Life fight: inside Missoula’s hospital rivalry 

Community and St. Pat’s are competing more aggressively for customers who can pay the bills. Can they make the margins to support their mission?

More than 100 people gathered on a blustery gray morning outside Community Medical Center to watch hospital administrators crack a ceremonial bottle of champagne across the runner of the hospital’s new CareFlight helicopter. When CareFlight launched later that day on a promotional jaunt to Idaho, it represented not only a literal lift-off, but a symbolic escalation, the most glaring example yet of the increasingly visible rivalry between Missoula County’s two largest employers.

Since last spring, when Community announced it would begin the CareFlight helicopter transport program, St. Patrick Hospital and Health Sciences Center, the area’s largest hospital and Community’s biggest competitor, has ramped up advertising for its own Life Flight helicopter program. Full-page advertisements in newspapers accompanied billboards for Life Flight along Missoula County’s main travel corridors.

The high-profile face-off led some observers to question the wisdom of adding a second chopper to town when St. Pat’s Life Flight has almost always operated at a loss since its inception in 1982.

But Community’s pursuit of the area’s helicopter transport business—regardless of the business particulars—is only the latest and most visible development in the growing competition between the city’s two not-for-profit hospitals. In September, St. Pat’s announced it would seek a toehold the inpatient rehabilitation business, a health-care market previously cornered by Community, and St. Pat’s officials confirm that the hospital is pursuing plans to move into obstetrics, an area dominated by Community for decades. Four years ago, Community unveiled a new heart catheterization lab that competes directly with St. Pat’s longtime cardiology program.

At first glance, it might appear that the hospitals are competing for patients, but that’s only part of the story—with Western Montana’s population on a steady rise, hospital administrators and professional observers agree there are more than enough patients to go around. The true object of the Missoula’s hospitals’ expanding overture is a more particular target: patients who can pay.

Not-for-profit hospitals run two distinct but inter-related businesses: the “mission” business—which accommodates the moral obligation to provide care to anyone who walks through the door, regardless of ability to pay—and the revenue-generating “margin” business. And there’s a common saying among administrators of not-for-profit hospitals: “No margin, no mission.”

The mission business focuses primarily on inpatient medical care, emergency and trauma services, rehab, and outpatient medicine. The reimbursement sources for those types of services are predominantly Medicare, Medicaid and self-pay patients. According to the Washington D.C.-based Health Care Advisory Board, serving such patients generally amounts to low- or no-margin business and over-utilization of urgent-care resources. In other words, hospitals typically spend more on mission-based procedures and services than what they are compensated for.

The margin business, on the other hand, focuses primarily on inpatient and outpatient procedures and diagnostics, such as surgeries, diagnostic procedures and endoscopies. These procedures typically have higher rates of compensation, primarily from commercial insurance companies and Medicare.

The challenge for hospitals like St. Pat’s and Community, according to the Advisory Board, is the continued cross-subsidy of the mission business by the margin business and increased specialty competition.

And because funding for the mission business, primarily from federal programs, is falling off, hospitals are being forced to seek those margins elsewhere, driving them onto one another’s turf.

“In our last full year of operation we recorded almost $26 million of costs that we incurred in excess of patient payments,” says St. Pat’s president and CEO Steve Witz.

“We have an increasing burden of patients who don’t have the financial means to pay,” says Community CEO Tom Moser. “So we have to generate an operating margin or we don’t exist.”

This year that margin is around 2 percent at Community and about 4 percent at St. Pat’s, say the CEOs.

According to the Henry J. Kaiser Family Foundation, a non-profit foundation focused on health-care research, Montana ranks fourth in the nation for its percentage of residents without any form of health insurance. Currently there are about 176,000 Montanans—about 20 percent—with no health insurance. Among those who do have some form of insurance, 14 percent are covered by Medicare, 12 percent are covered by Medicaid, and about 2 percent are covered by other public funds.

For people with limited incomes, Medicaid is the largest source of funding.

But Medicaid and Medicare face funding cuts. On Nov. 3, the Senate voted to approve the 2006 Senate budget reconciliation bill, which includes about $10 billion in spending cuts to the programs. That same day the House Budget Committee voted to approve the fiscal year 2006 House budget reconciliation bill, which reduces Medicaid spending by about $9.5 billion over five years.

