Healthcare Finance 101 with Steve Febus

[MUSIC]

>> Thank you, everybody,

for [APPLAUSE].

Don't clap yet.

Save that for- you may
want to take that back.

So first, before we
start I just got to

acknowledge Dr. Frakes
in the back here.

He was my auditing
professor

back in the day
when I was at WHU

so I think he's
come to critique or

take my diploma back,

I'm not sure. We'll
see how this goes.

So a little nervous now.

Thank you. Tell
you a little

bit, just horror story.

So I'm really very young,

Ruben so the reason

I got this job, I had
to pay off my bill,

and I'm still trying
to pay that off,

so I relate to
everybody's questions

regarding
hospital billing.

No, not really.

But I did start the
hospital back in 1988.

It's hard to believe
it's been that long.

Great family to work with.

I don't know
if you or many

know this in 2002,

I tried to escape.

I resigned from Pullman
Regional Hospital as

CFO and moved to
Tucson, Arizona.

I didn't get too far
out of town before

Scott asked if I could

stay on and we'd work

out some type
of arrangement.

So I still reside
in Tucson.

I've been doing
that for 15 years.

So half of my career
has been living in

Tucson and still working

at Pullman
Regional Hospital.

Pullman Regional
Hospital is

dear to my heart.

I have past board members

in here tonight and they

all know once you

get Pullman Regional
into your system,

it's hard to get it out.

It becomes a part of you.

You believe in the
community. You believe

a lot in what we're doing.

I really appreciate that,

especially working
with fine people like

Mr. Adams and Mrs. Eiler,

Dr. Cagiano that have

really become
family members.

Shauna Patrick, who's
my controller here,

has been with me, Shauna,

we've been together
16, 17, 18.

I mean, it's been
a long time.

>> Twenty years.

>> Yeah, it's amazing.
You got great people.

So let me start
with a little bit.

One of the nice things
about doing it in

this environment is I've

always believed whenever

I'm talking with anybody,

you have to give
them a takeaway,

you're investing time here

and if I failed to
do that, I failed.

The nice thing is
we're feeding you,

so at least you

give away full, hopefully.

So at any point,

if you want more, feel

free to get up
and go get more.

And so, at least
there's one takeaway,

so I feel good about that.

But let's start with
a little bit here.

Well, words of
wisdom here.

So being an account,

the pessimistic side of

me that really ring true.

But our goal

tonight is talk a
little bit about

healthcare and
specifically

healthcare Finance 101.

We have about an hour so

I'll hold pretty
true to that.

We'll get you out a
little probably early,

but really, this
is your time.

If there's questions
you have specifically,

I will address those
the best I can.

If there's
something I don't

know, I'll go find out,

and I'll make
sure that you all

know within a few days.

But hopefully, you'll find

this very meaningful in

terms of a better
understanding.

So that's our goal.

To do that, we have to have
a baseline of knowledge.

We have to have a
working platform

to communicate
effectively.

Because healthcare,
like any industry,

we have acronyms, and

I don't know if
it's purposeful,

so nobody else can come
in it's like a club.

Or if it's actually
the fact that we just

try to simplify our lives
by having acronyms,

and we throw them out as

if they're everyday speak.

So let me talk about a
little bit of things

just to make sure as

we're going through this,

as I mentioned something,

we're on a common ground.

So first thing, when we
taught gross charges,

this is what we
bill the patient.

Isn't what we get

paid but any
patient comes in,

it's going to be
whatever they had done

times whatever
quantity of whatever

they did and that's

going to be what
gets billed down.

From there, we
have contractuals

or deductions
from revenue.

That consists of
things like bad debt.

We have patients that
don't pay their bills,

hard to believe.

We also take care
of the indigent,

those that can't
pay their bills.

So we have charity care,

ways by which they
can have services,

as part of our mission.

And so they'll come in,
and if they qualify,

parts or all of

their bill can
be written off.

And then in addition to

that, we have contracts.

Now, we have a contract

with federal government,

Medicare and
Medicaid Services,

and they tell us what
they're gonna pay us.

You don't get to
negotiate that.

Under that means you get

told what you're
going to get paid.

However, other insurance

companies like
Primera, Blue Cross,

now Group Health, Molina,

any of those we negotiate
contracts with.

We never get 100%.

Back when I started,

we had contracts that were

98% of charges or
90% of charges.

And today, the
best commercial

contract we have
is right around

73.5% of charges so,

things have changed
significantly.

That was my sign to
repeat the question.

So is Medicare, Medicaid

around 33, 34% charges?

The write off is around
45% of charges, 50%.

We'll get into that
a little bit of why,

what that means and
how that works.

And specifically,
it means for

Pullman Regional Hospital.

So if you take that
gross charge and you

subtract those write offs,

be it bad debt, be
it contractual,

that's really
the net revenue.

That's what the
hospital has to

be able to fund
current expenses,

which would be
salaries, wages,

benefits, and future.

Things like capital, etc

that ends up being part of

depreciation and the like.

From there, once
you minus all of

those daily operational
expenses out,

that's what we
have in terms of

our basically
operating income.

Now, I'll tell you,
in healthcare,

margins are small.

In almost especially

critical access hospitals,

most of them don't

have an operating
bottom line.

The only way they have a

positive bottom
line and many

don't is the fact

through non
operating means.

In our particular case,

we have a great community
that supports us.

We're a public
hospital district,

and we get tax support,

which has been tremendous
blessing to us.

In addition to
that, we have

some properties
in which we rent.

We get some rental
income off of.

That's a non operating.

That's not what we're in
the business of doing.

And then other things

are like foundation
donations,

which are very beneficial

to us in order
to be able to

provide the spectrum and

the overall care that
we're able to do

here that many
communities can't do.

So a lot of it is

the support we've had

from the community itself.

So that ends up being
the net income.

And in our business, it's

almost you can't
have a profit.

We're a nonprofit so you

can't have profits,
but we have excess.

We have excess of
revenue over expenses.

What does that mean?
It's bottom line.

You call bottom line,
call it net income,

call it anything you want.

It's really your profit.

Now, I'll tell you

a story just for a second.

I'll just digress
for a minute.

And Al probably
appreciate this.

My wife's a pharmacist,

and she's probably in

terms of knowledge
and brightness,

she outshines me by far.

But last her senior
year she had to

take an online course
or one of those

that just to fill
a GR and I said,

I'll take accounting
it'll be simple.

I'll teach you.
I'll help you.

I thought we were gonna

get divorce our
first year of

marriage because she

couldn't understand well,

what's this net income
or profit or excess?

Why can't you just call
it the same thing?

Oh, it is. It just depends

what business
line you're in.

Owner's equity is the same

as the net worth
is the same as,

etc, and she just
couldn't get it.

I finally just said,

okay, I think somebody
else has to help you.

But we got through it,

and we're still married.

It's been 30 years.

So somehow we made
it through that.

But a lot of these terms
are interchangeable,

and we'll talk about some

of those so I'll
throw those out.

Here's your first
opportunity to have a quiz.

She said, I can't
ask her questions,

but no, this is for
the whole room.

Let me ask you a question.

This is your first test.

These are reimbursement
theories.

These are different

reimbursement methodologies
in healthcare.

One is diagnosis
related groups, DRGs.

Folks may have
remembered those

came back in
the early 80s.

Medicare came down
with that and said,

we're going to say
every patient that has

a x diagnosis of

this will be in
this grouping,

then we're gonna pay y.

So they created this

in order to control
their costs.

MSDRGs is another
methodologies.

Anybody know
what that means?

What's the
difference between

a DRG and an MSDRG?

So there's certain things

Medicare don't
typically pay for.

Pregnancies not
very many people in

the Medicare population
are pregnant, etc.

So commercial payers have

additional DRGs listed,

which are the MS side of

it, medical surgical side.

Common procedural
terminology, CPTs.

Full charges or percent of

charges. And also costs.

Let me ask the question.

Which of these does Pullman
Regional Hospital get paid

under? Go ahead, Mayor.

>> All.

>> Thank you. Good answer.

Every single one of those.

Not confusing whatsoever.

We just got to figure

out which one and
play the game right.

And by the way, insurance
companies love to

change what's acceptable
and non acceptable,

what's allowable,
non allowable.

We'll get a
little of that.

But we get paid

under every single
one of those.

So it's really
dependent on the payer.

