Cover Story Heal  Thyself By banding together into regional health systems, hospitals deliver better healthcare cheaper, faster Learn More: Healthcare adding 10,000 jobs a year Who's who in regional hospitals	Novant CEO Paul Wiles listens as Dr. Lisa Evans, a cancer treatment specialist and Board of Trustees member, makes a point
University Health Systems of Eastern North Carolina CEO Dave McRae addresses a meeting of hospital officials	Bertie Memorial,. which had faced closure before turning to UHS for help, now offers a new critical care facility.

By Lawrence Bivens

Dave McRae has worked in hospital administration long enough to remember the salad days. Since 1975, when he joined the staff of what is now University Health Systems of Eastern Carolina (UHS), McRae has witnessed the evolution of hospitals from a patchwork of well-funded, free-standing facilities working alone into today’s highly cost-conscious, highly collaborative system.

“Most public hospitals were owned by county government or non-profits,” recalls McRae, now CEO at Greenville-based UHS. Back then, hospitals took on all comers and were paid 100 percent of the costs of the services they provided. “Healthcare was fat, dumb and happy in those days,” he admits.

But the atmosphere soon shifted as costs surged. Government and private sector payers began demanding greater efficiencies. Hospitals searched for opportunities to leverage economies of scale. “Hospital managers began talking about reducing replication, consolidating services and working together,” McRae explains. “Some might suggest it’s all about feeder systems. But there were many business reasons for hospitals to look at affiliations.”

As is the case with many disciplines, regionalism is working to improve North Carolina’s healthcare services. As new realities arise for hospitals and other providers, it is clear that working across county lines is the best way to efficiently offer high-quality care to every community.


Consolidate or Close

While minimizing redundancy of services was a no-brainer in most urban areas, rural areas faced a different array of challenges. In Bertie County, for example, falling Medicare and Medicaid reimbursement rates pushed Bertie Memorial, the local hospital, to the financial brink during the 1980s. The sparsely populated community couldn’t produce the patient volume needed for the hospital to break even. County commissioners, who oversaw the facility at the time, even brought in a series of private contractors to operate the hospital. They too had little luck, and the facility faced closure.

“We turned to UHS for help guiding us,” remembers Bob Spivey, mayor of Windsor, who sat on the hospital’s board of directors. Experts from UHS measured the community’s needs against the hospitals resources, offering a strategic partnership that would preserve the hospital — and then some. In 1997, the facility, built in 1953, became part of UHS. Four years later, Bertie officials joined their Greenville-based partners in opening a new critical care hospital. “They’ve committed a great deal of their resources,” Spivey says.

Among other services, patients at Bertie have access to quick turnaround diagnostics from UHS’s renowned medical staff courtesy of an advanced telecommunications network. “Our hospital can take an X-ray or do a CT scan here, and specialists 45 miles away in Greenville can read the data instantly,” Spivey says. Diagnoses are typically made within five minutes. “That’s one of the major values — fast diagnosis.”

With its third-party payers, government-imposed pricing and public service mindset, the healthcare economy operates under a system of expectations that resembles no other. Consolidation, therefore, encounters constraints most industries don’t face. There is considerable nuance in the structure in which various hospitals come together under a regional banner. While it is not uncommon to see outright mergers among equals, the evolution of most systems is based on needs. Larger providers are reluctant to be seen as predators, eagerly gobbling up smaller facilities. UHS, which works in partnership with ECU’s Brody School of Medicine, is guided by the same basic objective that physicians vow upon entering practice, McRae says. “Our operating principle is to first do no harm to other hospitals in our region.” As such, UHS will only venture into partnership with a community upon request. “We only go in when asked,” explains McRae.

Anchored by the massive 745-bed Pitt County Memorial Hospital, UHS extends its presence into 29 eastern counties — a service area covering some 1.2 million people. It also maintains loose-knit affiliations with autonomous hospitals from Kenansville to Roanoke Rapids. UHS either leases or outright owns hospitals in Tarboro, Ahoskie and Edenton along with Pitt and Bertie Memorial. In 2002, UHS opened its newest facility, the 82,000-square-foot Outer Banks Hospital at Nags Head. Owned in partnership with Chesapeake Health in nearby Chesapeake, Va., the facility is meeting the healthcare demands of one of North Carolina’s fastest growing counties, which previously lacked its own hospital.

For generations, county residents had to trek to Virginia for obstetrics services, meaning most Dare County natives were, in fact, born in Virginia. “Now, they’re delivering babies every day,” according to Spivey, who serves on the board of Outer Banks Hospital. Since the facility opened, nearly 500 babies have been born there, and the hospital’s emergency department has treated more than 22,000 patients — many taken from the ranks of vacationers who overdo their coastal recreation activities.