According to the Kaiser Foundation, the years 2001 to 2004 saw an 8.9 percent decline in spending by the federal government per uninsured person.

And the trend is likely only to get worse as Montana ages—a demographic shift bringing with it an increased incidence of the sort of patients and illnesses that increasingly comprise the mission business while sapping hospital margins.

In 1995, elderly Montanans aged 65 and over amounted to about 13 percent of the state’s total population, and the U.S. Census Bureau’s projects the elderly will make up nearly a quarter of the state’s population by 2025.

“The reimbursement system is set up to reward procedural medicine more than it is taking care of complex medical patients,” says Community CEO Moser. “One of the dynamics we’re seeing in health care is that with the aging of the population, you’re seeing more complex medical patients coming into the hospital.”

Both Community and St. Pat’s are designing strategies to confront the coming challenges of the aging baby boomers, while at the same time looking for ways to maintain the profit margins that fuel hospital development and growth.

All of which matters, because if aging demographics and falling federal reimbursements are the engines driving Missoula’s health-care industry, the health-care industry is the engine driving Missoula’s economy.

Started in Missoula in 1873 under the sponsorship of the Catholic Sisters of Providence, St. Pat’s is today the largest hospital in the region, operating 164 staffed beds and generating revenues of close to $232 million in fiscal year 2004, according to the American Hospital Directory (AHD).

Community dates back to 1922, and today the Medical Center includes 146 beds and generates around $139 million in revenues.

Second only to government in the number of Montana jobs it provides, health care is an estimated $4.3 billion industry in the state. And Western Montana, with Missoula as the regional centerpiece, owns about a third of the state’s health-care market, says Dr. Steve Seninger, director of economic analysis at the Bureau of Business and Economic Research at the University of Montana.

St. Pat’s is the largest single private employer in the county, followed by Community. Both hospitals rank in the top 20 largest private employers in the state. The most recent U.S. Census Bureau report counts about 7,500 people in Missoula County working in the health care and human services industries. That accounts for about 17 percent of all the people employed in the county. Those workers take home about $237 million in wages and benefits a year—about 21 percent of the money earned by county residents.

“As this area continues to expand, the demands on health care will expand. People want to have good health care and specialist health care, which both hospitals provide,” says Seninger. “It makes sense to keep an aggressive, competitive position in that market.”

This competitive two-hospital scenario isn’t unique to Missoula. In Billings, the 210-bed Billings Clinic and the 218-bed St. Vincent Healthcare, both not-for-profit corporations, serve a patient area geographically larger than the state of Montana. As in Missoula, both health-care facilities are expanding their range of services in order to maintain a broad patient load, and to accommodate the growing demands of a growing population.

“In our community, our health care organization and St. Vincent’s have several areas where we collaborate and multiple areas where we compete or have similar service lines,” says Jim Duncan, president of the Billings Clinic Foundation.

Duncan says the two medical facilities have expanded into overlapping areas of care more and more over the last 15 years, in part because of growing demand, and in part in pursuit of operating margins. In Billings, St. Vincent’s was known for birthing and rehabilitation services whereas Billings Clinic was known for heart surgery. Over time, St. Vincent’s began duplicating Billings Clinic’s heart health services, and about six years ago the Billings Clinic added a birthing center that is already making plans for expansion.

“We saw a dramatic decrease in the number of deliveries here at St. Vincent, but now we’re right around 50-50,” says Carol Beam, senior director of business development at St. Vincent Hospital.

Beam says whenever a hospital considers adding a new service or procedure, it has to first answer the question, “Is there a demand?”

“I believe that a growing and dynamic community needs to have a growing and dynamic medical presence,” says Duncan. “You can call it competition, some would describe it only in that way, but really it’s meeting the demands of the region.”

Duncan says by expanding into additional areas of medicine, hospitals are balancing their service lines so they can afford to provide services in areas that have lower reimbursement rates, such as psychiatric services.

“You want to have healthy organization that are financially fit and able to continue through tough times of lower reimbursement and the rising number of uninsured,” says Duncan. “The stronger [a hospital] can be, the more they can develop a business plan that helps them confront these challenges.”

While not all hospital spokespersons are as frank as Duncan about the necessity of pursuing high-reimbursement medicine, in the end they acknowledge the “no margin, no mission” adage as a truth of the trade.

“In health care, you can’t meet the needs of the service area if you aren’t being responsible with your resources,” says Beam.