If we had 100% Medicare,

it's so much easier
to budget we don't.

We have a variety of
various insurers.

Today, our population
in terms of Medicare,

Medicaid runs about
45% of our charges.

Pullman is in a
very good position

from the terms of the
ability to do what we

do because we
have a very good

pair mix due to
the fact that we

have Washington
State University

here and SEL here.

Not very many
communities of

our size in rural America
have that luxury.

Most of them typically

you can think of small
farming communities.

There's a lot of Medicare,

Medicaid, especially.

You think of
Othello, think how

heavily Medicaid
their population is.

It's hard to make
anything, and

we'll go into why
that is in a minute.

So again, we're
still laying

some framework about
hospital Finance

101 because
some of this is

meaningful in
how you approach

services you may provide.

Hospital structures,
these are

really the three
types of structures,

public, which would
be federal, state,

local ran facilities,

non for profits,
and for profits.

In our geographical area,

how many of these do
you think we have?

Think of the quad
cities here.

You may not. We have

two public hospital
districts in this area.

In fact, there are

three public hospital
districts in this area.

Pullman Regional Hospital,

we're public
hospital district.

Number 1A of
Whitman County

doing business as Pullman
Regional Hospital.

And then you have

Public Hospital
District Number 3.

Anybody name who that is?

Whitman. Can anybody name

the other public hospital
district Garfield?

Do the hospital
in Garfield?

No, they do a
assisted living

in home health, but
that's their district.

They used to years
and years ago,

there was a hospital,

but they don't
have one now.

So those are
public hospital.

What about non
for profits in

our region? Think of any?

You got Gritman down

the valley, you
have Tristate.

Today, you have
a for profit in

our backyard you never

had before this last year.

St. Joe's. That will
be a new dynamic.

>> Steve, does Garfield

include the EMS system?

>> It very well could.

So does Garfield's
hospital

district include the EMS?

Likely to support that.

I'm not clear on
that, but likely.

They do have
some tax bonds.

So in our population,

you can see this
is a distribution

of this across the
United States.

Many are not for profit,

as you can imagine,

supported in one
way or another.

Not very many for profits.

In fact, CHS, which is

Community Health
Systems is one of them.

Almost all of them run

out of Tennessee
for some reason.

I don't know if it's
a tax advantage or

that's where they all.

RHSC, which actually runs

Tristate is another
one of them.

But many of them
are divesting

so if they aren't making
money, they get out.

I'll tell you,
right now, for

profits typically run

margins are
working towards

margins in the
double digits.

Non for profits
are typically

around 1-2% across
the United States,

and we're really no
different than that.

You'll have a few that are

higher than that,
but not very many.

You can see how
many are in

urban settings versus
rural settings.

So not a complicated
system at all.

It's very pretty simple.

This is one
segment of that.

Remember, under
payment methodologies

we just talked about,

this is one aspect,
and this is

just the Affordable
Care Act, by the way.

And by the way,

you're here. This is you.

So to get paid,
there's really pretty

simple you just got

to work through all
of these means.

A lot of regulatory issues

and things so
people wonder why

healthcare is a
challenge in terms of

reimbursement and
making profit

there are so much.

One of the highest
regulated bodies

in the United States
is hospitals.

This is just
to get payment

under this new
healthcare system.

So there's no
additional taxes

wasted within this at all

it's pretty seamless.

And this is changing
all the time, so you

got to learn how
to play for it.

This down here, which

is the Medicare
Medicaid Services,

it's changed
significantly,

especially under
physicians,

if you recall
and how they got

paid just changed
this last year,

and they are going to
now their increases,

which was budgeted
and under the SQR,

which was the growth.

That's how they
got additions

every year. Now
they've changed that.

And it's called MACRA, and

the way physicians
will see increases,

there'll be no new money

there'll be winners
and losers.

And it's all based on

quality and what your
reporting scores are.

And if you do it right,

then your neighbor
doesn't do it

right he loses money,

and you get some
of his money

because it's
budget neutral.

And that's the payment
increases that

physicians will see
moving forward.

How many physicians like

to be under that model?

Not many.

How many people have
felt our struggle

even here on a local level

to find a primary
care physician?

A few.

It's been a challenge.

We have people retiring,

and it's hard to recruit.

Pullman's very attractive
from a destination,

but you can
imagine some of

these rural
communities where it

is really a struggle
when we struggle.

In fact, we were down in

some of our primary
care practices.

I say our, because it's
a community when I

think half the
providers they

used to have
four years ago,

and they're trying
to recruit in.

It's challenging
on the market

because why would
you want to do that,

especially under the
old payment models?

We're going to talk a
little bit about that.

The revenue cycle.

So as you think

about Healthcare
Finance 101,

how we make our money is

through seeing
volume today.

There will be a
point in time,

I think, years from now,

in which the less you see,

the more you make because

it'll be value-based.

You want to keep
people healthy,

which should be
really our mission.

Today, we keep people

healthy that's
not good for

our bottom line,

but it's the right
thing to do.

And we're doing
those things today.

We have a whole care
coordination team

over here with

social workers and we

don't get paid a
dime for that,

but it's the
right thing to

do for our community.

If I was strictly a

for-profit, you know what?

They wouldn't have
that. Your Red Sage

would be open 10:00-2:00.

It wouldn't be
open 7:00-7:00,

because I would be
cutting every cost

I could out of
this organization

and putting every dollar I

could to my stockholders.

There would be things
I wouldn't run.

I would not run
7.2 physicians

in my emergency
department, not 24/7.

I don't have that
many physicians,

but around the clock.

I'd run a bare
bones 4.5 FTEs,

run them till the bone
and fire and hire

another one coming
in two years,

burn them out,
get another,

because I could save

hundreds of thousands
of dollars.

But the quality of care
wouldn't be there,

and you'd just burn
through people.

It's not that
their quality is

bad because they still
score very well.

It's the fact that

the experience is
much different.

I speak from a
personal level

on many of these.

My wife works for
CHS as a pharmacist.

And I will tell you, it
has been a struggle.

They opened a brand
new facility in

2004, December.
Sound familiar?

We opened ours
in December.

They have been burned
through 15 pharmacists.

They have three
at any one time,

and they've burned
through 15 pharmacists

since she started
to today.

We've had one retire.

Tells you a little
difference of

the culture because it's

not about the people,

it's about the
bottom line.

So when you think
about revenue cycle,

you think zero to zero.

You'll all be experts.

You can start consulting

businesses after tonight,

because not very many people
really understand this.

Zero to zero. How
much do you owe when

you come in and do

registration or you
come in for a lab?

Before you have that down,

how much do you
owe the hospital?

Nothing.

You come in, you have
that service when

you have that surgery,

whatever, you go
through a process.

You hit registration.

Within that
registration process,

there's things
that should have

happened either before or

happened during
with authorization.

Does your insurance
authorize you to do this?

Did you have to
have a referral?

If you didn't have to have

a referral, I'm sorry,

you'll have to go back to

your primary care,
get the referral.

Then when you can
come back, we'll have

the procedure after that.

If not, and they didn't

require a referral or
we had the referral,

then we have to have
authorization because

if we don't have
authorization,

they won't pay us.

And if we miss that
step, it goes what?

We're out, or we fight
insurance companies.

We write a few letters.

I'll tell you this year is

much better than before.

We've had 64
denied claims.

Last year, at this time we

had 250 denied claims.

Jumping through insurance
companies' hoops

on trying to get paid.
That's this process.

Registration, insurance
verification,

point of service
collection.

We don't do a
ton of that here

because our people
are very good

here in Pullman about

paying for their services.

Some places,

they'll require
you to almost pay

your deductible upfront

before they'll
ever treat you.

Financial clearance
all the way

through till the
very back end of it.

After we do all of
the billing process,

insurance pays, we go out,

we collect the deductible,

we write off the
contractual write-off,

that account goes to
zero, zero to zero.

That's the revenue cycle.

All of those things
have to flow

very fluidly in
order to get there.

Sometimes they
work seamlessly.

We can get paid 14
days and be done.

On average, Pullman
Regional Hospital takes

34 days to collect
zero to zero.

How's that compare
across the nation?

Across the nation, it's
gotten much better.

It used to be
around 50 days.

Now it's about 48 days
across the nation.

We do very well here,

and we've got good payers.

And some of them,
you can get

this whole process done

within a couple of weeks.

