SoutheastHEALTH takes steps to address bond downgrade

SoutheastHEALTH executives say they have taken steps to move past a billing issue that led to a downgraded bond rating and believe they are moving forward as a stronger organization.

A report issued earlier this month by Fitch Ratings downgraded Southeast from BBB+ to BBB-. The ratings shift will not affect patients or employees, executives said.

"It has no bearing on the quality, the cost [for patients]," said John Skeans, chief financial officer for SoutheastHEALH, during a Thursday interview. He said the rating still is a positive one, despite the downgrade, and said it would have an effect only on interest rates if the organization sought a loan through bonds.

In its report, Fitch says the downgrade "reflects significant and unexpected operating losses in 2013, which resulted primarily from billing and revenue cycle issues" that occurred in 2013.

Skeans said the issue became apparent last year after Southeast went through an electronic medical record conversion, one of the many requirements of the Affordable Care Act.

"It was a one-time backlog and then as you go and change systems ... that's when you find out on the old system that there's probably some old accounts there that, for whatever reason, were hung up in the billing system," he said.

Southeast had inefficiencies in billing and "lags in getting the bill out the door," Skeans said. But with the new electronic medical records system fully in place and employees becoming more comfortable with it, he said the organization has started moving past the issue.

"We anticipated this rating adjustment primarily as a result of the 2013 reporting and technology implementation issues we identified earlier in the year," said CEO Wayne Smith in an email from the SoutheastHEALTH marketing department. "We directly engaged the Fitch rating review team and explained our detailed plan and initiatives to respond to each of the issues they raised in their report. Fitch highlighted their full support and acknowledged the significant work by the SoutheastHEALTH team, including our continued efforts to grow regionally and commitment to reduce the cost of health care."

The increased efficiency in the billing system also will account for large savings in Southeast's future. The Fitch report says management identified about $10 million in a one-time benefit and $30 million in annual recurring net benefit to the system, "which would go far to eliminate current operating losses in the near term and rebuild liquidity in the intermediate term."

Skeans was not there for the conversion from the old system to the new. He joined SoutheastHEALTH in July. So far, Skeans said his focus has been moving forward and looking for improvements. The ratings report indicates the organization expects to generate about $15 million in operating cash flow for 2014, and he said Southeast is on track to meet that target.

Despite the report from Fitch, Skeans said Southeast's strategy has remained unchanged.

"Our strategy is to focus on quality and cost-effectiveness," he said. "We've got some very positive news with our value based purchasing initiatives. We're one of the few that actually -- and I've been other places that did not receive positive money back -- but we're one of the few that actually received money back based on our quality and our patient satisfaction."

The Hospital Value-Based Purchasing program is a Centers for Medicare and Medicaid Services initiative that rewards acute-care hospitals with incentive payments based on the quality, rather than quantity, of care they provide to Medicare patients. Documents provided by Southeast Hospital indicate it received a positive overall score and will have higher fiscal year 2015 payments as a result of the Hospital VBP Program.

John M. Thompson, chairman of the SoutheastHEALTH System board of directors, also agreed the future looks bright for Southeast. In addition to his role on the board, Thompson is the president and bank director of The Bank of Missouri.

"I know that we'll be a better organization moving through this because [of] what it does for you," he said during a Thursday phone interview. "Drawing parallels with banking or any business, small or large, when you go through a bit of a tough time, you usually come out of that a lot better than you went in. And I think that's what I'm sensing."

Thompson said the board also has an interest in searching for efficiencies and cost-cutting measures, but stressed none of those things would come at the expense of patients or the employees.

Skeans and Thompson pointed out that hospitals are facing ratings downgrades and economic issues nationwide. A December report by Fitch said Medicare cuts, Medicaid funding issues, declining inpatient volumes and the rise of high-deductible health plans would continue to affect hospital profitability in coming years.

Skeans called such factors "the perfect storm" and said health care is a tough business. Thompson said he's heard of hospitals closing and downsizing across the nation but said it hasn't shaken his faith in Southeast.

"It's just really a signal that there's a lot of problems with our health-care system nationally and there's probably going to be fewer hospitals in the future, but SoutheastHEALTH will remain strong and be that hospital on the hill that is has been for the past 85 years," he said.

Continuing with its plan to provide better services in the Southeast Missouri area, the organization Wednesday celebrated the grand opening of Southeast Medical Plaza in Dexter, Missouri.

Of course, Southeast does have changes on its horizon. Smith announced in late August his plans to retire at the end of the year. He was named interim CEO in 2011 after Debbie Linnes resigned, and he was given the official title within his first year.

Smith's retirement announcement came months after Hugh King, vice president and chief financial officer for the past four years, and Dr. Dennis Means, vice president and chief medical officer, announced simultaneously in April their plans to leave. Both positions since have been filled, and a search firm is assisting in the efforts to find Smith's successor.

A news release from the board indicated at the time of his announcement that Smith, 65, planned to spend more time with his family.

Thompson said succession and planning are "paramount," and both are top priorities for the board. He said he had initial concerns the rating downgrade could be a problem as the search continues for Smith's replacement, but said he's been reassured by the search firm that won't be the case. Because the organization recognized its problem and has taken steps to correct it and move forward, Smith said SoutheastHEALTH might be a more appealing organization for those looking for a career change.

"Knowing that there is this movement amongst all of the team at SoutheastHEALTH to make a difference and to change things makes it a much more attractive position," Thompson said. "I feel good where we are and the recruiters are continuing to say the same thing."

srinehart@semissourian.com

388-3641

Pertinent address:

Cape Girardeau, Mo.

Dexter, Mo.