Following a national trend of independent hospitals selling to large corporate medical organizations, Silverton Health is considering an acquisition by Providence Health & Services. Silverton Hospital, founded in 1918, along with its clinics and medical providers, is run by a nonprofit board.
Board chair Gail Goschie expects such a decision to be made at the end of this year. “We need adequate time to make sure we have covered all the bases.”
Silverton is no different than other small hospitals, said its president and CEO Rick Cagen, “We’re not losing money but we are struggling. Most small hospitals need to make 3-4% on the bottom line to maintain and grow. But most small hospitals are at about 1% because of healthcare reform efforts. I think it [healthcare reform] is the right thing to do.”
According to the latest financial information shared with the Oregon Department of Justice, the hospital put in place a 90-day austerity program in January 2012, which included a hiring freeze and furloughs for management, as well as layoffs. That same year it suffered a $2.9 million net loss, compared to a $2.9 million profit the year before; its net patient revenue was $96.7 millon in 2012, down 0.9 percent and its reported charity care charges were $10.1 million, down 14.1 percent, while its profit margin was negative 2.8 percent compared to positive 2.9 percent in 2011.
Silverton Health President Richard Cagen received total compensation of $380,416 in 2012: $304,000 in base pay, $60,250 in bonuses and incentive pay, $13,083 in nontaxable benefits and $3,083 in other compensation.
Recently, The Lund Report did an analysis of hospitals struggling to remain independent.
To survive, smaller hospitals across the country are affiliating with larger healthcare systems, which has been occurring long before healthcare reform.
Financial Missteps by Silverton
Silverton’s financial concerns have not solely been the perils of healthcare reform, and has made some financial missteps, an informed source told The Lund Report. Under its previous CEO, William Winter, who retired in 2011, Silverton opened the Wellspring wellness center in Woodburn. That center, devoted to a yoga/wellness/holistic model, failed to perform. With an unbreakable lease on the building, Silverton’s options were limited. Only within the last year has a new model been implemented, bringing more traditional services under the Wellspring center’s roof. Where the center once had a high-end restaurant and spa, it now offers primary and secondary care, a pharmacy, physical therapy, and other services that are in greater demand for the Woodburn area than the previous model offered.
Cagen acknowledged that previous decisions have had an effect on the hospital’s financial performance, including the wellness center. “It was an effort during a time when wellness was focused on, but it just didn’t make it financially. We changed that model. It’s doing better and serving the community better.”
A computer upgrade in 2012 also cut into the health system’s bottom line. An unexpected slowdown in the billing process led to compounded financial difficulties. For this reason and others, Silverton implemented an “austerity program” that included a hiring freeze, furloughs and layoffs. Cagen said that Silverton is still operating under an austerity system. “We have somewhat of a hiring freeze,” he said, “and we are watching expenses always. We continue to struggle a little bit but we are making it out. Our finances are a little better than has been reported in the past.”
The hospital currently has 49 beds, with an occupancy rate of about 50%, Cagen said. “We also operate seven or eight clinics. Only about two-thirds of what we do is inpatient-related, so it’s not an accurate indicator of our service. You can’t just look at hospital beds.”
Community Residents Fearful
As talk about the Providence acquisition spreads throughout the community, some people fear the hospital will lose its community focus.
“Silverton is the largest employer in town,” said resident Chuck Sheketoff, “and the hospital is seen as a community hospital. I’m concerned about its ability to meet community needs if it’s taken over by a large system. It’s a true community hospital, not religious like Providence. I can’t imagine we could keep the community focus as part of a larger hospital chain.”
The lack of communication about Providence taking over the hospital also troubles Sheketoff, “The way I found out about this was by reading about it in a little local twice-a-month paper. There has been no effort on the part of the hospital to reach out to the community and get their input.”
Goschie said the board isn’t ignoring the community but needs to direct its initial energy to the medical staff. “As a community hospital we have boards and committees and different formal groups within our different communities that we serve. We have the foundation board as well. We are using those boards to help us communicate and help us get the feel of the larger community.”
The health system includes about 200 physicians, roughly 40% of whom practice telemedicine and are not on-site. Of the remaining 110-120 active staff, about 80 are independent physicians and about 40 are directly employed by Silverton Health.
Cagen also called it premature to engage the Silverton community. “It’s in our board’s hands and our board is still talking to people and doing research. They have not yet decided whether to partner with anyone at all, or with Providence specifically.”
When the board started considering this option, Cagen said, “We looked at five large systems [Providence, Legacy, PeaceHealth, Salem Health, and OHSU] and developed about a dozen criteria including whether they were an integrated health system or not, their mission statement and core values, financial security, annual report, affiliations, geography in the community, history with Silverton Health, how they are managed and governed—a whole bunch of things. And the board decided on moving ahead with Providence.”
Cagen has a history with Providence, working in leadership roles during the early 2000s, and has told his board he favors an affiliation. “I think that we need to do this and my counsel to the board has been to look at this. But the decision is far from being made. The board is still gathering information. There is also potential the board will bring in a consultant to help the system become more efficient and not have to partner. The next board meeting is end of July and there may be more information known after that.”
Providence Has History with Silverton
Gary Walker, Providence spokesperson, said in a statement that “Last year Silverton Health and Providence Health & Services signed a memorandum of understanding to begin discussions about working more closely together for better efficiencies and services. These discussions continue as we look at everything from new or expanded clinical and non-clinical services, to a management services agreement, to affiliation.
Silverton Health and Providence Health & Services already have a long history of partnering with one another.
- Silverton Health has benefited from a purchasing agreement with Providence for many years. The resulting economies of scale save the organization thousands of dollars each year.
- Providence provides accounting and billing assistance to Silverton Health.
- Silverton Health is part of Providence’s telemedicine network.
Silverton Health and Providence Health & Services share similar values and complement one another’s culture of care. We are excited to explore these new opportunities to provide high-quality, coordinated and comprehensive health care services.”
As a secular hospital, without a religious affiliation, community members question whether Providence would impose Catholic standards such as not allowing abortion or physician-assisted suicide. But that doesn’t pose a problem, Cagen said, since Silverton doesn’t offer such services currently.
Another issue that’s cropped up concerns fund-raising on behalf of Silverton’s foundation. “Would donors want to know all their money is going to be funneled into the Providence system?” asked Sheketoff.
Randy Stockdale, the foundation director, doesn’t foresee a problem. “Maybe I’m being a little naive, but I don’t think it’s going to impact us in the short run. In the long haul, Providence has many foundations and their M.O. has been to encourage their foundations to operate as they have been. I would also hope folks wouldn’t lose sight of the fact that we’ll still be maintaining a hospital here in the local community.”
Temple can be reached at [email protected].