Sometimes it's
not that easy.

We still have accounts

that we're working
on that are

almost a year
old. Got denied.

We appealed the denial

because they didn't
tell us they

changed the rule
on what had

to be authorized
beforehand.

We had the physician write

that this is appropriate.

They are in review.

They deny it. We go
back through it,

and we fight it.

We finally get it
paid, or a patient

comes in and they
say I have Primera.

Give you the card.

Come to find out, shoot,

no, I don't. We changed.

But you don't get
that until you get

the denial from the
insurance company.

You go back through
and they go,

no, I haven't.

Then they give you

a different card
and you go through

that process and
it takes time.

So this is just
how this segment

would work zero to zero.

You schedule, you come in,

you check eligibility,
you treat, you code.

The coding aspect,

that's your
medical records.

Once it gets coded,

and by the way,
do this right.

So one thing, let's say
you had a total hip.

If the physician didn't
write that he put

the device in
and didn't chart

that he put the device in

but you are
walking around,

evident that you really
had a total hip,

we don't get paid

because it wasn't
documented.

So if you didn't document,

it doesn't matter if
you did it or not.

You didn't do it. So you

got to document for
everything you do.

So a lot of this is
making sure we educate,

train, and then you

go through the whole
collection process,

which is active
collections,

insurance billing,
post collection,

which if somebody
didn't pay,

how do you collect that,

all the way to legal

where you might do liens.

Many times, hopefully,
it goes very clearly,

but sometimes it
doesn't work as well.

So this is just
another aspect of

that. This is one bill.

Fifty percent of
everything we

do is going to be done
on the front end.

And most hospitals in

the past haven't treated

the registration staff
as a key player.

Fifty percent of getting

this right happens there.

If you don't train
those people

and you don't
keep good people,

you got a 50:50 chance
of ever getting paid.

We do a very good job
much better, 2015,

we wrote off almost two

point some million dollars

in process errors and

things because the
front end was bad.

Now, much of
that we denied.

We got denials and stuff.

We had to fight to get
every penny of it,

and we do very
well at that.

But if we fix it
on the front end,

we don't have to fight
it on the back end.

And so we did a
tremendous amount

of effort to clean this
up on the front end.

And today, it's
basically gone.

Fifteen percent is in

the actual
medical records,

so the coding
aspect of this.

This is when it
goes through

our coders, inpatient
outpatient.

They read the documents.

What was documented?

What should that CPT be?

Make sure they code
all of that out

that DRG, that's
their job.

If they do very
well at that,

we get paid well.

And then 15% is on

the charge entry
now charges.

So this happens here.

I've talked to nurses.

I've talked to staff
many times saying,

don't make the decision on

what should be charged
to the patient or not.

Document
effectively so that

we can bill appropriately.

Because if you document

what we did, then
we can bill.

If somebody can't
pay, I have

all ways to be
able to help them,

charity care
payment terms.

Let's pay it over
12 months, etc.

Those types of things I

can help patients with.

But if the nurse upfront

decides the poor
college student,

they're probably only
eating Top Ramen.

Let's not bill them.

I won't charge
them for that.

They don't look like
they should be.

Then I have to
raise charges

somewhere else to cover

that. That's a
loss leader.

So we aren't pricing

effectively for
everybody else.

We have means by
which to handle that.

So let's just bill
appropriately.

So that's part of that
charge entry side.

That's what they do.

And then the
billing aspect,

which is your financial

services component to it.

So a little bit

about Pullman
Regional Hospital.

We'll get a little
more specific.

Those are some high-level
aspects of it.

We're going to
drill down a

little more about
who we are,

what we do and
how it works.

So today, most people

know Pullman
Regional Hospital.

But I don't know
if very many

people know or
how many people

know we have

Pulman Regional Hospital
Clinic Network.

We own today three clinic
practices directly,

which are wholly
owned means

Pullman Regional
Hospital is 100% owner.

They're as an LLC,

but really they're 100%

owned by the hospital.

That includes
Palouse Pediatrics,

Palouse Psychology &
Behavioral Health, and today,

Pullman Family
Medicine, who just

joined that clinic
network as of April 1st.

So we go back and we
talk just a little

bit as to why

we might get into
some of these.

In addition to this,
we have joint ventures

with really three
groups today.

One is Palouse Surgeons.

The other is under
Palouse Specialties,

which is Palouse ENT
and Palouse Urology.

Those are owned
40% by Pullman,

40% by Gritman,

and 20% by Whitman.

Three hospitals
came together.

Why would we do that?
That's craziness.

Let them Let them
sink or swim.

You're on your
own. Dr. Cagiano,

would we have an emergency
department if we

had no general
surgeons there?

>> It wouldn't be a full
emergency services.

>> You couldn't even

offer an emergency
department

without having a
general surgeon.

You could offer
an urgent care.

But by rule and
regulations,

you couldn't offer an
emergency department.

You wouldn't be a
hospital without him.

Well, we had that
situation facing us.

We had one general
surgeon on

the Palouse
running 365 days,

we're doing three
hospitals who said enough.

If the hospitals
didn't jump in,

we wouldn't have
had anybody.

And we said, what
do you need?

I will only take call
one week every four.

We got to have three
other general surgeons.

That's the standard, so

the three hospitals
come together.

We have four general
surgeons today.

Do they make enough
money within

their practice to
pay for themselves?

No. Because, really,

for this community,
you probably need 3.5,

but it's hard to
get a half a doc.

They usually come
in wholes for

some reason. I don't
want a half a case.

But no, they
come in wholes.

And so there's a subsidy.
There's a support.

But the services
they brought into

the hospital offset that.

That's not always true
within primary care.

But without primary care,

we wouldn't have
a hospital again

because they had so many

additional tests
that they order.

But under that model,

if we go back and look and

how many people
want to be under

that payment models that

they were physicians
especially?

Physicians coming out
of training today,

they want to take
care of patients.

They don't want to run
their own business.

They want out of the
insurance world.

Who would want to
do that anyway?

It's a pain. They
want to come in.

And by the way,
if they come into

Pullman and
under our model,

no, you have to
be a partner.

And by the way,

your pay is
going to go down

25% next year compared
to this year.

Now, where do I sign up?

That sounds really
good to me.

I have no security

for me and my family.

It's not going to happen.

When you can go to
Spokane and have

an income guarantee

that's out of the gate 30,

40% higher and you know

you're going to get
paid that every

year plus
probably a raise.

You wouldn't come.
That's part of

the challenges

Pullman's facing
with recruitment.

So today, that's why

physicians coming
out of school,

they want an
employment model.

And we have met that.

We have adjusted our
practices to meet

those things
because access

to care is really
important on the Palouse.

So we have here about
almost 450 employees,

of which 274
are full-time,

174 are part-time.

We have a great
volunteer in

auxiliary team that helps

support our services
at Pullman.

Some are here
tonight, and I

really appreciate that.

And then we have a very
active medical staff.

And the nice thing
is, we've been fairly

successful on recruiting,
which is good.

It continues to
be the case.

So I'm happy to say

that folks haven't
heard we have

successfully recruited our

fourth orthopedic
surgeon to

the Palouse who will

be joining the Inland
Orthopedic Group.

That's awesome.
Those guys will

be thrilled because that

will make their quality

of life that much better.

On an annual basis,
if you go back to

our knowledge base,
we gross build.

This is when we collected.

I'd love it if we did.

Life would be so
much easier for me.

But we build out 116,
almost $117 million.

Pullman Regional Hospital

isn't a small business.

We have a pretty
substantial footprint.

Of that, do you know
how much we have at

the end of the day
last year to work with

to pay future bills

like new equipment
technology?

A million dollars.

Not a very high
margin in healthcare.

Not a lot to work with.

And that is after we had

donations from the
foundations, etc.

We've got to then
reinvest in the future,

and that's the
way to do it is

by having some type
of bottom line.

>> Steve, with
the robotics,

I can't remember
how much that cost,

but we wouldn't have

been able to all do that.

We'll stick with that.

[NOISE] That's
your profit.

Now there's you
million dollars.

>> So the question was
and the comment was,

in terms of robotics,

and many may or may
not know we have

a da Vinci surgically
assisted device

in our OR used primarily

for single site incisions,

laparoscopic procedures
when the recovery

is so much better
because you don't

have the open incision

and you don't have all of

the after recovery time.