While the emergency room at Western North Carolina’s Spruce Pine Community Hospital seldom sees the victim of a surfing mishap, it too has a story to tell about the value of regional health systems. Founded in 1954, Spruce Pine faced the same financial uncertainties that plagued many rural hospitals, including the need to find funding for capital upgrades. “In 1996, we determined we needed to replace our 45 year-old operating rooms,” explains Keith Holtsclaw, CEO of Spruce Pine Community Hospital. “But finding $3.5 million to do the job wasn’t easy.”

Holtsclaw and other officials at Spruce Pine then began talking with executives at Mission Hospital in Asheville about a possible alliance. The two facilities quickly saw the benefits each could derive by working together. Spruce Pine could upgrade its decaying facilities with low-interest capital courtesy of Mission’s strong debt rating. It could also tap strategic planning and management expertise that would be difficult at best acting alone. “From a facility and market information standpoint, they have a level of expertise — engineers, operations research and business development staff — that we would have trouble hiring and keeping on our own,” Holtsclaw says.

Mission also offers Spruce Pine Hospital, which serves Mitchell, Yancey and lower Avery counties, the capacity to provide first-rate specialty care. At weekly and monthly clinics, Asheville-based gastroenterologists, cardiologists, neurologists and other specialists treat patients at Spruce Pine, many of whom would otherwise be unable to make the journey to Asheville for treatment. The partnership provides Mission’s vast medical staff with practice experience in a remote setting. “It’s been a win-win for both of us,” says Holtsclaw. “We provide them with a perspective on rural health they don’t have.”

For larger hospitals such as Mission, regionalism provides a steady stream of referrals for patients needing more specialized treatment, offers them opportunities to achieve economies of both scale and scope. Nearly half of Mission’s patients, for instance, live outside Buncombe County, according to Bob Burgin, Mission’s longtime CEO. Paraphrasing the Tip O’Neil political axiom, Burgin believes “all primary care is local. But secondary and tertiary care is regional.”


Volume Reduces Overhead

As much as any factor, quality and cost-effectiveness in healthcare is a function of volume. Some medical malpractice insurance carriers, for example, have quit providing coverage for delivery rooms that handle less than 40 births each year. By organizing basic and more intensive medical services in a strategic manner, the healthcare system can build “high volume centers,” which are seen by some as a solution to skyrocking healthcare costs.

By coming together, hospitals also can sharply reduce the administrative overhead and other costs. Since 1997, when the merger of hospitals in Forsyth, Davidson and Mecklenburg counties created Novant Health, the total costs for noncare related expenses such as accounting and marketing have been cut in half, according to Paul Wiles, Novant’s CEO.

Larger regional system such as Novant, which is licensed for a total of 2,122 beds and employs some 14,000, also have a definite advantage in the drive to keep up with the latest technologies. That is the case not only for expensive new medical equipment, but also for information systems that enable far-flung physicians to communicate and compare notes about treatment outcomes. “Because of our size, we’re able to leverage information technology,” says Wiles.

Offering physicians the capacity to conveniently share large amounts of data means providers can identify the most promising treatment options more quickly. “We‘re able to do pretty sophisticated analysis of best practices,” Wiles says. Three years after networking its diabetes treatment specialists, for instance, Novant has noticed marked improvements in the health status of its diabetic patient population. “That’s the kind of quality a regional health system can bring to the patient,” says Wiles.

Novant emerged in 1997 from the merger of Charlotte-based Presbyterian Hospitals, Forsyth Medical Center and Thomasville Medical Center and is now among the nation’s most extensive nonchurch-affiliated “multi-market” systems. “We’re exceptionally unique,” says Wiles, who divides his time between offices in Charlotte and Winston-Salem.

 There are, of course, the predictable challenges associated with managing such vast systems, Wiles says. Among them is building cohesion across such a large, distributed workforce. Novant tries to balance the need for consistency across its facilities with the drive toward preserving the distinct culture each has. “We want to avoid preserving differences just for the sake of differences,” Wiles says.

Wiles anticipates further consolidation among hospitals in the coming years as the public becomes more focused on healthcare outcomes. Alliances of one kind or other will develop both horizontally, with hospitals working together, and vertically, as home health agencies, nursing homes, rehabilitation centers and other post-acute providers formalize relationships.

Baptist, one of North Carolina’s oldest and best known hospital systems, maintains an extensive regional presence that includes community hospitals, clinics, home health agencies, long-term care facilities and more. “Our philosophy is one of interdependence and working with community hospitals to provide access to those services they don’t provide,” says G. Douglas Atkinson, vice president for networks at Wake Forest University’s Baptist Medical Center. “Each relationship takes on its own unique capabilities.”

