Thanks to visionary leadership and exceptional community support, all was well at Skiff in the mid-1990s. But Newton was not typical of other rural hospitals in America at this time.
When Medicare changed its payment structure from one focused on ensuring all the costs of providing care to Medicare patients was reimbursed to hospitals and implemented a new system focused on paying what Medicare believed the cost “should” be, hospitals across the country immediately felt the pinch. Our hospital responded in many ways, including reducing the number of hospital beds dramatically and focusing operations on outpatient services. This included changing our name from Mary Francis Skiff Memorial Hospital to a name with a much broader perspective: Skiff Medical Center. Because it was located in a town with a solid base of high-paying jobs with great health insurance benefits, Skiff was able to re-engineer itself to withstand the significant reduction in Medicare payments.
Unfortunately, most rural hospitals were not located in towns as large as Newton, nor did they have the strong base of patients with private insurance to support them. These small hospitals began losing money and quickly dipped into their financial reserves to cover the mounting losses associated with caring for Medicare patients.
The problem was most desperate in small frontier communities that were located a significant distance away from larger population centers. In these areas, the local hospital was typically the largest employer in town and provided the only access to local emergency medical care.
As more and more hospitals teetered on the edge of closure, states like Montana and Wyoming began experimenting with ways to keep their hospitals alive.
In 1990, the state of Montana partnered with Medicare to begin a demonstration program which allowed small hospitals to revert back to the previous, cost-based system of hospital payment. This demonstration program was successful and congressmen from small rural states attempted to expand this program nationally via legislation … but with little success. As each year went by, more and more small hospitals across the country were closing, until the total reached into the hundreds. Finally, in the Balanced Budget Act of 1997, the Medicare Rural Hospital Flexibility Program was established. Though this program had several goals, protecting small rural hospitals was the focus. It became known as the Critical Access Hospital program.
Though the program was modified slightly during intervening years, the essential requirements for a hospital to gain critical access designation were that it have fewer than 25 licensed inpatient beds, that it keep patients no longer than four days on average (and have an agreement with a larger hospital for patients needing additional care), and that it be in a remote location more than 35 miles from another hospital. If a hospital could meet these criteria, then it reverted to a cost-based payment model whereby it would be reimbursed the cost (plus 1 percent) of caring for Medicare beneficiaries for both inpatient and outpatient care.
The bill passed in 1997. By 2001, 460 hospitals had enrolled in the program. In addition to hospitals that were truly remote, for the first 10 years of the program, each state had the ability to provide a waiver of the 35-mile requirement by declaring a hospital a “necessary provider” for their community. This ability ended in 2006. By that time, more than 1,300 hospitals had enrolled in the Critical Access Hospital program, accounting for more than 25 percent of all hospitals in America. In the state of Iowa today, there are 119 community hospitals and 82 of these are critical access. Yes, more than 70 percent of hospitals in Iowa are in this program!
Though it was clear that rural hospitals required additional funding to keep their doors open, this did nothing to help reduce the ever-increasing cost of health care in America. Even with the extraordinary reductions to hospital payments made by Medicare in the mid-1980s, health care costs continued to grow much faster than inflation. This led to an ill-fated attempt at health-care reform by the Clinton administration in the early 1990s. “Hillary Care,” as it was known at the time, was met with great resistance from the insurance industry and conservative groups. The bill was easy for opponents to disparage due to its complex series of control mechanisms, national boards, and rules aimed at achieving universal coverage. The public backlash to the reform bill was intense and was a factor in the GOP taking control of both houses of Congress in 1994 for the first time since the 1950s.
Though broad-based health care reform failed in the 1990s, a number of programs that are well known today were established during this period, including the S-CHIP program insuring children, the Health Insurance Portability and Accountability Act (HIPAA), which became most well known for its privacy requirements, and the creation of Medicare Advantage programs which allowed seniors to receive insurance coverage through subsidized private insurance instead of traditional Medicare.
The mid-1990s in Newton, and at Skiff, remained a time of growth and hope. The renovation and expansion of the facility which began in 1991 was completed in 1994. An ambulance service staffed by paramedics began operation during this time. The percent of patients from Jasper County utilizing Skiff for their inpatient care had increased from 27 percent in 1987 to 40 percent by 1994. In that same year, Lois Vogel was named the “Outstanding Nurse Executive” in Iowa. In 1995, Ron Ross was named the “Iowa Hospital Administrator of the Year.”
Then, in 1996, Ron Ross, the engineer of the transformation of Skiff, was diagnosed with cancer and passed away only five months later.