It's pretty seamless.

That's probably
a wrong word

for an accountant really,

but it seemed to fit.

[LAUGHTER] So
it is seamless.

It's pretty much a
stitch, and they're done.

But it's amazing what

they can do within that.

That machine alone
was over $1 million.

And we had a lot of

people in the
community saying,

man, why would you
buy such a thing?

We were successful,

and our main
reason to do it

wasn't because we'd
have an edge in

a market and drive a lot

of business. It
was recruitment.

Folks coming out of

urology school today are

trained on a da Vinci.

Are they going to come to

a market that has none,

and that's the only
thing they've known?

No. So we were
successful in that,

and Dr. Keizur has a
partner now, Dr. Smith.

And that was a
great value.

Dr. Smith, by the way,

the two of them combined

today are doing
twice the volume.

The volume was there.
We didn't get it all.

So now Moscow also
valued from that,

but the whole community
value from that.

And so it was
really important as

a part of our services
that we offer.

We're going to switch

gears a little bit here,

and that's a lot of this.

If you want more, come

to board meetings,
Stephan.

It's an
ever-evolving thing,

and it'll be
different next year.

This presentation would
be different than it

is this year because
it's changing every day.

But how does Pullman
Regional Hospital

develop its prices?

Because that's an
important question.

Do we price higher
than our competitors?

Do we price
differently than

our competitors?
How do we do it?

I will tell you
when I first

took over in 1995,

I struggled with
how hospitals,

especially the ones I was

involved with because
I came out of

trying to combine
Pullman Regional

and Gritman Medical Center

and ran the
corridor for three

years in a joint venture.

I was assistant CFO.

And Gritman did exactly

the same way we did it.

And what you do
and what we did,

ashamed of it
back then, is

you developed
a new service.

You went out and
figured out what

the pricing was
on many of those.

Let's say it's X-ray
and you wanted to

do MRs. What's the
average price?

What are other
people charging

for this service?

That's how you
developed your prices.

What is CMS
going to pay us?

Well, CMS pays this and
you two times that.

Just a rule of thumb.
That's what you do.

And then every year you're

going in the budget, I
think I'll raise it.

Yeah, 5% sounds good.

And you do that
for 20 years,

and what do your prices
reflect? Nothing.

They're meaningless.
So we said,

that's not what we want
to do in our pricing,

and we want to be
fair and adequate.

So we go through
a structure in

which we evaluate
what are our costs.

Because we got to
cover our cost.

If we don't
cover our costs,

we aren't here.
Pretty obvious.

What's our
required profit?

Nasty word. That's
a four letter word.

It's actually
more than four,.

No five. No it is
six. I can count.

It's a six-letter
word. Profit. We got

to have excess
because we need to

reinvest back into
the facility.

We have to buy equipment.

We need technology.

If not, you're going

to be obsolete in
a little while.

And then, really, your
prices only matter.

If I was 100% Medicare,

I'll charge you nothing

because I get paid

cost under
Medicare program.

It doesn't matter
what I cost.

I don't matter what I

charge because
they're going to tell

me they're going to pay so

why do I matter anyway.

But that's not true
across the board.

It does matter.

So prices have to
reflect your pair mix.

What are the
insurance companies?

We go through
that process,

and then we evaluate on

every single price
down to the CPT level,

which is by procedure.

What's our cost
compared to the market?

What's the market? If
our costs are too high,

is it fair for me to
raise my prices 5%?

Probably not.

I should probably
control the cost.

If my costs are
within reason,

then is it okay to
raise 5%? Well, maybe.

But if I have $45 million

in the bank or
$150 million,

and I want to
charge 10% more,

because as a CFO,

I'd like to have
180 million.

That's probably not fair,

either 'cause I have
too much cushion.

Now, I'm gouging.

So we look at
that as well.

So we want to be
fair and equitable.

And I don't want to charge

more than the market.

And in our market, we
look at six hospitals.

We have to do blended
because it would be

collusion if I was to
call Tricity and say,

what do you pay?
What do you charge?

I wouldn't be Ryan, I'd go

jail and I don't
look good in orange.

So we do a compilation
of six hospitals,

and we have an external
group do this.

And we say, what
is the price

on an average
in the market?

Now, in some areas,
I will tell you,

specifically an MR,

we were too high
two years ago.

I had the orthopods
call me and

say they're getting
a lot cheaper,

and people are starting
to shop because

of the fact of high
deductible plans,

where they have $1,500 out

of pocket,
they're shopping.

We need to look at

our market a little
tighter than broader.

When you pull Spokane
hospitals in,

Tricity hospitals

in they're probably
too broad.

So we narrowed that
market and say,

what should we charge
for that service?

And that's how we
established our prices.

So now getting into

just reimbursement
and how we get paid.

Medicare, Medicaid,

people remember in 1997,

the Clinton administration

balanced the budget.

And as a result of that,

there were two
hospitals and

rural communities
closing every

week and people not

having access to
care anymore.

It's a bad thing. So
they came out with

this determination

called critical
access hospitals.

It's critical for our
weakest population

in terms of Medicaid,

people that can't
pay in our elders

to be able to access care

in these communities,

we need to do
something about it

because if we,

federal government
not paying them

enough to stay
in existence,

basically, they're not
covering their cost,

there's not enough volume,

and they can't survive.

So that came out. So
Medicare pays us today,

our cost plus 1%. Now,
I'll tell you what.

It's not plus one
because we still

have remember a
few years ago,

sequestration,

Everybody thought
that went away.

It's still not. We
get cost minus 1.

So we lose money on

every Medicare
Medicaid patient.

Doesn't mean we shouldn't
take care of them.

We should care for them.

But we will
never make more.

By the way, I forgot
to tell you something.

It's not truly cost.

It's allowable cost.

You know who
determines allowable?

The federal government.

So you know those
same physicians I

told you about in the
emergency department?

Because physicians can

bill a professional fee.

In addition, we build
the technical field,

which is the nursing staff

and the room board.

The way Medicare
looks at it,

then that professional
fee covers

that physician cost.

If there are
additional costs,

like you want them 24/7,

but there's not a patient

there, that's
your problem.

That's not our cost.

So that's non allowable.

So it's not 100%
of your cost.

It's what Medicare
says will be

100% of your costs.

And then our
commercial players

have to make up
the difference.

This is the rub.

This is where
commercials are fighting

back because

we have employers
that are saying,

wait, I can't have

double digit
increases year

in and year out
on our premiums.

We say the same thing.

We provide healthcare, and

we don't like
it either when

our insurance for
our employees

goes up by 10 or 12%.

So we start going,
okay, how are we doing

differently? But we're
paying ourselves.

I was like, oh, geez,

can we do this
differently?

So commercials
have really pushed

back on what they
used to pay us.

That's why I don't get 95%

of charges anymore.

And now I get 73.5% of

charges by some contracts,

because they're trying to

drive that price down.

>> Are those two
costs the same?

>> So are those two
costs the same? Yes.

>> The left and
right of diagram?

>> They are. So it's

your total cost to
provide that service?

>> Is that a
variable cost of

providing that service as

opposed to is there an
overhead allocation?

>> Let's go there.
Let's talk about that.

So when are we
going to get there?

So yes, and yes,

it is a variable.

But understand in
our who we are

from we being a
rural hospital,

it's semi-variable.

At only a certain
level can you

go down before
you hit a floor.

We have to by a
certain amount,

if we're going to offer
24/7 emergency care,

and I can't have nobody

in there when you show up.

Somebody has to be

there with the
lights on to

care for you.
That's the floor.

So it's a semi-variable.

So there is some
fluctuations

in those costs
based on volume.

But it's really hard, and

I'll share a
little bit about

Pullman's approach to that

on how you control
those variable costs.

I will tell you

from a productivity
standpoint,

what's the number
one expense

you have in healthcare?

What's your highest cost?

>> People.

>> People. We're a
service industry.

Sixty percent of our
costs relate to people.

What's the
number one thing

that you try to control?

People. Because I can cut

a lot at trying to
chisel down utilities,

but I can't turn off

enough lights if I
was one staff member

less to cover that cost

of turn off all the
lights every day

when somebody walked
out of the room.

So there is some
variability.

Now, one of the
challenges there is how

predictable are
our services.

Can anybody tell me

how many people are
going to come into

the emergency department

between seven tonight
and nine tonight?

Is there a football game?

