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Published 5/1/2010
Howard R. Epps, MD

Shriners changes billing policy

Fundamental change in response to economic challenges

Shriners Hospitals for Children, which provide health care to more than 123,000 children annually, without financial obligation to patients or their families, is implementing a fundamental policy change intended to solidify the hospital system’s financial standing.

“We are now going to be accepting third-party pay, from insurance companies and government programs,” said Peter Armstrong, MD, FRCSC, FACS, FAAP, chief medical officer and vice-president of medical affairs of the Shriners system. “We’ve never done this before in the 88-year history of the hospitals. It’s a huge operational and cultural change—probably the biggest change that has ever taken place at Shriners Hospitals for Children.”

Despite the new direction, patients who benefit from medical care provided through Shriners Hospitals for Children should not notice a difference. The international network of 22 hospitals comprise the charitable arm of the Ancient Arabic Order of the Nobles of the Mystic Shrine, a men’s fraternity founded in 1870 that has a current estimated membership of 350,000. The hospital system treats children with orthopaedic conditions, burns, spinal cord injuries, cleft lip, and cleft palate. It also sponsors training programs for healthcare professionals and conducts cutting-edge research for the benefit of its pediatric patient population.

A necessary move
Economic fluctuations over the last several years had placed Shriners in a precarious position and underscored the necessity of change. The recent economic downturn took a substantial toll on the system’s endowment, which provides hospitals within the system with most of their operating budgets. From a peak of $8.9 billion, the endowment dropped to a nadir of approximately $4.75 billion, although it has since rebounded to more than $6.8 billion as of February 2010, according to John McCabe, vice-president of finance.

Billing for services should provide a significant source of revenue. “A sizeable percentage of our patients on average across the system have some form of insurance,” Dr. Armstrong noted. “We’re moving in the direction of not continuing to subsidize insurance companies.”

Dr. Armstrong estimated that more than half of the insured patient population served by Shriners hospitals could qualify for Medicaid. To facilitate the major transition to billing, Shriners enlisted the services of an outside accounting service to create the infrastructure necessary to start the process.

The threat of major restructuring had loomed for the past few years, as the system struggled to manage yearly expenditures that outpaced donations. Despite a concerted effort to cut costs, it became clear that a cost reduction strategy alone would not completely solve the financial problem.

The crisis culminated last spring, when the Shriners membership weighed several unpleasant options, including permanent closure of hospitals in Erie, Pa.; Galveston, Texas; Greenville, S.C.; Shreveport, La.; Spokane, Wash.; and Springfield, Mass. Employees and staff nervously awaited the annual Shriners National Convention in July, when delegates from each Shrine Temple convened to determine the entire system’s future.

Impact on medicine
Closing six hospitals in the system would have had a deleterious impact on medicine. According to Mr. McCabe, the hospital system has an annual budget of $749 million. In addition to the 5,141 employees who work for Shriners, 74 orthopaedic surgeons and 164 physicians of other specialties practice in Shriners hospitals. The entire medical staff exceeds 1,400 members, including 371 orthopaedists.

Shriners hospitals also play a significant role in medical education. In the last 20 years, more than 8,000 physicians have spent part of their residency or fellowship education in a Shrine facility. In 2008 alone, 520 orthopaedic residents and 27 orthopaedic fellows trained at Shriners hospitals.

Instead of downsizing, the Shriners delegates authorized the national board to change the delivery model of some inpatient hospitals to ambulatory care facilities. Because the volume of patients, mix of insurance, and areas of expertise vary among different facilities, the board has encouraged each hospital to examine its situation and respond accordingly. The board emphasized the initiative should begin at the local level, explained Dr. Armstrong, because they believed there was a greater chance of success if each hospital had the opportunity to examine its unique circumstances and determine how to function more cost effectively. “We have a number of hospitals that are actively looking at changing their care models,” he added.

Besides the landmark decision to bill outside third parties for services, the other critical development that emerged from the National Convention was unequivocal support for the preservation of a Shriners Hospitals for Children presence at every hospital location.

“The delegates made it perfectly clear that they’re not the least bit interested in closing anything,” said Dr. Armstrong, who shares the sentiment. “The local Shriners are passionate about keeping their units open and I would be, too. In each of those hospitals, the staff is wonderful, passionate, and dedicated to looking after children.”

Additional steps
Looking toward the future, the Shrine is also expanding the endowment to supplement the revenue stream. “We’re ramping up our professional fund-raising efforts,” said Dr. Armstrong. He noted that the Board plans a “robust” development program that extends beyond the well-known fund-raisers like the East West Shrine Football Game and the Shrine Circus.

“In many ways, we were one of the world’s best kept secrets,” said Dr. Armstrong. To increase visibility, Shriners has begun advertising on cable television. “We also want to be more public about our outcomes…to demonstrate that we’re rock solid in terms of our quality and safety.”

At the 2010 annual National Convention of Shriners delegates, the focus will be on updating the delegates about progress with the new initiatives.

Overall, Dr. Armstrong feels very optimistic about the future of Shriners. “Our mission won’t change. Our intention is to continue to provide care to those who might not otherwise be able to afford it. That mission will continue to be excellence in patient care, teaching, and research. We hope to continue ‘changing the world through caring for kids’ well into the future.”

Howard R. Epps, MD, is an orthopaedic surgeon in private practice affiliated with Shriners Hospital in Houston, and a member of the AAOS Now editorial board. He can be reached at epps@fondren.com