The University of Kansas Health System purchased several health systems in a two-year period. It started with Hays Med, a 207-bed hospital that serves as an important hub for the surrounding communities in Western Kansas.
Later in 2017, KU Health System purchased St. Francis Health, a 378-bed hospital in Topeka. Unlike Hays Med, St. Francis Health had been struggling financially, and faced closure. KU Health System acquired the hospital jointly with for-profit operator Ardent Health Services.
While it was undergoing this westward expansion, KU Health System was still fighting for market share in Kansas City. In addition to breaking down this strategy, I also scooped the competition on news of an internal reorganization of its top leadership.
For CEO Bob Page, proof of The University of Kansas Health System’s growth is as close as his office window. Outside, its new 124-bed inpatient tower, emblazoned with the system’s logo, rises above the surrounding neighborhood.
Of course, there’s further proof throughout the metro area: the Indian Creek Campus that expanded this summer in Overland Park, a mental health inpatient facility in Wyandotte County and billboards promoting it as the official health care provider for the Kansas City Chiefs and Kansas City Royals.
But KU Health System has been reseeding its approach to growth. As it battles other large health systems for market share in the metro area, it also is plowing new ground across Central and Western Kansas. It’s in the rural parts of the state that cash-strapped community hospitals struggle and some patients drive long distances for care.
In the past two years, KU Health System has snapped up hospitals in Hays, Great Bend, Topeka and Larned. The strategy has its risks, but Page expects it will let the system bring academic medicine to other communities in Kansas, plus attract patients from those areas when they need more complex care.
This westward expansion has caught the eye of many, from inquisitive physicians to hospitals seeking help.
“People are really curious about what we’re doing,” Page said. “We’re not trying to take over the entire state of Kansas.”
Strategy or philanthropy?
Health care is a growing industry nationally, but the picture is very different in rural areas. Rural hospitals face aging and shrinking populations, declining reimbursement rates and patients leaving their home areas for care.
In Kansas, 69 percent of rural hospitals had negative margins, said Cindy Samuelson, vice president of public relations for the Kansas Hospital Association. Statewide, 76 counties lost population last year. In some of those communities, nearly a third of patients are older than 65. And in 64 counties, at least half of patients travel to another location for care.
“Many times, they’re going to another, bigger facility for a procedure,” Samuelson said. “Follow-up care can be done in the community, but oftentimes they’ll come back. They end up getting that care in the urban area or another area.”
In its 2018 outlook, Moody’s Investors Service predicted that “mergers, acquisitions and strategic alliances will continue at a rapid pace,” especially for rural or community hospitals.
Large hospital systems and high-acuity academic medical centers continue to perform well, in part due to their scale and brand recognition, Moody’s wrote. But small hospitals still face a number of difficulties, including lower reimbursement rates and a shift to outpatient care.
“Rural hospitals are struggling and are likely to be increasingly acquired by major systems in nearby urban hubs,” the note concluded.
That’s where KU Health System comes in. It can benefit by opening a pipeline to attract the sickest patients, instead of them traveling to other counties, or states, for care. It also can offer resources and leverage for reimbursement to rural hospitals, while allowing more patients to get follow-up care in their hometowns.
“It’s a way of planting a flag in those rural communities with the idea that you will ultimately pull a lot of the larger or more complex procedures back to the main campus,” said Blane Markley, a health care attorney at Spencer Fane LLP. “Transplants, complex surgeries and strokes, those types of procedures come back to Rainbow Boulevard.”
He noted that not every hospital KU Health System has acquired has been in financial distress. So operating those hospitals doesn’t necessarily come with a hit to the system’s income statement.
There’s another potential benefit for hospitals to align with KU Health System. Tammy Peterman, COO and chief nursing officer for KU Health System, said ties to their alma mater can be a useful recruiting tool for rural partners. Her father, a physician in Western Kansas and a graduate of the University of Kansas Medical Center, kept the phone number for the hospital in Kansas City, Kan., taped to his desk.
“That was who he called,” she said. “Physicians and providers are loyal to this organization.”
A new structure
The University of Kansas Hospital rebranded to KU Health System in 2017, soon after it closed on the acquisition of Hays Medical Center. The name change hinted at a broader shift to come; since then, Page’s role has pivoted to overseeing the broader health system, with Peterman leading local operations as president of its Kansas City division.
As the system continues to expand across the state, Page said it can’t lose sight of its operations in Kansas City.
“At the end of the day, all of the work we do across the state of Kansas is absolutely dependent on the success of this enterprise right here. This allows us to make these moves across the state,” Page said.
The plan to look statewide dates to 1998, when KU Hospital won approval from the Legislature to be placed under an independent hospital authority. The move allowed the hospital to shed state personnel and purchasing policies that kept it from competing with other health systems. But embedded in the law that gave it this freedom was a mandate to improve the health of Kansans.
“While there is a strategy to this, the reality is we have a mandate that we’re now positioned finally to achieve,” Page said. “It took us five to 10 years to get our own ship fixed. We were in no shape to go try to improve the health of Kansans because we were trying to improve our own health.”