Probably higher
predictability that

I'm going to have

more admissions into

my emergency department
than I have when?

>> And more ambulance
runs from the city.

>> Exactly. You can
have some of that,

but it's still variable,

and it doesn't
always come.

When we had the
Apple cup here,

we staffed a whole
unit just in

case because
the year before

we were inundated

and we didn't
have that many.

That's the
challenge we run.

We can run on an
inpatient unit,

med surg unit,

two inpatients to
12 inpatients.

And that can be a
difference in hours,

and it can be a
difference in days.

So we have 25 beds
across the board,

OB, ICU, and med surg,

and we can have
census from 2-25,

and that can be
within the week,

and then back to
five and then to 10

and it's

really hard to get
that predictability.

How do some hospitals
deal with that?

I'll tell you, a lot of
your for profits etc.

will say, okay, staff,

I hired you full time.

You have a family and
kids. That's all right.

Come on in. Well,
we're going to pay you

full time. I'm sorry.

I don't have enough
patients, go

home without pay.

I do that to you

three or four
times this month.

Guess what? You're
going to the hospital

down the street that
doesn't do that to you.

We don't low census,

and a lot of
it's low census.

We don't do a lot of
that here because

your actual turnover rate

increases significantly.

It's better to retain

those employees than it is

to be training new
employees all the time.

That's part of the
challenges we have here.

And that's why
Medicare decided,

we'll pay you at
least your cost

because when you
have enough volume,

you can cover those
loss leaders every

now and then because
you have enough volume,

and your variability
is a lot greater.

Here it's not, so that's

why Medicare came
in and said,

we'll pay your cost.

Problem with that is
there's no incentive to

control your costs. I'll
give you an example.

A lot of our total hips,

total joints are
Medicare population.

No surprise. Hey,

you had one? Two.

>> Which your bodies work?

>> Of course. Does it help

Pullman Regional
Hospital to

negotiate with Smith
and Nephew and

Depew on those devices
and save money?

Does it help
our bottom line

for especially the
Medicare population?

Thank you. Not one bit.
I get paid my costs.

Where's my incentive
to control the cost?

However, we did
go and we do.

I negotiated
with Depew and

Smith and Nephew a
year and a half ago,

we saved 1.2 Million
in our device costs.

Most of that goes to
the federal government.

It's the right
thing to do,

because that will
save eventually,

if every hospital worked

hard at doing
those things,

that saves critical access

hospitals the
chopping block.

If I lost critical

access hospital
reimbursement today,

remember that $1 million I

told you we had last year,

take five million
off of that.

We would have
lost $4 million.

We wouldn't last.

You would be amputating
major services.

There'd just be
things you would

not do in this market.

It just would
not be there.

No, ICU.

You wouldn't have
a hospital around

this area that had an ICU.

Behavior health?
Forget it.

Those people are
on their own.

Good luck on managing
your drugs and

your problems because
you couldn't afford it.

Positive margin areas.

These are where
we make money,

especially on a
commercial side.

Imaging, surgery,
pharmacy,

women's health,
lab pathology.

And we don't actually

have a pathologist

that is part of
the hospital.

They're actually
a group out of

Spokane that reside here.

But those are your
moneymakers today.

Your negative things,
medical groups,

physician practices.

Oftentimes, for every
employed physician

across the nation,

in primary care
costs $110,000.

That's net.

That's the bottom line.

That's the loss.
You cover.

I'm pretty close to that.

Not quite. I'm
pretty close.

Transitional care units,
your home health,

your ICUs, your
emergency department.

There's so much
fixed cost in those.

Now, my physicians

would say they make money.

But they do, in essence,

because they order tests.

People end up going
to the surgery.

It's important to
have all of them.

You can't have one
without the other.

So how much did that cost?

You go to a store and
you look and say,

okay, what's that TV
going to cost me?

You can see exactly
what you want.

No one patient that come

through the
emergency department

with the same thing
is exactly the same.

You come in, I
do your hip.

Your hip isn't the same as

your hip and your hip.

How long it takes
that surgeon

because you had a
complication within

there can be significantly

different than
the person that

had no complication.

The resources
and intensity

of services are
much different.

In some areas you're
going to get paid more

because that DRG
will reflect that,

but not always use the
way Medicare pays you,

they pay you off a DRG.

Now, there are two
different DRGs,

one with complications,
one without.

But you might have been

the same surgery
without a complication.

But you might have
been in the OR

because when that
surgeon was in there,

it took a lot more time.

It took him 45 minutes

where the other patient
took 20 minutes.

The resources are
much different.

But the amount that
we're going to get paid

is the same for that
particular insurance.

But if you go back to
those methodologies,

remember those cost,

fixed percentage
charges, DRG, MSG,

MSERG, those all have
influences within this.

So those are
all different.

Hey, we're just
talking about

you, by the way.

We're talking about
orthopedic surgeries.

Not you specifically,
just talk prices.

Welcome, by the
way. So again,

some reimbursement
methodologies

and we've talked about.

Under the hospital,

you have percentage
charges.

You have per
diems, case rates,

a mix of the DRG, MSDRG
components to it.

APGs, which is an
outpatient payment scheme,

we have none
of those here.

They do have them, and

they are significant
across the nation.

We're just fortunate some

insurance companies
want me to go to there.

Primera wants us
to go to that.

However, in order
to do that,

the system behind that to

capture all that
would cost us 50,000,

so I asked Primera
to pay for that.

They didn't want
to, so they keep

paying me percent
of charges.

But there's a
big investment.

We're moving towards VBS,

which is value
based purchasing.

Bundled. Anybody heard
of bundle payments,

especially the joint
replacement program

that CMS has done
across the nation?

That's a movement.

What that's
doing is saying,

we're going to give you

this pot of money
between your physician,

hospital, nursing home,

and everything
else in between,

PT, etc., you
divvy it out.

You've got to
deal with only

that component of it.

Problem with that is

if you're not on
the same team,

you got winners
and losers.

So I'll tell you right
now a bundle payment,

we're going to work

really closely
with physicians.

I'm sorry, nursing home,

you're out because
I don't want

that patient with
nursing home because

then I have to give them
some of that money.

So we're going to try
to do everything we can

to keep them within
this little group.

That's why you need

to work collectively
together,

because usually
there's winners

and losers in
those things.

But that's where
it's moving.

These value based things

are evolving
significantly.

Eventually, a lot
of our payments

will be based on keeping

people out of the system,

which ultimately should
be what we're doing.

That's in the
business we're is

taking care of
those in needs

and trying to keep
people healthy.

But you can't make
people be healthy.

So, these are the
basic overviews,

and we've talked
a little bit

of that within that.

So you've got for us

we critical
access hospitals.

Other systems
outside of that,

PPS hospital, progressive
payment systems,

those are your
typical urban.

They're going to get
this DRG fixed rate.

And the more
they see then,

the more they're
going to make because

they can cover
their overhead.

Critical access
hospitals were

not able to do that,

so that's why they came

up with this methodology.

I covered that. We will
move on from that.

I probably covered that.

So hospitals converted to

these CAH since
cost reimbursement

was and is greater

than the reimbursement
we would

have received under PPS.

So that's why it was
important to move to.

There's requirements
to stay that.

Back under Obama, he

had within his
proposed budget plan,

you couldn't be a
critical access hospitals

within 10 miles of
another facility.

Or you would lose

your critical
access designation.

Do you know how far
we are from Gritman?

9.2 miles. Why didn't we

build it up the
hill, another.

But the issue was,

who cares if it's 10?

Why not 15? Why was it 10?

Because it was a
budgetary number.

They looked to see how

much could they capture.

That helps our budget.

Fortunately enough,
Congress did not pass that.

They didn't even
entertain that.

We only had to go a few

times to DC to fight that.

But that was
the discussion.

What's the mileage?

You know what I
would have done,

Mayor, come and say,

please close down
Bishop Boulevard,

Mike us go around.

Let us go half a mile.

Exactly. Something. We
just 0.8 of a mile,

please figure
something out.

So, Irene, part
of your question,

cost typically
in hospital.

Variable cost
includes your supply,

your implants,
your staffing,

your food, your dietary,

your pharmacy,
fixed costs,

CEO, core staffing,

utilities, bad
your debt service,

and then your
physician compensation

because many of them
have a fixed payment.

Not all of them.

