John Haupert is four months into one of the toughest jobs in health care: president and CEO of Grady Health System in Atlanta. Grady... New Grady CEO speaks — on the mission and the money (Q&A)
John Haupert, formerly chief operating officer at Parkland Health & Hospital System in Dallas, took over as Grady CEO in October. Photo courtesy of Grady Memorial Hospital

John Haupert, formerly chief operating officer at Parkland Health & Hospital System in Dallas, took over as Grady CEO in October. Photo courtesy of Grady Memorial Hospital

John Haupert is four months into one of the toughest jobs in health care: president and CEO of Grady Health System in Atlanta.

Grady Memorial Hospital is the biggest safety-net hospital in the state, and faces formidable challenges financially, with a large portion of its patients being uninsured.

Just in the past few months, Grady has experienced red ink, job cuts, and a federal inspection after a patient fell to her death from a hospital window.

But the Grady news hasn’t all been negative. Thanks to philanthropy, Grady has made significant capital investments since the hospital was at the brink of collapse three years ago. In October, it opened the new Marcus Trauma Center.

Haupert took time Thursday for a wide-ranging interview with Georgia Health News on the hospital’s financial status, potential Georgia Medicaid changes, health care reform, and government funding such as the disproportionate share (DSH) program for hospitals that serve a large number of low-income patients.

Q: Where does Grady stand financially right now?

A: We’re still wrapping up the year end for 2011, but Grady will end up with a net loss of about $25 million for 2011. We had been budgeted closer to break even. When that budget was prepared . . . it was prior to receiving final word on what the Medicare and Medicaid payment rates and supplemental payment programs like disproportionate share would be, as well as what the county funding would be.

There was a significant reduction from Medicare and Medicaid as well as a reduction in what the counties were able to provide. . . .

One of the more important statistics is the cash flow, which creates the funding to create new programs and, along with donated funds, being able to reinvest in the campus. We maintain a positive cash-flow position because of the increased investment in the facility,[which] creates an increased level of depreciation, so we are maintaining a positive cash flow.

My goal is to get us to a level of financial stability that has us at least annually on a break-even status. I really feel on an ongoing basis, Grady is going to need to fund a routine capital budget of around $50 million a year so that it doesn’t end up in the shape it was in before, with maintenance issues and equipment replacement issues not addressed. So it can remain current and even leading-edge.

There are a number of initiatives that we need to undertake and are undertaking to make sure we get to that level of stability.

Q: Where do you see 2012 financially?

A: We’re six weeks into it, and we actually budgeted a loss. Instead of a $25 million loss, we budgeted a $12 million loss. We will probably end up somewhere between that $12 million number and the $25 million number we experienced [last year].

Q: Medicaid is a substantial portion of Grady’s revenue. The program is undergoing a ‘‘redesign’’ process. What are your thoughts on that redesign?

A: There is a lot of discussion around DCH [the state Department of Community Health] about Medicaid redesign. . . . We as a safety-net hospital will have trouble absorbing additional cuts in Medicaid payments.

At the federal level, there’s a bill that would reduce payments [for hospital outpatient clinic visits]to what a physician is paid in their private office. That could potentially have a $4.6 million per year impact on us.

The state issues have not had a dollar amount assigned to them, but you can assume there is potential for a negative impact.

Q: Any concerns about where the state is heading on Medicaid, particularly the idea of managed care for the aged, blind and disabled populations?

A: When you take a more high-risk, high-utilization population, and put them in managed care, there is a lot more [financial] risk taken on for the providers who provide that care. . . . Yes, I have concern about moving in that direction.

There are some issues that we’re working on that we would very much like to see addressed.

At the state level, we are working with DCH on the issue of disproportionate share hospitals. Many years ago, a cap was placed on Grady’s potential DSH distribution. We would like to see that cap lifted. We also want to engage with DCH in a discussion around the DSH formula that determines which hospitals qualify, how they qualify, and how much they get paid.

The disproportionate share program was created to provide additional funding to those hospitals that provide a disproportionate share of their business to Medicaid and unfunded patients. It was left to the states to implement the program.