Now, with KU Health System financially stable, Page said hospital leaders saw an opportunity to look more broadly across the state. In 2016, the health system brought in $1.73 billion in revenue and had operating income of $135.8 million.
“At the center of that is not this hubris about ‘We need to be this big, and we’re not going to rest until we get this big,’” he said. “If you put the patient in the center of the decisions you make, those decisions are easier to make.”
That effort began about five years ago, with a $12.5 million grant from the Centers for Medicare and Medicaid Services to improve heart attack and stroke outcomes at 10 community hospitals.
Bob Moser, who practiced family medicine for 22 years near the Kansas-Colorado border, led that effort with Jodi Schmidt, executive director of regional outreach for KU Health. They worked with rural hospitals to develop protocols for identifying heart attacks and strokes early and administering treatment.
Often, they would work with primary care providers at smaller facilities that might see only three to five stroke cases a year.
“The more you do, the more efficient you can become,” said Moser, now executive director of the Kansas Heart and Stroke Collaborative. “Where it’s rare, you have to have a protocol you can pull out that walks you through it so you can do that intervention in a timely matter.”
When Moser initially went out to communities to explain the program, they’d ask: “What in the world does The University of Kansas Hospital need out here? Don’t you have enough patients?”
Once they were able to convince doctors that KU Hospital wasn’t there to poach patients, Moser said that made it possible to strike a partnership that resulted in Kansas City doctors helping rural providers, and those providers, in turn, teaching specialists what challenges they face in rural communities.
“Those relationships are what have led to partnership of University of Kansas Hospital and HaysMed, Great Bend and Larned,” he said. “I don’t think those alliances would have likely occurred, not at this pace, without having done a lot of this work.”
Health care highway
KU Health System’s deal for HaysMed was rooted in discussions among a group of hospital leaders, including Page and former HaysMed CEO John Jeter. They hoped to form a system connecting hospitals along Interstate 70.
Initial conversations didn’t go anywhere. But Jeter approached KU Health System again, and the two struck a deal.
“John, in his final year as CEO out there, had the vision and the courage to make that happen,” Page said. “I will forever respect John for doing that at that stage of his career because many CEOs want to walk out with their name on the building, with the pride they had in building something without joining another organization.”
The deal called for KU Health System to issue $40.2 million in bonds to pay off HaysMed’s debt. Fitch Ratings gave the bonds an AA- rating, stating that it viewed the acquisition favorably for the hospitals’ distinct service areas, HaysMed’s historic profitability and its dominance in the local market.
HaysMed plays a pivotal role in the health of Ellis County and the surrounding communities. The 207-bed hospital is one of the largest in Western Kansas and the only provider of heart surgery, cancer care, orthopedics and neonatal intensive care services in its five-county service area. In all, HaysMed sees referrals from 24 critical-access hospitals — facilities with 25 beds or fewer.
“We want (critical-access hospitals) to maintain their healthiness and take care of their patients at their level of competency,” HaysMed Chairman Alan Moore said.
For example, a patient with pneumonia might receive treatment at the nearest hospital in Quinter, Kan. If the patient’s condition becomes more serious, she would be transferred to HaysMed. And in the most severe of conditions, that patient would be transferred to a larger hospital.
Before, that referral depended on the physician’s preference. HaysMed would send patients to Wichita, Denver or Kansas City.
“Now, there’s a collaborative effort to make sure we know where we’re sending our patients,” Moore said. “We know they’re going to get the best care possible, keeping them within the system.”
With the purchase of HaysMed, KU Health System also acquired 25-bed Pawnee Valley Community Hospital in Larned. A year later, it acquired another hospital that had been in conversations with HaysMed — 33-bed Great Bend Regional Hospital.
KU Health System’s biggest purchase did not involve a small, rural hospital. Buying 378-bed St. Francis Medical Center in Topeka wasn’t part of the health system’s original plan. In fact, Page said KU Health had been cultivating a relationship with its competitor, Stormont Vail Health, before the deal.
“When the Sisters of Charity (of Leavenworth) decided they were going to close St. Francis, and the governor’s office called us and said we’d like to have a conversation, you answer that call, attend those meetings and figure out what’s the right thing to do for Kansans,” Page said.
KU Health System formed a joint venture with Nashville-based Ardent Health Services, collectively issuing $90 million in bonds for the Topeka hospital, which was nearing bankruptcy. The arrangement resulted in St. Francis becoming a for-profit hospital.
Peterman compared the installation of the KU Health System logo at St. Francis to a pep rally, with cheering and music.
“That’s different than it was in Great Bend, and it’s different than it was in Hays,” she said. “That one (St. Francis), they were just happy that their organization was going to remain open.”
Page said KU Health System will plan more deals, but he couldn’t identify future targets.
“We don’t know the next five. And we’re not here to take every phone call and say yes,” he said. “The big message is we’re not done. This is not going to be the end of the development of The University of Kansas Health System.”
Originally published in the Kansas City Business Journal, Sept. 21, 2018
Pictured above: The University of Kansas Health System’s main hospital campus in Kansas City. Photo by Adam Vogler.