Kennedy told the board that “comprehensive integration” would keep all current staff employed by both institutions, and mean an end to Native hiring preference at SEARHC. (ECG image)

Sitka Community Hospital must integrate operations with the Southeast Alaska Regional Health Consortium, or risk closing within three years.

That’s the opinion of a health care management consultant hired to explore ways of combining Sitka’s public hospital with its Tribally-owned neighbor.

Sitka’s hospital board — and the public — took their first look at the consultant’s report this week (9-26-16).

Downloadable audio.

View PowerPoint slides from ECG Consulting’s Collaboration Plan for Sitka Community Hospital and SEARHC here.

It’s not just a matter of survival for Sitka Community Hospital. ECG Consulting’s Kevin Kennedy believes there’s a huge upside for both institutions. Right now they offer many duplicated services to a fragmented population.

Kennedy has spent twenty-five years researching and facilitating business combinations in health care. He actually seemed excited about this one.

“Right now you have two delivery systems and they’re sharing a relatively small population. Put ‘em together into a single, comprehensive delivery system, providing care to a much larger number of people, you can deliver care in this community that other communities of 9- or 10-thousand people can only dream of.”

Kennedy mentioned several times that Sitka could “punch above its weight” if the two institutions combined. How, exactly? He described a litany of problems: Sitka has a 60-percent oversupply of hospital beds, there’s competition for patients, duplicate services, declining reimbursement, likely declining city support, staffing shortages, and an intermittent availability of specialty care. Neither institution can really afford major capital improvements.

CableHouseRainbow_NEWS_TAG3_smBy combining and creating one obstetrics clinic and one emergency room, for example, and having fewer doctors on-call, Sitka could open cardiology and orthopedic clinics — which Kennedy called the most obvious gaps in health care in the community.

“Because that’s the real opportunity here: Come together and build something that is unified, comprehensive, and scales to make care that is not affordable now very affordable in the future.”

Kennedy described other advantages. SEARHC has a unique reimbursement system through the Indian Health Service that Sitka Community Hospital could benefit from. For its part, Sitka Community — along with many other rural community hospitals in Alaska — receives Medicaid reimbursements at “three to four times the rate of the rest of the country,” according to Kennedy.

Board member Connie Sipe explained that Alaska offers higher Medicaid reimbursements as a form of indirect subsidy to its rural hospitals — especially those that offered long-term nursing care.

“It’s always been based on this rule of being co-located on the same campus, with buildings that are connected. And so if Sitka Community Hospital became the geriatric center and long-term care — and even if we were part of one entity, but we weren’t co-located with the active hospital, it’s doubtful whether the reimbursement rate we enjoy now would continue.”

This information prompted the board to briefly consider whether the collaboration would also require a new hospital.

Kennedy stressed the importance of long-term care in the equation. Half of the beds in Sitka Community Hospital are long-term care. Those beds, plus the tobacco tax, and a generous line of credit and subsidies from the city are keeping the hospital afloat right now. SEARHC, in contrast, has five times the revenues of Sitka Community — about $125 million annually — and recently has been clearing about $7 million in profit.

What SEARHC lacks, Kennedy said, was long-term care. And they’re interested.

“SEARHC knows that you have a long-term care program. Like you guys have found, it’s an attractive business opportunity for them. That’s a risk for this institution. If they were to get in that business, it would hurt you. If you guys keep going down the competitive path, it’s probably inevitable that it would happen at some time.”

Kennedy was not optimistic about the status quo. Between risks to the long-term care program, declining city support, and possible changes to reimbursements, Kennedy did not think Sitka Community Hospital could continue very long. In fact, he gave it three years.

“Beyond 2019 we think the viability of Sitka Community Hospital could be in question.”

Kennedy acknowledged that there would be a lot to overcome, and a lot to discuss, to bring about what he termed “an integrated delivery enterprise.” There was a history of conflict, some misconceptions, and some biases. To remain eligible for Indian Health Service funding, the enterprise would have be 51-percent controlled by SEARHC’s board. Yet that control applies only to governance, not to ownership.

Sitka Community CEO Rob Allen used the “m-word” only once.

“If we put forward that this was some sort of merger or takeover, that’s dead on arrival.”

Kennedy’s report was labeled “confidential.” It won’t be presented formally to the SEARHC board until the third week of October. Kennedy said the process was still in the very early stages of discussion for a business combination of this size, and although SEARHC management readily provided useable costs and revenues for this preliminary report, full disclosure had yet to happen.

Kennedy remained upbeat. “Change is difficult,” he said. “It’s hard to give up autonomy. And it’s pretty easy to do nothing.”