Highsmith leaving St. Luke’s Hospital ‘in good hands’

Published 2:23 pm Monday, May 11, 2009

Highsmith said St. Luke&squo;s came within $63,000 of cash flow break even on hospital operations revenues of $27.8 million in the last fiscal year which ended Sept. 2008.

However, the bad economy has now set the hospital back again. Bad debt has risen along with unemployment. The provision for uncollectable accounts was $3.9 million at Sept. 30, 2008, down slightly from $4.1 million the year before.

In addition, since the economy crashed last fall, people have not been scheduling elective surgeries and procedures, Highsmith said, further cutting the hospital&squo;s revenues.

Sign up for our daily email newsletter

Get the latest news sent to your inbox

Finally, the one backstop which has kept St. Luke&squo;s going for many years, its investment account, is not seeing much in the way of new money and the old money has been diminished by the falling stock market. St. Luke&squo;s Hospital investment account, which totalled $9.25 million in October, 2007, was down to $6.68 million last October, and down further still to $5.3 million as of March 31 this year.

The St. Luke&squo;s Hospital Foundation endowment has been &dquo;hovering between $1.3 million and $1.5 million,&dquo; according to foundation president Norm Powers, down from its high of $1.7 million in 2007.

&dquo;The hospital is not just now in dire straits,&dquo; Highsmith said. &dquo;It was always in dire straits. I would say, however, that it is vulnerable again. It needs the support of the community again.&dquo;

Carolinas HealthCare System and Highsmith agreed recently that it was time for new management. Highsmith left his post a few weeks ago and has been interviewing for jobs with other small N.C. hospitals whose boards are seeking a turn-around specialist like himself.

If he had stayed at St. Luke&squo;s to deal with the current &dquo;vulnerability,&dquo; it would have marked the third time Highsmith worked to bring St. Luke&squo;s back from the brink.

Gen. Harry Evans and the late Joe Claud, leaders on the hospital&squo;s board of trustees in the early 1990s, hired Highsmith in September, 1993. A Pender County, N.C. native, Highsmith had grown up on his father&squo;s farm and around his grandfather&squo;s sawmill. There is still a &dquo;Highsmith&dquo; crossroads sign in Pender County.

Cam Highsmith attended the University of North Carolina in Chapel Hill and then entered the U.S. Navy where he served as a pilot, a flight instructor and a personnel officer. As the Vietnam War drew to a close, he took an early out option, left the Navy, and headed back to the University of North Carolina-Wilmington to become certified as a public accountant.

His first job was managing the Plainview Health Center in Duplin County, N.C. It was there he got the health care bug. He went on to manage the Outer Banks Medical Center in Nags Head, N.C., and from there to become the chief financial officer for the J. Arthur Dozier Memorial Hospital in Southport, N.C. When the Dozier Memorial president left, Highsmith stepped up to serve for a while as interim administrator.

SunHealth, the company which had been supplying managers for St. Luke&squo;s Hospital, hired Highsmith as chief financial officer at Pender Memorial Hospital in Burgaw, N.C. where he understudied the administrator as they worked for seven years to turn that hospital&squo;s financial health around.

When SunHealth decided to stop managing small hospitals, they referred Highsmith to St. Luke&squo;s&squo;s CEO search team. Highsmith was hired out of a field of 60 candidates.

&dquo;It was a chance to go to work in what for us was vacation land,&dquo; Highsmith recalled. &dquo;You got some time off at the coast and you went to the mountains. Here was a chance to live and work there.&dquo;

St. Luke&squo;s had been operating for a year with an interim manager, William Young, after SunHealth&squo;s manager, Tom Bradshaw, had left. Young tackled some big budget challenges.

In the fall of 1992, Congress had cut a special &dquo;Medicare dependent&dquo; payment system for rural hospitals serving high percentages of Medicare patients.

With Medicare revenues dropping, Young&squo;s job had been to bring hospital expenses way down, Highsmith said. The only way to do that was to cut staff.

The St. Luke&squo;s Hospital trustees budgeted for ‐ expected ‐ losses from hospital operations for fiscal year 1992-93 to be $1.2 million. But Young and the hospital board managed to trim that number down to just a $177,817 loss by Sept. 30, 1993 ‐ after cutting hospital expenses by $1.175 million from the previous year.

In fact, when revenues from charitable gifts, doctor&squo;s office rentals and home health care service fees were added, St. Luke&squo;s total corporate financial picture actually recorded earnings of $1.26 million in 1992-93 on net revenues of $9.2 million.

&dquo;The interim executive (Young) had cut the staff back,&dquo; Highsmith recalled. &dquo;I started mending fences and getting everyone to focus again on their jobs.&dquo;

He also started looking for ways to generate new revenue for the hospital.