So are very
productivity based,

and so the more you see,

the more you made,

but that's changing
in their environment.

So really some of

these really truly
are semi variable.

There's only a
certain level

that we can go down to.

So this is supposed to
be a true and false.

I'm just going to give
you the answers here.

Generally, in many are

not sensitive to volume.

If we saw 15,000 emergency

department visits or

5,000 emergency
department visits,

I'm sure hoping
the hospital

still keeps one CFO.

It's tongue and
cheek. So I'm

hopefully not
volume dependent.

But at some point,

like even our human
resources, at some point,

we need additional
support when we

have a few years ago,

we had 300 employees.

Now we have 450.

The amount of paperwork

and processing
the payroll,

etc, is more intensive.

So we either have to find

system applications to
do that, technology,

or we have add
resources and

staffing to be able to
help support those.

So cause volume increase.

What happens to your fixed

cost per unit of service?

So volume goes up, and

I have a fixed cost, me.

Let's say we have
100 patients,

and we allocate
the cost of

administrator over
those 100 patients.

Now I have 200.
What happens

to that cost per unit?

It goes down. Same thing.

If we have 200 and
it goes down 100,

that cost per
unit goes up.

Same with variable cost.

Units of service equals

patient days for
room and board,

revenue, and charges
for ancillary services.

Reimbursement under
PPS hospitals.

You decrease your volume.

What happens to
your reimbursement?

It goes down.

The less you see,
the less you make.

That's traditional.
We all know that.

You go to Walmart.
They sell 1,000 TVs.

They sold thousand TV.

They sell 2000 and
they mad more.

The more they sell,
the more they make.

Guess what?
Kirklaxs hospitals,

that's counterintuitive.
It's not true.

If I see less patients,

what's my reimbursement
from Medicare going

to be? It's higher.

Catch. Why? Because
they pay me my cost.

My cost per unit went up.

So, the less I see,

the more I make,
more I see,

the less I make
because I'm

only ever going to
get paid my cost.

It's counterintuitive.

And so that's
always confusing.

It doesn't matter
if you're sitting

on the board or
not, yes, sir.

>> But don't Medicare
define what I mean,

they have
observation bids,

which you get
paid less for

versus a regular bid.

So they're defining
your costs going to be

that observation bid

that's all I want
to reimburse.

Are they doing those
kind of things still?

>> So the question really

is under Medicare
reimbursement,

how do they define
how they'll pay you?

Do they drive business?

I'm phrasing this.

>> Nursing homes,
too. Cheaper over

there than they are
than regular hospital.

>> So are they driving

businesses to
certain things like

observation, like
inpatient care?

Is it better to have
a Medicare patient

in an inpatient
bed or an obs bed?

Obs Observation, sorry,

abbreviation. Which
one's better?

For Medicare, honestly,
having them in

an observation bed is

better because
then Medicare,

constituents or
customers have

to pay 20% of that charge.

If they're in an
inpatient bed,

they have a straight

deductible and it's done.

And if they met that
earlier, it's done.

So Medicare population has

to pay for that 20%.

So having them in an
outpatient setting

makes a lot more
sense for Medicare.

They have requirements, so

now they have
it used to be

based on certain
criteria based driven,

now it's based on

how many midnights
you're in.

Are you in two? If you're

in two, then you're knobs.

If you're in
more than two,

then you're in in.

It's based on that.

So by the way,

we asked for that,
and we all hate it.

Now, we said, we don't

like the way
you're doing this.

You got to
simplify, and then

they simply we
didn't like it.

So some of the things

that are influencing
healthcare and

why it's getting
challenging.

We had a major change in

our classification ICD 10,

which is your diagnosis

and related
classifications.

This changed from
ICEC 9 to 10 in 2014,

actually, in 2015, and

it really
substantially changed.

The coding aspect
went from like,

8,000 codes to 80,000.

And so it's got a
lot more specific.

It's really hard to
run today to get

any comparables is
almost impossible,

especially on
inpatient care

or surgeries and stuff

because of the
fact that ICD

10 is so specific,

like they literally
have some.

If you hit by a car
on a rural road,

then you code it to this.

But if you were hit by
a dog, it's different.

I could throw some up,

and you'd be like, really?

That's a code. And they
are that specific.

It's really strange.

Some of them
are hilarious.

I don't know how they
came up with them,

but they are like,

bit by a shark while scuba

diving. Did they live?

Inpatient quality
reporting,

the macro which I

talked about earlier on
physician reporting,

this is significant.

You could have
upwards of 9%.

Now, for physicians
that can be

a huge swing in their
pay in any one year.

Yet, on the other side,
if you do it well,

you might gain
readmission rates.

We got to monitor that.

All of these things are

reporting requirements
that we have to do.

We don't get any
additional money,

but if you don't do them,

then you make less money.

So one of the things
in that in summary,

as we start to
wrap this up,

why does our
foundation help us?

There are many non
cost based programs.

Psych and rehab,
don't make money.

So by providing
certain services

and continue to
support those

across the
continuing to have

the foundation helping
us within that so

that we can be self
sustaining and

self determining in our

future is really
important.

Skilled nursing
facilities, SNIFs,

home health agencies,

non reimburseable
cost centers.

It's just certain things
that we don't get

any payment for,

but we want to continue to

provide those
services because

it's important to
our community.

That's where the
foundation that's where

being a public hospital
district really help.

Other things within
cost reimbursement cost

per head that are
non cost services.

Things like today are

care coordination, I
mentioned earlier.

This the right
thing to do.

Honestly, it costs
us money to do it.

We look to grants, and

that's part of the
foundation's efforts

to bring in those type

of things to help
offset that.

It doesn't dollar
for dollar,

but it's caring
for patients and

getting them in
the right place so

that their care is better

so that they
don't end up in

the emergency
department with

a major problem
down the road.

Those are really
important things to do.

Nobody's paying
for you today.

Some of the things

the foundation has
really helped us with in

their giving
the whole hydro

works pool therapy,

underwater
treadmill, we would

not have had that.

The system we had had

failed and would
not be obsolete.

It'd basically be probably

a mosquito pond.
It'd be gone.

And that helped
us tremendously.

The 3D mammography unit

where you have
been blessed

with happened in 2014,

the 2015, various areas,

a lot of different
areas, services.

In 2016, the OR project.

And then now one of

their major efforts is
2017 on the expansion.

And as we look to that,

why we needed that.

In 2004, when
we opened this,

we thought we plenty
of space forever,

and now we're
out of space.

With volume increasing
as much as they have,

as much as 25, 30%,

we need more space.

And that will be the
case for a while.

Then there's I've
probably got this

out of order, but
the surgery project,

which is well
underway and should

be done by August,

end of August and
coming online

by September, which
will be perfect.

So summary Healthcare
finances is complicated.

I mean, we can't do it
justice in an hour.

I hope that you got
a little bit of

taste of the
complexity and what

it means within
our institution

on how we manage that.

But each input is unique.

Therefore, care delivery
must be flexible.

It can't be stagnant.

Everybody we're going
to treat you the same.

We'll put you on
a conveyor belt.

We'll run you through

because you're
all the same,

and I can then control
all my costs that way.

And we can't do
that in healthcare.

Physician orders drive.

Physicians still drive
everything we do.

Without physicians
in our community,

we would not
have a hospital.

They still drive
everything

that the care today.

So orders drive
provisions of care,

adding to the variability.

Payment is also
variable depending

on who's the
insurance payer?

What coverage do you have?

Does your insurance
company cover that today?

Not tomorrow? By the way,

one of those
things that we

want an example of
this. What do I mean?

Primera decided, and
I'll say this wrong,

and please correct
me those that, no.

But Propathol is
that the right word,

the administration
of the drug with

anesthesia drug,
especially colonoscopies.

Doctor Jones likes that.

It works very
well. He wants

the CRNA in the room.

>> It's patients
wagon too.

>> Man. I loved it.
I had that done.

It was awesome. I
remember nothing.

But, you know, I
got to tell you,

when I came out of
it, I had it done

here I didn't
do it at home.

And I had John O'Brien,

my materials manner
come in and make

sure I got to where I

needed to go after
we were done.

And I told him, Hey,

call my wife,
tell her I died.

'Cause I thought
it'd be funny.

I don't remember actually

saying that. I'm glad
he didn't call her.

But I thought it
would be funny,

I guess, apparently.

