The squeeze: tighter reimbursements put pressure on not-for-profit hospitals.

• Author: Kaelble, Steve
• Position: Hospitals & Clinics

"OUR MISSION IS TO provide high-quality healthcare services to everyone who presents themselves to us for care, and to improve the health of the community."

So says Charlie Mason, president and CEO of Fort Wayne-based Parkview Health, which operates a half dozen hospitals in the northeast corner of the state. "We have a pretty broad mission," he says. But it's also a fairly straightforward mission, one that's echoed in the mission statements of virtually all not-for-profit hospitals.

"We have a value structure shared by most hospitals in Indiana of providing care to anyone who presents themselves," agrees Dan Evans, president and CEO of Clarian Health Partners in Indianapolis, the state's largest health-care operation. "Our No. 1 mission is health care, second to none--the highest quality health care delivered in the safest way."

Achieving that fundamental mission, however, is not nearly as simple as it once was, asserts William Corley, president of Indianapolis-based Community Health Network. A few decades ago, he says, providers could focus on the mission with the knowledge that they would be reimbursed on a cost or cost plus basis.

Today, says Corley, providers are being squeezed from all sides, forced to focus not just on their basic mission but increasingly on the bottom line as well. It's a balancing act that has forced hospital organizations to find new and creative ways to meet the health-care needs of the community while keeping their fiscal heads above water.

Corley traces the evolution of the current squeeze as far back as the 1965 debut of Medicare. The vise began to tighten with Medicare reimbursement changes in 1984, when the government began paying hospitals a fixed amount based on each patient's diagnosis-related group, or DRG, at the time of admission. No longer was a hospital's reimbursement determined by its actual expenditures on the patient. The 1990s, he says, brought the spread of the "managed competition" philosophy, which holds that quality and efficiency will improve if providers must compete for health-care consumers.

The cross-subsidy. "Just like in many not-for-profit as well as for-profit organizations, there are some services where you make a profit and some where you don't make a profit," Corley observes. One important attribute of health-care economics is the cross-subsidy, where a service that loses money is offset by one that turns a profit. For example, he says, surgeries and imaging services have...