Size definitely matters when it comes to technology, which is a “central challenge all hospitals face,” Atkinson agrees. By aggregating their purchasing power, hospitals can slash as much as 20 percent off the costs of new technologies in some cases, he says.

But hospitals in a region needn’t undertake a formal merger in order to achieve scale economies and build collaborative opportunities. In addition to its partnership with Spruce Pine, Asheville-based Mission, for example, is at the heart of an alliance of hospitals and county health departments from across the West. The loosely knit Western North Carolina Health Network pulls together far flung providers from some of the state’s most isolated communities, enabling them to pool their purchasing power, quality measurement data and best practices. Though Mission funds nearly half of the costs of the organization, “we work on the theory of one hospital, one vote,” explains Bob Burgin, who helped engineer the group’s founding.

Mike Stevenson, CEO of Murphy Medical Center, has been impressed with the network’s ability to consolidate buying power. “We’ve had good success combining our purchasing power,” he says. Among other areas, the hospitals joined together to negotiate discounts on third-party administrative services and stop-loss coverage for their own self-insured employee health coverage. “We’ve been able to hold TPA (Third-Party Administrator) services level for several years,” Stevenson says. Other participating hospitals have actually watched their costs decrease. As for medical supplies, the network has helped Stevenson shave thousands of dollars off the cost of certain products — expensive orthopedic implants, for example, which can constitute a million dollar annual line-item for the hospital.

“The most important thing about the network is the value of interacting with other professionals who are facing similar issues,” Stevenson says. “The group is friendly enough that we can help each other out.” When new challenges arise in staffing, executives compare notes to discern whether problems are unique to their institutions or commonplace across the network. What’s more, they can share solutions. The network also has built video conferencing capacity that members can use to access continuing medical education programs without the need to travel. “We’re more connected to the world than ever before,” says Stevenson.


Regional Collaboration

The concept of a loosely knit confederation of hospitals also has worked in southeastern North Carolina, where the Coastal Carolinas Health Alliance has been in place since 1990. Like its western counterpart, the Alliance provides a forum for regular communication between nursing, pharmacy, HR and purchasing managers. Member hospitals also find the Alliance a beneficial venue for benchmarking. Providers can detect and correct deficiencies before government regulators or accrediting bodies conduct their own quality assurance measures.

“Though we certainly compete for patients in some cases, the Alliance’s mission is one of collaboration with an eye toward improving each hospital,” explains J.L. “Lucky” Welsh, president and CEO of Southeastern Regional Hospital in Lumberton. The alliance began with just five members, but has grown to include 13, two of which are in South Carolina. Others are likely to join in time, Welsh says. “We want to grow, but at a manageable rate.”

With a lean administrative staff in Wilmington, Coastal Carolinas Health Alliance is one of the best examples of regional collaboration in healthcare in the country, according to Bill Atkinson, CEO of Wake Med in Raleigh. “Yesterday’s concept of competition in healthcare has little place in today’s world,” says Atkinson, who was a key player in Coastal Carolinas Health Alliance during his previous tenure leading New Hanover Regional Medical Center, the central referral site within the Alliance. “There simply aren’t enough resources — physical or human — to meet demand in healthcare.” Regional alliances, in the end, are “really about figuring out how to cooperate in a series of life and death decisions between institutions — some large, some small,” Atkinson explains.

Tremendous opportunities remain for providers to establish regional linkages, Atkinson says. Bulk purchasing arrangements will become more important than ever as hospitals invest in pricey new technologies. But they must also come together to build a critical mass of expertise to manage emerging technologies, enabling coordination and collaboration like never before, he says. “There is a huge pool of expertise and resources available in healthcare, but they are not networked.”

Accompanying new economic and technological trends, healthcare providers must also brace for the challenges of a graying patient population. “Everyone wants to retire early,” WFU’s Douglas Atkinson says, “including doctors.” The anticipated exit of a large wave of physicians from practice will worsen existing shortages in some specialties — just as a surging elderly population sends demand soaring. Newly minted medical graduates, many strapped with massive student loan debt, will migrate toward the more lucrative practice areas. Networks, organized regionally and even nationally, offer a ray of optimism that these issues won’t overwhelm an already strained healthcare system.

“From our point of view,” Atkinson says, “it becomes imperative that we develop strong collegial relations — physician to physician, hospital to hospital — to collaborate in solving some of the new challenges.”

Many of those challenges are even more daunting for rural areas. In Greenville, Dave McRae says regional systems such as UHS help people in rural communities “get the same quality of healthcare that those in the cities enjoy.”

Some health administers believe hospital systems will continue to evolve as providers discern which sorts of services are best offered regionally and which should remain community-based. McRae believes much of it may simply boil down to patient preferences. “Some services people are willing to travel for; others they don’t,” he says.




