In rural areas, the hospitals are also bracing for change

New Mexico Business Journal, Sept, 1995 by Paula Paul

With both the state and federal governments considering capitation programs Medicaid and Medicare, hospitals like Memorial Medical Center in Las Cruces know they must prepare for changes. About 50 percent of Memorial's patients are insured by either Medicaid or Medicare, according to hospital spokesperson Ruth Padilla.

Capitation involves insurance companies paying hospitals a set amount up front for health care. Hospitals and their associated physicians are then expected to provide care within those limbs.

"So far we are barely touched by managed care, and we have no capitation," Padilla said. "We are still largely fee-for-service."

The hospital serves not only the 63,000 residents of Las Cruces, but a total of 150,000 plus in the county and surrounding areas.

Gearing Up for Change

However, with changes in Medicare and Medicaid on the horizon, Las Cruces has already begun preparing, says Steve Smith, Memorial's president and CEO. Changes have already begin in the infrastructure of the hospital to plan for more outpatient care.

How long will it be before Memorial must make the major changes already underway in Albuquerque and Santa Fe? Neither Padilla nor Smith could say.

"Most employers still carry indemnity, policies," Padilla said, "but I don't think most employers can afford to stay with indemnity policies long."

Indemnity policies allow participants to choose any physician they want and pay a percentage of the fee set by physicians and hospitals. Managed care policies limit the choice of physicians to those participating in the plan and pay a predetermined discounted amount to hospitals or physicians.

"If the physicians take the lead (in changing to managed care or capitation), it (the change) will be slower," Padilla said. "In Las Cruces, physicians are driving the health care system."

Managed Care

Lea General Hospital in Hobbs, one of the few privately owned for-profit hospitals in the state, is already dealing with managed care to a large extent.

Located in the state's oil-rich southeast corner, Hobbs and the surrounding area have many oil field service employers who are self-insured with Preferred Provider Organization (PPO) agreements with the hospital. The agreements provide a discounted fee for service to the "preferred" hospital, Lea General in this case.

According to Gordon Taylor, CEO of Lea General, the hospital also has a PPO agreement for state employees in Hobbs and is gearing up for even more such managed care agreements, as well as capitation.

Like hospitals in the cities, Lea General's focus is to become more cost conscious, Taylor said.

"Our focus will be more outpatient or a lower level of care," Gordon said. "Our quality will be fine as long as we determine the proper level of care, and physicians will determine that."

Capitation, coupled with cutbacks in Medicare and Medicaid, will make it difficult for small town and rural hospitals, Taylor says. Lea General has an additional problem with two Lubbock hospitals, Methodist and St. Mary's, proposing to move primary care facilities into the Hobbs area.

"They are coming in with their tax-exempt status and trying to overwhelm us," Taylor said. "They say they want to provide an unmet need. Well, the unmet need here is to provide care for those who can't pay, but I think they are gearing up for the HMOs in New Mexico."

Hospitals Impact Communities

Hospitals like Lea General are often of major economic importance to the towns in which they are located. Lea General is Hobbs' biggest employer with 400 employees. Also, new industry proposing to move into a town almost always considers whether or not a hospital is available for potential employees.

"Lea General was a factor in the state making a decision to build a minimum security prison here," Taylor said.

In spite of their importance to their communities, several small town and rural hospitals in the state are struggling and on the brink of closure. As a result, University of New Mexico Hospital has initiated a program to teach rural hospitals management skills.

"We don't run the health care, that's the hospitals' job," says Bill Johnson, CEO for UNMH. "We teach management skills, needs assessment, and issues of quality assurance - how to look at people for evaluation, for example."

Guadalupe County Hospital in Santa Rosa took advantage of UNMH's management expertise and a grant from the state to keep afloat after a lease agreement with a for-profit hospital organization proved a financial disaster. The hospital has made a dramatic turnaround and in turn, shared its UNMH-gained knowledge of needs assessment with the public schools to help them solve their infrastructure problems, Johnson said.

UNMH is currently working with hospitals in Deming and Truth or Consequences to provide managerial expertise.

The problem arises from the fact that small-town hospitals in New Mexico's sparsely populated areas are not attractive partners for hospital management companies or managed care plans who need large numbers of enrollees.