When Community Medical Center unveiled its Montana Heart Center in 2001, some questioned whether or not there was enough business to support two competing programs. Then-president Grant Winn told the Missoulian that adding a heart center was necessary if the hospital was to fulfill its mission “to improve the health of the community through extraordinary care and service.” Winn said in order to do that, his hospital had to offer a full range of services, especially in areas where demand is growing. That meant competing in high-volume, potentially profitable areas.

By adding its own helicopter program, Community plans to deliver more cardiac patients—which typically bring higher reimbursements—to its heart catheterization lab. The CareFlight program, as currently set up, is limited to hospital-to-hospital transports for patients with the insurance to pay for the service.

Shortly before Community’s helicopter program went online, St. Pat’s moved to carve out a piece of the regional rehabilitation business by announcing that it will add a 14-bed inpatient rehab clinic, which is currently under construction and set to open early next year.

Presently, Community is the only facility in the Missoula area to offer inpatient rehab services. According to a Community spokesperson, referrals from St. Patrick Hospital make up about 40 percent of the hospital’s rehab business.

While it’s true that St. Pat’s hopes to get a share of that business, Witz says the decision to add an inpatient rehab clinic had little to do with a desire to compete with Community, and a lot to do with the fact that a growing need isn’t being met.

“Currently there is an underserved population that really has some pretty marked needs. And so we’re trying to meet that need by opening up a rehab unit,” says Witz.

Moser says he doesn’t expect a St. Patrick rehab clinic to cut too deeply into the market Community has long cornered; in fact, Moser acknowledges that Community can’t currently meet the demands of the service area.

“We don’t see our position in the market changing,” says Moser, who adds that Community is working on plans to expand its own rehab services. “I think both St. Pat’s and Community have seen that we’re under-serving the market for rehabilitation services. There’s a demand for services that exceeds what [Community is] currently able to supply. So I guess we’re not looking at it from the perspective that they’re taking that away from us. What we’re trying to do is respond to an overall growth in the marketplace.”

It remains to be seen whether the expansion of rehab options will pay off financially for the hospitals in Missoula, although its not likely that rehab will be a profit center for either hospital in the near future. Rehab services typically fall into the mission side of the mission vs. margin divide. Long-term care generally costs hospitals more than they bring in for the service, but adding services like rehab plays a role in the overall broadening of the patient loads and care for all patients.

And according to Witz, hospitals have a moral obligation to provide the best care possible to everyone. That means meeting the medical demands of patients whether they’re likely to generate a profit or not.

“St. Pat’s has maintained a very strong commitment to community service, and included in that commitment is service to individuals who have financial difficulties covering the cost of their care,” says Witz.

How long can Missoula’s two largest health care providers continue to grow, and in what directions? Can an increasingly underinsured public benefit when not-for-profit hospitals compete?

As demographic, economic and political factors continue to mold the shape of modern health care, these and many other questions about the future of Missoula’s two hospitals have cloudy answers.

In the meantime, neither of the city’s two hospitals’ CEOs are suggesting that the increased level of competition is a bad thing.

“The benefit of the situation, the way I see it, is because of the population growth, because this is such a desirable location to live, that all boats can float higher as a result of that,” says Moser. “I don’t think ‘competition’ is necessarily a bad word. What it does is it makes both of us sharper.”

St. Pat’s CEO Witz acknowledges the increase in overlapping services, but says as long as those services are scaled to meet the needs of the community, competition gives patients a choice, and that’s a good thing. However, he says, administrators mustn’t lose sight of their moral obligation to communities they serve:

“I think it’s very, very important to take the longer-term view of how best to meet the community’s needs,” says Witz. “If we move away from how best to serve the community in order to pursue short-term profits, that’s not sustainable objective, and certainly we’re not serving the community.”

It’s too soon to tell what the long-term economic impacts of recent competitive developments will be, or how they will meet the community’s needs as demographics and demands shift.

In the end, there’s no way to know what direction future competition will go, but one thing seems certain: as Western Montana continues to grow, so too will St. Patrick Hospital and Health Sciences Center and Community Medical Center.

“I think as long as you continue to see growth in the Missoula community and service area, and as a result of the changing demographic of population area, I think both hospitals will become more full-service in their approach,” says Moser.

The way Montana’s health-care landscape is changing, they’ll have to.

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