Some states, like New York, Pennsylvania and Texas, established a fairly high threshold, somewhere around 10 percent of your business had to be dedicated to those [low-income] patient populations to receive that funding. In the state of Georgia, that threshold was set at 1 percent.

So you have the ‘‘disproportionate funds’’ flowing into the state, but being spread to almost every hospital in the state because of the 1 percent. We would very much like to see that percentage raised to something significantly higher than 1 percent.

I have an ethical problem with the fact that you have some high-net-income health systems that are benefiting from funds intended for hospitals that provide a disproportionate share of the care to the underserved and Medicaid populations.

We’re in discussions continually with Fulton and DeKalb counties, which provide us funding from their budgets. From my point of view, we’re very fortunate to have those relationships, we’re very fortunate that those counties have participated with us. But we have to have ongoing discussions with those counties about the cost of providing the care to their uninsured citizens, on what it costs us versus the level of funding they’re providing.

Fulton has been doing a better job of covering the majority of the costs than has DeKalb. This past year, Fulton provided us $52.2 million in funding. That was about $12 million short of covering the net cost of the care provided. So we’re about $12 million in the hole on the Fulton side, and $20 million in the hole on DeKalb side.

If the net cost would have been covered, there’s a $32 million delta there . . . and we had a $25 million loss.

I don’t ever want to present a lopsided story here. I very much understand the issue counties are facing — declining property values, potential reduced sales tax income. They have hard decisions to make. . . . We have to have a discussion about what it looks like moving forward.

We have to have a discussion probably at the state level, about a broader range of accountability for providing care to the unfunded. There are a lot of counties other than Fulton and DeKalb that reap the benefit of Grady . . . [such as] the burn center, the trauma center, and now one of the leading neuroscience stroke centers in the country. There’s a cost to that. If those counties have unfunded patients who are utilizing those services, there needs to be some way for Grady to receive reimbursement.

That’s not a very popular subject, of course. But nationwide, there’s a discussion about . . . increasing the scope of the tax burden on a broader audience, so it doesn’t all fall on the immediate geographic area.

Most public hospitals started off as city hospitals serving the poor. When this hospital was created, the city wasn’t that big and poverty was centralized. Over the last 120 years, poverty has moved farther out and is now quite dispersed. All of the surrounding counties have significant poverty issues they’re trying to address, and those folks are utilizing the services here at Grady.

Q: So there needs to be some kind of broader funding?

A: At the state level — regional health networks that help fund the care for the uninsured.

Q: Is there a place in the U.S. that does that?

A: Not that I’m aware of. I came from Texas, and we were attempting to have the discussion there. It was just as difficult to crank up that discussion there as I’m sure it will be here. No one wants to have to pay more in taxes. Yet people do really need these services.

If you work at a safety-net hospital like this, you become acutely aware of the number of people who come to you for care, and by the time they get to you, they’re already at a very advanced stage in their disease. Things like colon cancer. Caught early, diagnosed early, it is for the most part a treatable cancer. We have patient after patient after patient coming to us with very active symptoms, being diagnosed with Stage 3 or 4 colon cancer.

Same thing with prostate cancer and breast cancer. Folks are coming in the door every day and being diagnosed with a terminal condition that does not have to be a terminal condition. That’s heartbreaking. We have got to, as a society, get a grip on that.

Q: There will be a Supreme Court decision this year on health reform [the 2010 Affordable Care Act]. If it’s upheld, how will it affect Grady and safety net hospitals?

A: I’ll preface all my reform comments by saying there’s still a lot unknown, particularly around the payment mechanism. The crystal ball is still foggy on how all this will play out.

We’ll go with my own personal hypothesis. There are a number of programs that flow through to hospitals, like DSH dollars, upper payment limit dollars, that will be redirected to fund coverage to folks who previously did not have coverage.

About 36 million of the uninsured all of a sudden will have coverage. And what that means for Grady and all safety-net hospitals, is there will be a group of patients who have always seen Grady as their hospital, and will want to retain that relationship, because they feel safe, secure and comfortable with the care they have received there. I’m sure there will be patients who will feel more empowered with insurance to seek care elsewhere.