The former maternity wing of the hospital, which had not heard a new baby&squo;s cry in years, was sitting empty, Highsmith started a geriatric psychiatry service in that hall. He went to work to recruit new doctors to the area, and Dr. Lonnie Lassiter, Dr. John Kornmayer, and Dr. Jeffrey Viar all set up practices here.

Dr. Lassiter expressed interest in operating a hyperbaric oxygen therapy unit, so St. Luke&squo;s added one. Hyperbaric oxygen therapy is the medical use of oxygen at a level higher than atmospheric pressure, a therapy primarily used to enhance healing in selected problem wounds.

Things were going in the right direction again for St. Luke&squo;s Hospital, Highsmith said, until the Balanced Budget Act (BBA) of 1997. The BBA was enacted to control the growth of Medicare spending by establishing new &dquo;prospective payment systems&dquo; rather than continue reimbursing services on the basis of costs or charges.

&dquo;The balanced budget act really hit rural hospitals hard,&dquo; Highsmith said. &dquo;One third of rural hospitals have had a negative bottom line since then. They have had to live off their foundations.&dquo;

Some, like District Memorial Hospital, a 25-bed Cherokee County hospital, trimmed its staff by nearly a fourth, to fewer than 100, and still had to file for Chapter 11 bankruptcy in 2000.

Luckily, St. Luke&squo;s had benefited from charitable bequests and some cash positive years and had millions of dollars of investments. The income from those investments was used to offset the hospital&squo;s operating losses.

In 1991, Charles Dunn was hired to form the St. Luke&squo;s Hospital Foundation, a separate entity. In addition to building an endowment, the foundation has put well over $4 million into St. Luke&squo;s since its inception, paying for an Intensive Care Unit and a refurbished Emergency Department among other things.

The foundation is now underway with a $1.5 million Excellence in Care campaign for new technology and equipment for orthopedic procedures, advanced rehabilitation and enhanced surgical capabilities.

St. Luke&squo;s has not ever, during his tenure, earned enough money to pay for the hospital&squo;s &dquo;growth&dquo; needs, Highsmith said. The hospital has always relied on charitable giving and grants for those items.

&dquo;When the Balanced Budget Act came in, we had to start over,&dquo; Highsmith said. &dquo;You could look at the graph of what was going on. Salaries, pharmacy, supplies were all going up, and Medicare was only increasing at 3 percent annually.&dquo;

The government also recognized the problem and offered the &dquo;critical access&dquo; program to a limited number of small, rural hospitals, to allow them to go back to cost-based reimbursements.

&dquo;They (the federal government) wanted to go after the big money that the big hospitals were making without killing the rural hospitals,&dquo; Highsmith said.

By becoming a Critical Access hospital, St. Luke&squo;s had to limit its acute care beds to no more than 25. But Medicare and Medicaid paid for services at Critical Access hospitals using a formula based on &dquo;reasonable costs&dquo; plus 1 percent, so the days of losing money on Medicare and Medicaid were over.

&dquo;We had 80 percent Medicare patients back then,&dquo; Highsmith said. &dquo;The ratio now is 70 percent Medicare and Medicaid.&dquo;

Once the Medicare revenues were squared away, the next challenge for the hospital, Highsmith said, was to find a way to increase St. Luke&squo;s revenues from private payers ‐ that is, insurance companies.

The hospital board began looking for partners, and did create purchasing and referral alliances with Memorial Mission Hospital in Asheville and Spartanburg Regional Healthcare System in Spartanburg, S.C.

But St. Luke&squo;s needs to keep its relationship steady with both of those regional hospitals, Highsmith said, and thus the board chose Carolinas HealthCare System out of Charlotte as the best answer for a full partnership.

&dquo;Carolinas HealthCare System brings the money to the table,&dquo; Highsmith said. &dquo;They are the largest management company, the largest private, not-for-profit health care group in the state.&dquo;

As such, Highsmith said Carolinas HealthCare System has the heft to negotiate the lowest rates with hospital vendors, and the highest rates of payment from managed care insurance companies ‐ for both the hospital and the hospital&squo;s doctors.

&dquo;Private payers are how we pay for the Emergency Department, the no-pay and charitable care,&dquo; Highsmith said.

Looking back, Highsmith said he always thought of St. Luke&squo;s like one of his nine children. They are all grown now, and need him less.

&dquo;I have accomplished what I can accomplish (at St. Luke&squo;s),&dquo; Highsmith said. &dquo;Carolinas HealthCare System is positioned to help the hospital going forward as well as anyone.&dquo;