He's probably
what you tell

people under that stuff.

It was awesome.
But premier

decided, we're not
paying for that.

It's an additional cost.

Even though a physician
preference is that,

they're just not
going to pay for it.

So we help
subsidize that for

the CRNAs because it's
really important to

a physician for that
aspect of care.

That's what insurance
companies do,

so that insurance
company is

part of that negotiating
those raised,

payer mix regulations have

a big influence of how
and what we do here.

We're going through
part of that,

within the next
few months,

we'll have a review by

an outside agency
that will come

in and evaluate
how we're doing,

are we meeting the
Medicare standards?

Technology
changes rapidly.

How do we
reinvest in that?

So we need a profit
in order to reinvest,

or the foundation
has stepped in in

many gaps where we
didn't have that

to be able to
offset that and

help us continue to offer

high quality
technology and

keep our prices
reasonable.

And then many
different players in

healthcare. Yes, sir.

>> Truly a negotiable rate

what I hear from

insurance companies
standard here,

what is the limitation?

You may want to negotiate

you're only
going to be told

how much you're
going to get.

>> So the question
is, is it

a truly negotiated
rate or you just told?

Medicare or Medicaid,
they're the big boy

you're told. You
don't negotiate.

Other commercial
payers, you do

have the opportunity
to negotiate.

You're negotiating power
is limited by even

within our community wall

by who's negotiating what?

The more players and
as we talk about

fully integrated health

systems where you have

physicians and
hospital and

all that working
collectively,

you have more
negotiating power.

So then you do have
the ability to

go and see now,

at some point, you got
to approve outcomes.

If you're improving,
this is what we're

doing, and we're
working on that,

part of the center
of excellence with

the orthopedic surgeons

is in developing that.

At some point,
we will develop

a bundle payment
that we can take to

a Primera or to a
uniform and say,

why would you want to
send your patients to

the West Side to
have this done here?

Here's our outcomes.
By the way,

our prices are half

of what they
are over there.

So why wouldn't you
want to have it done

here, keep them local?

But if you can
prove that, you

got to have statistics
to do that.

You got better
negotiating power.

>> How long
negotiation look for?

>> Typically, two
to three years.

So right now I'm

working on the
Primera contract.

Hospital loan,
it's really hard

because Grandma just
signed last year,

so I'm not going to get
any better than that.

If I had an isolated
market, I could.

So I would take
the same contract

that Tristate can
get with Primera,

but they have one
eighth the number

of covered lives
in their arena,

so they can get 90 plus
percent of charges.

They just don't have
the same volume we do.

Were here, they can
drive a lot of that.

But it's getting more
and more challenging.

Have people heard of
what narrow markets are?

Okay, so we have

one in our arena. It's
a catalyst group.

They went directly to

the Blue Cross of Idaho

to a very isolated market,

and they said, We'll

take care of
those patients.

If that patient
goes outside,

so these are self
purchased insurance plans.

If that patient goes
outside of the market,

they have a $50,000
deductible.

So they can go to Gritman.

They can't come
to Pullman,

because that's how narrow

they did the market.

They kept it in Idaho.
Those are happening.

>> [inaudible] for
pricing supply and

demand in theory,
determines price.

So how has the
Pullman Hospital done

in demand growth

compared to
population growth?

How are we competing
with the other guys?

>> How are we competing
on supply and demand?

>> Are we
increasing demand

as fast or faster as
the population growth?

>> Not in all areas.

So a lot of that is
contingent on providers.

And can you get a provider

within those specialties?

One of the things we're

actively trying
to recruit, too,

and we have been
successful here just

recently is in non
invasive cardiology.

The other areas in
pulmonology and sleep.

The demands there,

we have to outsource
that today,

so an outside group
does all of that.

All of those funds
go outside of

our market to be
able to do that,

because we may
do the study

here but the providers
aren't here.

So there's no
reinvestment back into

the community for
those like services.

So in some areas,

it's a real challenge

because it's
specific on that.

In other areas now
we're keeping up,

and that's one of the
reasons we're looking

at building the fourth or

adding same day
services expansion

is because the demand
has been there.

We are at capacity
and we have

just no more room in
order to get that.

Now, I say that almost
tongue in cheek,

because there's a lot to

do with physician
preferences.

And if you're a physician

and Dr. Tinsted
could speak to this,

you don't want to start
surgery at 6:00 at

night unless it's
an emergency.

You prefer to get
in and get out,

and so you get back
to your clinical

care for your patients.

And so most
physicians have

blocked schedules
because then

they can control
their life.

They don't want to just,

what do you have today?

We'll call and see if we

can get them in today.

That doesn't work very
well in their life.

So you have to have
that capacity.

But in order to do that,
sometimes you have

those downsides
because nobody

wants to start 2:00,

3:00, 4:00 in
the afternoon.

If we could run 24/7

in those areas and
people willing to do it,

you could control the
cost much better.

But you can't today

because a lot of it's
best off preface.

>> Practical areas
you'll be dealing with.

>> You might.

>> [OVERLAPPING]
What you have in

this market is, well,

I can go 9.2

miles and I can

start at 7:00 so
I'll take it there.

Oh, no, wait you
stop. We want

them here we don't
want you to do that.

So some of that
predictability

and stuff is very

challenging in
our markets just

based on providing
healthcare.

So I don't know
if that totally

answered it
adequately or not.

We can talk more
if it didn't,

no. Other questions?

>> You must have
figures too.

>> I have a good figure.

>> [OVERLAPPING] who's
top of the game.

But even a surgeon

knows that they're
only good for

so many hours of
solid surgery

before they get a

little punch drunk,
too, a little bit.

So they know that
you can commit

a surgery unit for how
long and of course,

that affect
your price too.

>> Well, yeah, and
that's really dependent.

You're exactly right.

The quality of care
of your providers,

be it your
nursing staff to

your physicians
diminishes greatly

if you don't give them
enough rest time.

And so one of the
key importances

of recruitment
is to provide,

and especially physicians
break in between,

so they aren't on
call all of the time

because you will
burn them out

and in short order.

Same goes for your nursing
and support staff.

If they don't have rest

between shifts, and
we used to do this.

So you'd be done,

and you had to go late

because the
case went late,

and you were on call,

and you got called back,

and then you had
to come back in at

7:00 in the morning to

start it all over again.

The quality goes down.

Now what we do is we
have a call shift.

And then when they're

not on call, then
they're off.

So they don't
come in the next

day that's a
different group.

So you have to have staff,

which adds some cost,

but it provides a
better quality of care.

Plus rest between shift,

we guarantee a
certain amount

of rest between shift

so that they aren't
only getting eight,

that they're
getting 10, so

they get a full
night's sleep.

>> You're speaking
of staff, there's

a difference in cost

too depending on if you

have your own staff
versus travelers.

We have allowed travellers

here from time to time.

>> Yeah, occasionally.

>> [inaudible]
Swedish in Seattle.

>> Yeah, 2.5 times
the cost for

traveling compared to
what you can keep here.

You're typically
doing that in areas.

Most of the time here
in our market now,

not when you were
on the board,

we had a problem back then

just turnover because you

were doing a lot of
low senses, etc.

Today, if we have

a travelers generally do

to somebody that's
on maternity leave.

It's a planned event

you know they're
going to be out

for 12 weeks.
It makes sense.

You're going to
pay a little more,

but you wouldn't want
to hire because you

made a commitment to
employ them forever.

So you do short term
stuff like that.

We don't have nearly
the travelers we

used to. It's
typically that.

>> Do you think the
value based system

will survive if

the Affordable Care
Act went away?

That was in the
Affordable Care Act,

meaningful use, etc.

>> So, will the value

based payment
system continue

to exist if the Affordable
Care Act changes?

The Affordable Care
Act will change,

inevitably, it'll
change somehow.

It doesn't matter
what administration,

it will change. I do.

Health care at
the rate it was

going is non sustainable
it has to change.

You can't continue to have

escalating payments
and expect

anybody to be willing

to do and be able
to pay for it.

So what does
have to change.

How we deliver healthcare
needs to change.

We're reactionary,

but America has done
that to himself.

We've done to ourselves.

We don't want
anybody telling us

what to do we
just want to make

it better when we
didn't do it because

that's a lot of
how we live.

I didn't take care of
myself, but fix me now.

So some of that
needs to change.

That getting in front
of that and changing

our culture and how we

respond to that
needs to change.