Here’s where my big concern comes in: Will there be enough primary care physicians and specialists to meet that pent-up demand among the population? It’s an economic given that those who have been underserved and have that pent-up demand will be higher utilizers of service. We have a pretty significant physician shortage [in Georgia], particularly in rural areas . . . There may not be access.

Point two, what is the reimbursement rate going to be for the provider, the physician, to accept those patients into their practice? And will it be attractive enough for them to accept those patients, or will they say, ‘‘No thank you’’?

Georgia right now has a fairly good Medicaid payment rate for providers, and you see fairly active involvement by providers in Medicaid. In Texas, only 18 percent of physicians would accept a Medicaid patient. You would see many more Medicaid patients [in Texas] seeking care in the safety-net hospitals, because they didn’t have access [to other physicians].

There are a lot of unknowns here. Grady will fill multiple roles, which is continuing to serve the patients it serves, even though they’re now insured, as we continue to develop these specialty services that are really making a name for themselves quickly. We feel we will see more patients . . . in those identified clinical services.

Q: Could health reform be a net positive financially for Grady?

A: I doubt it. If it’s a net positive for us, where’s that positive coming from? The overall goal is to reduce the funding in health care so that health care is not consuming the gross domestic product.

Q: What percent is self-pay at Grady?

A: True self-pay charity is 40ish percent, almost 50 percent.

Right now, because we provide that care to those patients, there are all those government programs that flow through to us for providing that care. If those funds go away, and are replaced by direct payment, will that more than offset [what’s loss]? I think not, but wouldn’t it be a good thing if it did?

The hospital systems that have been the more profitable, commercially insured systems, are making projections of at least a 5 percent to 20 percent reduction in their net revenues. . . . There’s a bit of panic within the market among those systems that have been used to a highly commercially insured population.

There are a lot more unanswered questions than answered questions.

Q: If health reform is struck down, what does that mean for the future of safety-net hospitals?

A: This country can’t afford for health care to continue to consume more and more of the gross domestic product. We have been in a system where hospitals and providers are paid for the volume of services, not on how well the service is provided, or the outcome with the patient. The focus needs to be on the health of the patient, not what you provided to them. . . .

If it doesn’t happen, and the economy doesn’t significantly turn around in the next few years, the safety net will just keep getting bigger and bigger. The gap between haves and have-nots in this country continues to get wider. The number of people falling into the safety net keeps getting bigger and bigger.

We are seeing people seeking care at Grady who never thought they’d be part of the safety net. They have lost their jobs or been laid off, or are gainfully employed but their employer no longer provides health insurance.

There will continue to be the battle for the insured patient. That will get more and more competitive, and drive more consolidation in the market in metropolitan markets like Atlanta, and the safety net will continue to grow, and there will continually be a need to fund the care for people who don’t have access.

Q: Anything in your first four months at Grady that has surprised you?

A: I’m incredibly impressed with the dedication and quality of the staff. The dedication and quality of the medical staff from Emory and Morehouse is just fantastic, superior.

The focus over the last three years, with the change in [Grady] governance, is on development of new clinical services, and establishing excellence in several clinical services is quite admirable.

In the best-run public hospitals, like in Denver and Boston, you will see that, but in a lot of them you won’t. And it’s because the funding became available, and the donors stepped up to make that happen. It’s really making a difference.

Regardless of who’s going to pay the bill, Grady has to do something to attract more paying patients, . . . not at the cost of the mission, [but] to enhance the mission. A lot of people have heard Grady talking about developing these new clinical services and assume that means Grady is walking away from its mission and the patients it was created to serve. That’s not true at all.

We have to create a net revenue to continue to fund and expand the mission. Right now, there’s more demand for the mission than we and everyone else can accommodate. We have to do right by ourselves, and in the process, we’re making available to the community some pretty phenomenal services.

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Andy Miller

Andy Miller is editor and CEO of Georgia Health News

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