama-Care demonstrated to MC their traditional organization no longer pertained, they had to act. They cannot be blamed for such action, and in fact, should be admired for their foresight. Health care services are changing and MC has chosen to change with them. But MC has company in this time of change from two other healthcare entities, Ascension Health Care and Aspirus Health Care. MC will not lack competition. They face determined competition from these two highly motivated and well-funded organizations that are just as interested in survival as Marshfield. In this confrontation there is more than a trace of concern, as evidenced by MC's recent acquisition of the health care facility in Neillsville. MC appears to moving very rapidly to acquire as many of the rural facilities as possible. The stakes are very, very high, and one senses a trace of "Hail Mary."
Ascension Health describe themselves as follows on their website:
"Ascension is the worlds largest Catholic health care system and the largest non-profit health system in the U.S. with facilities in 23 states and the District of Colombia. It is a faith-based collaboration of hospitals, medical practices and innovators that shares best practices and the goal of creating healthier communities across the U.S. though community outreach and researching ways to cut healthcare costs."
Ascension made St. Claire's in Weston their flagship hospital and in conjunction with the Medical College of Wisconsin is developing a competing multi-specialty clinic literally on MC's doorstep. They've build a very large clinic building within sight of Marshfield's offices and are beginning with an emphasis on heart disease. Other specialties will follow. Ascension operates hospitals and clinics in Woodruff, Rhinelander, Tomahawk and Eagle River, as well as multiple hospitals and medical clinics in the Fox River Valley.
Aspirus is centered in Wausau with branch facilities in 14 Wisconsin counties and the Upper Peninsula of Michigan. Aspirus is regional, but vigorous and determined. All three organizations are attempting to expand vertically and capture maximum revenue. This is not unique to Wisconsin. To a greater or lesser extent it is happening all over the country in response to Obama-Care fallout and malignant health care cost increases.
To maximize revenue in the face of low growth the parties have little choice. They must compete vigorously to lure patients away from each other or buy up other markets outright. Because of the peculiar nature of health care where most reimbursement comes from third parties, competition on the basis of price is difficult, though not impossible. Marketing is built around service, unique facilities, world- class technology and exceptionally high quality care by outstanding medical staff. All three lay claim to these attributes.
Ascension's Howard Young Medical Center problem is particularly acute in that the role of the hospital is changing very rapidly (see the WSJ for Feb. 26). Current technology and practice are literally putting smaller hospitals out of business. MC's new twelve bed facility in Minocqua puts HYMC at risk, and more likely in peril. To survive, the small community hospital needs to re-invent itself. Hospital care is becoming more and more unnecessary in light of minimally invasive surgery and effective out patient care for illnesses formerly requiring hospitalization. MC recognized these changes early. Their 12-bed hospital model will allow local care for straightforward problems and uncomplicated surgical cases. Complex problems will be referred to the regional center. Attempting comprehensive care in a small, rural hospital is no longer cost effective, and recruiting specialized physicians for small rural institutions is next to impossible.
The current millennial generation of physicians prefers organized employment, minimum call and abundant time off. They are very good doctors but have moved away from traditional practice modes and patterns. Currently in the area the vast majority of physicians are employed by one of the three large organizations. In Wausau several high quality single specialty medical groups survive and are thriving. The future of such groups suggests that sooner or later they may be absorbed into one of the three as, compliance and the difficulty of operating an independent medical practice in the face of declining reimbursement puts private practice on the endangered species list.
Ascension, responding to the need for change, plans a primary care service including a university- based primary care residency in cooperation with the Medical College of Wisconsin. This program is in the planning stages and some hiring has been done, but a date for the system to go live has not, to my knowledge, been set. This plan involves the four Lakeland units at Minocqua, Eagle River, Rhinelander and Tomahawk. Early plans call for the center to be in Rhinelander with St. Claire serving as a hub for secondary and tertiary care. Due to the complexity of the endeavor, it might take two or more years to get the needed permits and academic quality inspections. Aspirus has probably maxed out expansion possibilities regionally and will build on what they already have in place, but they, too, have seven small hospitals that may serve as a modified hub and spoke model using its large well-equipped hospital in Wausau, as the hub. They are, however, very aggressive and quick to innovate.
To reinvent themselves all the smaller hospitals must re-organize as centers of social service providing limited inpatient care, in and outpatient addiction treatment, memory care/nursing home and a wide variety of social assistance for the elderly. In the case of the Howard Young Medical Center, considering the low-income status of a large proportion of the populace, a wise move by the parent organization's part would be the establishment of a large federally funded community health center providing medical and dental services serving the whole populace. This would be an ideal venue around which to develop a residency in primary care. The hospital would survive while local care would improve and meet the needs of the lower income residents.
None of these changes would have occurred were they not provoked by Obama-Care. MC, Aspirus and Ascension have efficient, functioning systems, and would not be changing (and borrowing) except for outside forces. A plan passed by one vote without being read by the Congress is turning Lakeland and the rest of the medical world upside down. As the man said, "Elections have consequences."
While all three organizations at the moment are pursuing their own self-interest, all the community can do is watch and wait. A world-class fortuneteller would likely be baffled and unable to visualize the future. The three are well motivated and, I believe, have a clear vision of the moral imperatives, and will do their best for themselves and the community. How will it turn out? We'll just have to wait and see, but remember one thing: If medicine is now big business, then call the buyers customers, not patients. As customers you have the right to be made aware of prices and terms. As customers you have the right to buy, or not buy, but must be informed, and there has to be, if at all possible, choice. As a customer you have the right to hold the seller accountable. Do so!