So, yeah, I do believe

in some sense, it will.

There's demonstrations
that are

showing how it will be.

I don't know
what it'll take.

But today,

part of the problem is
the fragmentation in

healthcare and the lack of

communication between

even us and our providers.

You think you're all on

the same page,
but you're really

not in all sense.

So streamlining that,

integrating a
lot of that will

have a lot of
impact on that.

And I do believe that

it will take
such a foothold.

It started out at 20%
demonstration expecting

two years value based

purchasing will represent

80% of the payments
in two years.

They originally
thought it would be

five but that's how

quickly it has
broadcast it out.

So it's here to stay,

and we've got to learn
how to deal with it.

The problem will be

is we're under this
payment model,

which the more we do,
the more we make,

in some sense, I just

contradicted something
else like this.

But that's the
healthcare system

today, fee for service.

Tomorrow, when we
finally get there,

I don't know what
it'll look like.

When it's value based and

you're providing value

and keeping
people healthy,

how do you
bridge that gap?

That'll be the challenge.

And hopefully you
have enough to

survive that
period of time.

And so it's
really important.

Now, we utilize again,

I'm promoting Ruben
and his staff.

But that's what
we've determined

as part of that
pathway there to

survive those time
periods so that

we aren't falling behind
in technology and

other things so that
when you get there,

you can't provide
it because you're

too far behind
the curve anyway.

>> When will it come
that you're going

to be dictated that I

don't need to have
another MRI just

because I had one here
for the specialist.

And the insurance
company is going

to say you already
have one MRI

for that particular injury

you don't need to
have another one

or they won't approve
the second one.

>> So the question is,
when will that happen?

When will that occur?

Meaning, will
insurance companies

dictate the fact that

somebody else ordered
a secondary test

that has already been
done? Is that fair?

I'm doing this for her.

She's told me I got
to repeat these,

so I'll get paid tonight.

No, I'm not getting
paid anyway.

It's cost, I'm
going to paid cost.

So the question is,
when will that happen?

It's happened, that
happens today.

Insurance companies,
if you had an MR,

they aren't going
to approve.

That's part of that
whole pre authorization.

If they see you had
this test done,

they're not approving
one for another one.

They'll deny it, so you

won't get it. So
that happens today?

[inaudible] Exactly.

So some of that's
happening today.

Now, is there
duplication of services?

Yes. That still
happens in some sense,

but more and more
that's changing.

So one of the things that

is when you
start looking at

an integrated
model and you

start looking about
coordination,

it's when you're all
on the same team.

Well Dr. Joe is

much better at
this than I am.

I'm going to
send my patient

there because

I know that patient
will come back,

and we're not competing
against each other.

That'll be important
to control costs.

Because today we compete

against each other for

the same patient for
many different services.

We have a few more
minutes. Yeah, Pat.

>> Steve, what do you see

as the overriding benefits

of acquiring other
medical practices.

That's the first
part of my question.

And the second part is,

do you see us acquiring
more in the future?

>> So the question
is, what are

the advantages
of acquiring

other medical practices,

be it physician
practices or anything?

And will we look

to acquire more
in the future?

I will tell you
this Pullman

Regional Hospital has not

aggressively ever gone

out and tried to buy any.

We have reactionarily
responded to requests.

So Plus Pediatrics
as an example, 2009,

remember, Al, Dr.
Frosted, and Mike.

When Al decided he
was going to retire,

Mike realized I'm
going to be basically

the only pediatrician

on the blues, I
don't want it.

And I don't want
this headache.

And by the way, I
can make more money

by being a locum and

traveling and
getting out of here

and making a
lot more money.

So they realized that

in order to
have pediatric,

which Al had
established on

the Palouse and
continued to be here,

they needed
something different.

They came to the
hospital and said,

would you be willing
to look at this?

And for the sake
of the community,

we responded and say,

yeah, we'll look at that.

Most of everything we've

done has been in
response, too.

So many providers today,

when they look
at the model

of reimbursement
and trying

to recruit into it,

are facing challenges
and saying,

people don't want to
come to that model,

they will come to the
hospital and say,

can we look at
something different?

We'll always look and say,

what does that look like?

So there's no future plans

right now to continue,

but we would respond,
being the thing.

Some have decided to
stay independent,

the advantages that we're

starting to see
that are coming.

I talked about
care coordination,

I mentioned a couple
of different times.

There are new
reimbursement models that

will pay you per member
per month to do that.

Most all that resides
in primary care.

We had no access

because we had
no primary care.

Under our clinic
network provider

that to get to

the new revenue
streams that are

emerging under these
value based models,

that's one of
the advantages

of coordination
and integration.

So that's coming,

and we're getting
ahead of some of that.

Contract negotiation
because you're all going

to the same
person and you're

not divide and conquer,

you're going
jointly, we'll

also have some
advantages there.

>> You just took
over Pullman

Family Medicine
as of April.

>> Correct.

>> So how do

those competing
practices recruit?

>> Well,

I'm sure I understand
your question.

>> Do they recruit
separately?

>> No.

>> If they were
asked to recruit

a general physician
[inaudible]

>> So I see your
question now.

So the question
is, is today

Pullman Family
Medicine may

have an opening. How
do they recruit?

How's the hospital
involvement with

that compared to like
Palouse Medical Group?

Today we're
working closely

with Pullman
Family Medicine,

identifying what the needs

are of the community,

what type of provider
should be there?

We work with them jointly.

Palouse Medical Group
because they're

independent are out
doing their thing.

They're trying
to recruit in.

There's still a
competitive model.

The nice thing is,
in our market,

I'll tell you
today, we work

closely with them and

have a lot of
communication.

So thankfully enough, it

isn't eat what
one can and kill.

It's whatever I do for
me is just my thing,

and it's that tragedy
of the commons,

which we're all going to

fish out of the same pond.

The more fish I
make or catch,

the better off I am

until we're all
out of fish.

That doesn't happen
today. We do coordinate.

So there's some
communication

which is nice
in our market.

It's not a stream
line, though,

because we don't have
that involvement.

Yes, sir.

>> When you talk
about coordination,

you see changes in

the hospitals,
for example,

with all of the
hospitals in this area,

some of them might
end up closing.

>> That's a
great question.

So the question is,

in this area will

all hospitals
exist, long term?

Will some in danger of

closing or is there
better models?

I couldn't
professionally tell you

that all will exist
and should exist.

There's a lot of
duplication of services.

And I lived the cord
run for three years.

It doesn't make sense
to have three RMRIs in

a basically 20
mile radius when

they're almost
$2 million each.

Now, you still
may need two

because of volume,

but it should be
volume driven.

I do eventually
believe for this area,

there has to be
coordination of that.

You could have a very

effective and
inpatient care unit.

And they focus on that

and they do it very well.

And still in communities,

I'm pointing
outside because

I think Pullman
ought to be

central because they are.

They're the middle.
And then outside that,

you could have outpatient
surgery centers

or support or urgent
care centers,

etc, but you work
collectively.

I believe long term,

that's where it'll get to.

I think until
reimbursement dictates

that, it won't change.

And under a critical
access model,

because we get
paid our costs,

what advantages is
there to do that?

So, today we have a
fake glass bottom,

there's not a lot of

incentives to
control class.

There's some.
There's not a lot.

But if that
model went away,

problem is, could you
react quick enough?

I think that some of
that's happening,

we are partners in

the general
surgeon practices,

the specialty practices,

medication oncology
coming on board.

That will be collective.

More and more that
communications happening.

I think that'll evolve
long term. How long?

I have no idea. I
realize at some point,

if that happens, and I

think that
ultimately needs

to I don't know if you.

>> That was going on in

Reagan's time when they

had if you wanted

a MRI and Gritman
wanted one,

there was a committee
that determine

whether you ought
to have one

because of the
population and the size.

And that went away.

>> I think
eventually you'll

come back to some of that.

I do believe
they'll drive.

>> Some of us
remember there was

a vet school that
also [inaudible].

>> >> That was my love of

working for two
facilities.

That was awesome.
By the way,

it is a little after 7:00.

I do want to be
respectful of your time.

I have nowhere to go,

I will stick around if

there are other questions.

But I appreciate the fact

that you all team
out. Thank you.

[APPLAUSE]

>> Thank you, Steve.

>> Yeah, Ruben.
Thank you very much.