By Rick Smeriglio for SCN — The healthcare industry has started to transform itself nationally and change will soon come to Alaska. The old system of paying a fee for a service will give way to a new system of paying healthcare providers to care for populations in defined areas. This according to a consultant’s report paid for by the Kenai Peninsula Borough and presented to the members of healthcare community on Tuesday at Seward Mountain Haven. The report came with a recommendation that the three hospitals in the borough collaborate more closely to include sharing assets and expertise and also to include pooling purchasing power. Matt Mendez of Stroudwater Associates, an author of the report, said that his firm remained neutral on the question of KPB enactment of borough-wide healthcare powers. Such an enactment would make the entire borough, a single hospital service area and would have property tax and hospital ownership implications.
On the subject of greater collaboration, Mendez said, “There is a great example here in this community where your CHC [community health center] and your hospital came together. Pat [Linton, executive director] and Joe [Fong, hospital administrator] have done a phenomenal job and I think it’s a model for collaboration for the other hospitals.”
The report states that the hospital in Seward “has a very small population base to support a rural community hospital.” The hospital and the separate clinic serve a population of about 5,000 souls. By contract, City of Seward pays Providence Health & Services Alaska an “annual fixed periodic fee” to manage the city-owned hospital. The clinic operates as a non-profit supported by federal grants and City of Seward funding. The report predicts limited population growth in the next five years with much of that coming from people aging into the 65 and better group. The report recognizes that the three hospitals in the borough serve distinct populations spread far apart with limited overlap.
The Stroudwater report nonetheless sees an opportunity for all clinics and hospitals on the peninsula to form a “shared services organization” to achieve economies of scale in purchasing services such as laboratory analysis, utilities, administration, and training. Collectively, residents in the borough spend about $800 million annually for healthcare or about $14,000 per capita for 57,000 people, the report says.
During his presentation, Mendez repeatedly stressed the coming end of the current fee-for-service model of healthcare delivery and the advent of a new system he referred to as the “population based payment system”. He noted glowing financial health of hospitals on the peninsula currently, but showed some data to suggest negative cash balances in five to nine years. When pressed, he predicted the end of the fee-for-service model in Alaska within five to 10 years. In the newer model, care providers compete for market share and receive payments and incentives to improve health outcomes for large populations. Mendez cited several states where the transition has already happened. Mendez recommended that hospitals on the Kenai Peninsula align themselves operationally to prepare for the future.
“Hospital that don’t succeed in aligning, are not going to survive this transition era,” Mendez said.
Clinic director Pat Linton asked about the regional alignment strategy and whether it amounted to borough-wide ownership of hospitals. Menendez replied that the question lay beyond the scope of the Stroudwater analysis.
“That is a mechanism farther down the road. The alignment strategy is kind of a transition strategy,” Mendez said.
When asked, Mendez acknowledged that alignment could occur on any scale and within any defined area, not necessarily just on the peninsula. Linton suggested that Seward’s natural alignment partnerships existed in Anchorage. Patient referral data in the Stroudwater report support this idea.
Mendez replied, “To … embrace population based payments today would be a disaster. Why would that be the case? We are not there today. We’re not being paid on a population-based payment system.”
He went on to stress the transitional nature of the alignment strategy, which would enable a nimble pivot when the market shifted as he predicted.
Linton asked about the practicalities of alignment and how it would work, given so little patient overlap between central and south hospitals and even less with Seward‘s hospital and the others. He stated that most Seward hospital and clinic care-coordination happened with Anchorage healthcare providers.
Mendez responded that peninsula hospitals should prepare for the future. He said that alignment would provide incentives to keep more patients on the Kenai Peninsula and with local partners.
“You can choose to be complacent and press on and remain successful, but for how long …. We can debate whether that scenario plays out in five, 10 or 15 years, but I think it’s going to happen. Are you going to be proactive and position yourselves to be successful or are you going to wait and run the risk of being one of those statistics [closed hospitals] that I shared earlier? Your communities can not afford to lose any of these hospitals,” Mendez said.
Linton retorted, “I don’t think it’s an issue about are we preparing for this future here in Seward … We are already about two years into it from a health center standpoint … and already positioning ourselves for that kind of a future even though we have a very small population base … The key question is why should we do it with the borough when our natural alignment is with Anchorage and not with Soldotna and not with Homer?”
Mendez said that he would not suggest abandoning relations with Providence Alaska in Anchorage. He asked why not have both: close ties with Anchorage and with peninsula hospitals.
“This is a call to action,” exhorted Mendez.
The KPB healthcare task force will consider the Stroudwater report this month and will later make its final recommendations to the KPB Mayor and Assembly. KPB leadership may consider adopting borough-wide health-care powers.