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CEO Sees Promise to Fill Empty Hospital Beds

Call Saliba H. Salo an optimist, but he believes that once all the regulations are issued, once uninsured patients get coverage, and once hospitals do all they have to under health care reform that his hospital will be better off. Salo is chief executive of Northridge Hospital Medical Center, a 411-bed facility owned by Dignity Health, a San Francisco-based nonprofit formerly named Catholic Healthcare West that owns 40 hospitals, mostly in California. Health reform holds the promise of filling empty beds, which have been so numerous at Salo’s facility that he has let go 35 nurses in the last two months. He blames the slow times on the recession, because out-of-work people don’t have insurance and thus can’t go to the hospital. Also, new surgical procedures require less healing time and fewer nights in the hospital. Under health reform, millions of previously uninsured people in California will have coverage and will come to the hospital for long-deferred surgeries, Salo believes. “Health reform will cover millions of Californians and that will benefit us,” said Salo, who assumed his position just two months ago. More importantly, the reforms will plug some big financial holes, starting with Medicare. The federal program pays 80 to 90 percent of the cost for a hospital patient, while the state-run Medi-Cal pays about 65 percent. To make up the difference, hospitals overcharge private insurance patients and use the extra money to subsidize the government programs. Under the new system, Salo believes this cost-shifting will be reduced or eliminated. While basic Medicare payments will not increase under reform, several new programs offer improved revenue opportunities to hospitals. For example, there are pay-for-performance measures that rate hospitals on a number of metrics, such as readmission rates and treatment success rates. Poorly performing hospitals have a percentage of Medicare payments withheld, while better ones receive a bonus. The reform law also includes a bundled payment provision in which the hospital, doctors and other providers will receive one payment for certain Medicare-funded procedures, such as a surgery. If providers can save money through cooperation, they can improve their profit margins. Salo has already signed agreements with physician groups and others to prepare for this type of structure, which he believes will reward his hospital. “It becomes cheaper if you practice a standard of care and you repeat the same procedures over and over,” Salo said. “We need to become more efficient.” Different opinions Not all in the industry are as sanguine Salo. Jim Lott, executive director of the Hospital Association of Southern California, a Los Angeles trade group, cautions that a key goal of the reform law is to reduce costs. And since hospitals are the most expensive place in the system, reform will try to limit inpatient stays through preventative care and out-patient procedures in clinics. “The jury is still out on whether reform will put more patients in hospitals,” he said. “The whole system is designed to keep them requiring hospitalization. But what counters that is the natural growth and aging of the population, which is synonymous with more hospital visits.” He also said hospitals face a big challenge in trying to adapt to the new financial model. The hospital association is recommending hospitals start by determining what they will receive from Medicare, a chief source of revenue and benchmark for other forms of payment. “Adjust all of your revenue estimates to what Medicare pays, then adjust your expenses to live with that,” he said. Not all hospitals will make the switch successfully, said Lott, who estimates that of the 400-plus hospitals in California, about 10 percent will close in the next few years. Steve Valentine, president at health consulting firm Camden Group in El Segundo, said it’s unclear whether hospitals can live within Medicare payment levels while also meeting federal mandates such as instituting expensive electronic medical records systems. “There will be tons of economic pressure for sure,” he said. There is more agreement on health care reform’s effect on reducing uncompensated care, which stems from treating emergency room patients. Under federal law, an emergency room cannot refuse care to anyone, regardless of ability to pay. Salo said his Northridge facility sees as many as 200 patients a day in the ER, many of whom can’t pay. He figures traffic will fall as the uninsured get coverage and visit a regular doctor’s office – and more of those who do show up in the ER will be able to pay. Lott estimates that most hospitals will see a two-thirds reduction in non-paying customers.

Joel Russel
Joel Russel
Joel Russell joined the Los Angeles Business Journal in 2006 as a reporter. He transferred to sister publication San Fernando Valley Business Journal in 2012 as managing editor. Since he assumed the position of editor in 2015, the Business Journal has been recognized four times as the best small-circulation tabloid business publication in the country by the Alliance of Area Business Publishers. Previously, he worked as senior editor at Hispanic Business magazine and editor of Business Mexico.
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