At the end of the most recent KershawHealth Board of Trustees meeting, I was approached by a television news reporter with a number of questions. I couldn’t answer his questions at that time because they do not lend themselves to sound-bite answers, so I’d like to take this column to present a reasoned response to the questions.
The reporter first asked why KershawHealth has engaged in what he termed “excessive” spending on real estate over the last decade. I would respond that our real estate acquisitions, although substantial, have not been excessive, and have been in response to patient needs and the evolving nature of healthcare. First, keep in mind that the current medical center campus in Camden is a mere 13 acres -- the same parcel that was purchased in the 1950s. At that time, multi-patient wards were common, air conditioning was rare, and the demands of surgery, radiology, nursing and other services were far from what is expected today. In 2002, we undertook an expansion that increased the size of the medical center building by approximately 40 percent -- adding new surgical suites, an expanded ICU, modern outpatient services like cardiology and additional private patient rooms. All of this was done in response to patient expectations and changes in care.
There is currently no room for expansion on the existing medical center campus. Over the last decade, KershawHealth made a strategic decision to augment the main campus by purchasing several nearby properties to accommodate future growth. We purchased a 7.5 acre portion of the Kershaw County school district's former Pine Tree Hill school property and have an option to purchase the remaining 7.5 acres. This will provide additional acreage for employee parking and future expansion, and will free up existing parking at the medical center for patients and visitors.
The purchase of homes on Roberts Street and nearby lots allowed KershawHealth to move ancillary services like Human Resources out of prime medical center space and to tie together the existing campus and the Pine Tree Hill property. Altogether, KershawHealth now has access to 33 acres on and surrounding the current campus. Without these options to expand, it would be nearly impossible for future generations to keep the medical center in Camden.
In response to citizen requests, KershawHealth opened a physical therapy clinic in the town of Kershaw and maintained a primary care practice in Bethune -- two traditionally underserved communities. We also added EMS stations in Bethune and Elgin to accommodate requests by residents and a member of Kershaw County Council, and to reduce emergency response times. In Camden, we purchased three vacant physician offices and installed a state-of-the-art sleep center, a urology clinic and a successful primary care practice. Those additions have helped ensure our mission of providing care to everyone in Kershaw County and surrounding communities.
In what may have been KershawHealth’s boldest move -- and its greatest expansion – the hospital purchased 20 acres off White Pond Road in Elgin in 2009 and constructed the Outpatient and Urgent Care Center at Elgin. One of the prime reasons for this decision was the rapid growth in the western part of the county and the need to provide additional healthcare services to those living in Lugoff and Elgin.
Equally as important, however, was our response to the evolving nature of healthcare delivery. For the past decade, we have seen an accelerating move from inpatient care to outpatient care, and from routine office visits to episodic, unscheduled care. Understanding that trend led to our opening Urgent Care at Elgin. Working adults and families want the convenience of same-day appointments or walk-in care whenever they need it, in an attractive facility that offers extended hours … the perfect description of an urgent care center. Lending credence to KershawHealth’s evaluation of the market is the rapid growth in the number of urgent care centers opening around the Midlands over the past five years.
In opening a primary care practice at Elgin, we also recognized another important trend -- that of physician employment. Young physicians entering practice across the country increasingly prefer to be employed by a hospital or hospital-owned practice. In fact, according to the American Hospital Association, in 2012, 45 percent of physicians were employed by hospitals. In the last five years, KershawHealth has opened two primary care practices, as well as gastroenterology and pulmonology, to help ensure adequate access to both primary care and specialist physicians in the community. In addition, where a community need existed, KershawHealth actively assisted private practices in recruiting new physicians as well.
At the same time that construction was begun in Elgin, KershawHealth purchased the Burndale Shopping Center property on DeKalb Street in Camden, with the intent of creating a similar outpatient and urgent care center here. Approval of a Certificate of Need by the state of South Carolina confirmed the need for the facility, but the rapid and unforeseen downturn in the nation’s economy in 2009 put that project on hold indefinitely. However, the need for this facility remains, and we hope that as the economy improves this project will become reality for local citizens.
In his second question, the reporter implied that “bonuses” paid to senior leaders at KershawHealth were excessive. Compensation for KershawHealth executives is based on third-party evaluations of executive compensation at comparable hospitals throughout the country. In addition, following a national trend for healthcare executives, the senior leadership of KershawHealth has part of their total cash compensation tied to rigorous performance goals set by the Board of Trustees -- again an industry standard. Those goals are both broad and very aggressive, and include not only finances, but quality metrics and the successful accomplishment of strategic initiatives. For example, a maximum of 40 percent of my compensation as CEO is variable pay, and the actual amount awarded is dependent on the number of goals that are accomplished. Miss any of those goals, and total compensation goes down, as it did in FY 2012.
And finally, the reporter suggested that excessive spending over the past several years led directly to KershawHealth’s current financial losses. Three particular factors played into the challenging financial picture for KershawHealth over the past year:
1. We are still seeing a significant drop in the use of healthcare due to the soft economy and the rising cost of health insurance and deductibles/copays.
2. Both Medicare and Medicaid have made significant cuts in payments to providers over the past few years. Because South Carolina elected not to expand Medicaid, there are still large numbers of working people in our state who do not have health insurance, and so end up on the rolls of the uninsured. Those numbers add to the growing burden of charity and unreimbursed care faced by community hospitals like KershawHealth.
In these challenges, KershawHealth is not alone. As a recent article in The Charlotte Observer noted, hospitals in North Carolina’s fabled research triangle (Duke University Health System, WakeMed, University of North Carolina Health Care) are struggling to cope with lower volumes and reimbursements coupled with the staggering cost of policy changes at the state and federal level, and some are facing their first operating losses and/or layoffs in years.
3. Finally, KershawHealth has continued to absorb the significant deficit -- nearly $1 million annually -- generated by operating emergency medical services in the county. Kershaw County is one of only a few counties in South Carolina that does not either operate or substantially underwrite the cost of EMS services.
The coming years will be incredibly challenging ones for all community hospitals. Thankfully, over the past 16 years of my tenure as CEO, KershawHealth has faced only two years of financial loss, and many consistent years of good financial management have left this healthcare system with an excellent cash position and relatively low debt. However, it is imperative that we focus our talent and energy on recognizing and adapting to this rapidly-changing healthcare environment.