Healthcare Adding 10,000 Jobs a Year

Charged with managing a payroll of 1,600 permanent and seasonal workers, Stephen Miller of Asheville knows a thing or two about rising healthcare costs. Providing health coverage for the Biltmore Co., of which he is senior vice president, averages $4,200 per employee. “Healthcare is a major business issue now,” Miller says. “It’s such an important benefit for our employees — and such a big expense for us.”

Miller, currently second vice chair of NCCBI, is concerned about what spiraling health costs are doing to smaller businesses. “They don’t have the buying power, and they’re really getting killed.”

But healthcare also represents an opportunity for North Carolina’s economy, according to Miller. It is an industry that is growing at a noticeable clip — in the past year, Western North Carolina has added 1,000 healthcare jobs — and the state’s top-rated hospitals constitute an enviable economic development asset. “Whether we’re trying to recruit retirees or companies, both ask about the quality of healthcare,” says Miller, who is also chair of the board at Asheville-based Mission Hospitals.

In 2002, the state was home to 361,800 healthcare industry jobs, according to the Employment Security Commission. That was about 10,000 more than in the previous year. Positions range from record clerks and dental assistants to surgeons and professional administrators. “Healthcare jobs are taking the place of manufacturing,” Miller says. “We need to recognize the role of healthcare as a positive driver in our economy.”

Many dislocated textile and furniture workers, skeptical as to whether their old jobs will ever return, have enrolled in allied health programs at North Carolina community colleges. Health industry managers say those entering healthcare careers at mid-life usually make very good employees. “We don’t see any difference at all in the quality (vis-a-vis traditional-age graduates),” according to Chat Norvell, CEO of CarePartners Health Services, a post-acute care provider network based in Asheville. “In fact, the maturity of judgment, particularly in the interpersonal area, is often superior.”

Norvell also is encouraged by the growing number of men he sees entering nursing careers. “The physical nature of that kind of work makes men a valuable commodity,” he says.

Economic development professionals agree that North Carolina’s healthcare industry, with its wide range of skill levels, can provide relief as the state’s economy works through long-term structural changes. “Job opportunities in allied health can certainly make a dent in the displaced worker population,” according to Mike Luger, a professor of public policy and director of UNC’s Office of Economic Development.

Luger says the state’s rich health amenities, including world-class teaching hospitals, help bring new companies to the state. “Knowledge-businesses look for those kinds of amenities because knowledge-workers care about access to good healthcare,” Luger says.

Those on the front lines of industrial recruitment agree. “It’s a major tool,” says Bob Spivey, mayor of Windsor and former chair of North Carolina’s Northeast Partnership, the Edenton-based development group that markets 16 counties. “When industry leaders visit us — some of whom are from foreign countries — the first two things they ask about are healthcare and schools.”

Being able to showcase technology intensive hospitals and their connections to University Health Systems goes far in assuring prospective industries that their employees will have access to quality care. “Having a link with a nationally respected health facility like UHS gives us a major advantage,” says Spivey. -- Lawrence Bivins



Who's Who in Regional Hospitals
Snapshots of the larger regional systems in North Carolina, listed alphabetically.

Cape Fear Valley Health System
Fayetteville
Beds: 741
Employees: 3,800
www.capefearvalley.com 

Carolinas HealthCare System
Charlotte
Beds: 4,900
Employees: 23,000 (includes S.C.)
www.carolinas.org 

Duke University Hospital
Durham
Beds: 1,574
Employees: 17,698 (includes faculty)
www.mc.duke.edu 

FirstHealth of the Carolinas
Pinehurst
Beds: 632
Employees: 4,193
www.firsthealth.org 

High Point Regional Health System
High Point
Beds: 368
Employees: 2,143
www.highpointregional.com 

Mission Hospitals
Asheville
Beds: 800-plus
Employees: 5,600
www.msj.org  

Moses Cone Health System
Greensboro
Beds: 1,063
Employees: 7,209
www.mosescone.com 

New Hanover Regional Medical Center
Wilmington
Beds: 976
Employees: 4,300
www.nhrmc.org 

North Carolina Baptist Hospitals Inc.
Winston-Salem
Beds: 1,291
Employees: 11,121 (includes faculty)
www.wfubmc.edu 

Novant Health
Charlotte/Winston-Salem
Beds: 2,122
Employees: 14,000
www.novanthealth.org 

University Health System of Eastern North Carolina
Greenville
Beds: 1,082
Employees: 7,500
www.uhseast.com 

UNC Hospitals
Chapel Hill
Beds: 1,082 (includes Rex Hospital)
Employees: 8,845 (includes Rex Hospital)
www.unchealthcare.org 

WakeMed
Raleigh
Beds: 752
Employees: 500
www.wakemed.org 

WestCare Health System
Sylva
Beds: 134
Employees: 1,000
www.westcare.org

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