Fortunately, Eric Lothe, a rising young star who had worked under the tutelage of Ron for several years and had only recently taken the position of hospital administrator in another town, accepted the request to return to his hometown and take the helm. Though the 75th anniversary celebration in 1996 was dimmed by Ron’s passing, things were still on track for a bright future at Skiff.
The new leadership team picked up right where the old one had left off and began responding to the constantly changing health-care environment. The Balanced Budget Act of 1997, which was saving so many rural hospitals, actually had a very negative impact on those which were too large for the new Critical Access designation. In order to reduce Medicare spending, the bill cut payments to hospitals and doctors by $112 billion. The reduction in reimbursement for some services, psychiatric units for example, was so severe that many hospitals, including Skiff, closed their inpatient psychiatric facilities. The bill also implemented the Sustainable Growth Rate (SGR) formula for paying physicians. The intent of the SGR was to limit growth in physician payments to no more than the cost of inflation, and if the prior year growth was greater than inflation, a decrease would automatically be triggered the following year. Because of the way the formula worked, the SGR triggered a decrease each year of 1-2 percent. Congress was never willing to let the physician payments actually go down, so each year they postponed the cut to the next year. The impact is that the automatic decrease for each subsequent year adds to decreases from prior years that were never implemented, making the cumulative reduction bigger and bigger each year. Because of this, on Jan. 1, 2014, the automatic decrease in physician payments was calculated to be 24.1 percent, but – you guessed it – Congress postponed it again. When you watch the news and you hear that Congress is struggling with the “doc fix,” the SGR program is what they are talking about.
Medicare wasn’t the only insurer cutting their payments at this time. In 1998, Wellmark BC/BS changed their payment system from the traditional percentage of charge, to a set fee schedule. Medicare, Medicaid and BC/BS covered the vast majority of patients in Iowa, and with none of them paying hospitals based on the price the hospital charged, hospitals no longer had the ability to increase their revenue by increasing their prices. At this point, the only way to increase revenue in a hospital became increasing the volume of services provided.
Skiff responded to these changes very well by focusing on cost reduction, physician recruitment and a $2.3 million facility expansion plan. These were impressive responses to difficult situations and, later in 1998, Eric Lothe was named the “Young Executive of the Year” by the Iowa Hospital Association. In 1999, Skiff was designated a level III trauma center and was named one of the top 50 hospitals in the U.S. for quality as measured by the Center for Healthcare Industry Performance Studies.
Hospital payments took a hit again in the year 2000 when Medicare transitioned their reimbursement for outpatient services from one based on cost, to one based, again, on what Medicare believed the costs should be. Fortunately, these large cuts to hospital outpatient payment for rural hospitals were reduced by the implementation of a program which delayed their implementation. There were some bright spots in 2000, though, with the implementation of new payment programs targeted to mid-size rural hospitals like Skiff. The Medicare Dependent Hospital designation was enhanced and provided additional payments to hospitals with fewer than 100 beds. These same hospitals were allowed to keep patients in the hospital who would otherwise have been transferred to a skilled nursing facility. Essentially, these patients would “swing” from a payment status of inpatient into a payment status of skilled nursing without leaving the hospital.
Skiff continued to find innovative ways to respond to this unpredictable environment. In the year 2000, an assisted living unit was opened in space previously occupied by the psychiatric unit and, prior to that, by the extended care program.
The outpatient kidney dialysis unit was opened in 2001 in a partnership with Davita, and a hospital-wide implementation of an electronic medical record system began that same year. In 2002, a $1.5 million project to enlarge the outpatient surgery area was undertaken, a new CT scanner was installed, and 24/7 coverage of the emergency room began in early 2003. In 2004, an extensive upgrade of the original 1922 building was initiated, including upgrades of the first and second floor, development of a beautiful hospice house on the third floor, and reopening of the original west lobby entrance.
By 2005, things were even better. The month of July set a new record for revenue, and market share for inpatient services jumped to nearly 60 percent. Two hundred and seventy-four babies were born at Skiff, the highest since 1978.
Employee satisfaction was in the top 4 percent of all hospitals in America. Major construction ended with the opening of Memorial Hall in the original hospital lobby and the placement of the cartwheeling kids sculpture in front of the hospital. The Iowa Hospital Association recognized Eric Lothe with an “Excellence in Leadership Award” and Gary Kahn was named the first non-hospital executive to chair of the Iowa Hospital Association Board.
2006 was a year of even more exceptional volume, patient satisfaction and quality at Skiff Medical Center. With nearly 15 years of growth in the books and high hopes for the future, the passing of the deadline for hospitals to enter the Critical Access Hospital program by gaining “necessary provider” status from the state passed by quietly.
Who would have thought at the time that things were going to change so radically, and so quickly, not just for Skiff but for the entire community?