Rural CEO Looks at Local Ownership Hospitals' Advantages

Jan. 13, 2024
Rural hospital's CEO David Schreiner, Ph.D., underscores the importance of engaging in the local community

David Schreiner, Ph.D., is the President and CEO of Katherine Shaw Bethea Hospital (KSB) in Dixon, Ill., an 80-bed independent rural facility with a staff size of 950. “We call ourselves a tweener,” Schreiner says, “we lie between the critical access hospitals and the academic medical centers.”

Schreiner has been with KSB for 35 years, the last 13 as CEO. He started as an X-ray technician and finished his doctorate in values-driven leadership in 2022.

Schreiner served on the American College of Healthcare Executives’ Board of Governors from 2016 to 2019. He is also past chairman of the American Hospital Association Rural Health Task Force.

His new book, Be the Best Part of Their Day: Supercharging Communication with Values-Driven Leadership, will come out on January 16th.

Private equity (PE) ownership of rural hospitals versus privately owned hospitals was a recent topic of conversation with Schreiner and Healthcare Innovation.

 

What could you tell us about the size of the Katherine Shaw Bethea Hospital (KSB)?

We’re an 80-bed independent rural facility, so we don’t meet the criteria of the 25-bed Critical Access Hospital. Our service area is about 50,050 thousand people. Our gross revenue in 2023 was about 500 million.

Private equity ownership of rural hospitals is growing, per a report by the Private Equity Stakeholder Project (PESP). Do you consider large integrated health systems in cities that have expanded through mergers and acquisitions to be included in this?

I see those as separate, and I’m not sure everyone would. When we talk about private equity investments versus affiliations, some of the second categories are, by definition, not for profits. They are large health systems, and they’re still not for profit. So, I look at private equity a little bit differently. Systems that are absorbing or affiliating with small hospitals may still have the not-for-profit mindset that the independent hospital might have. A private equity group is, by definition, a group of investors looking for a profit. There’s nothing wrong with profit; the question is whether that belongs in the rural hospital space.

Do you see investors in the local community buying up rural hospitals?

What we have seen in our service is not the purchase of a hospital but private equity starting for-profit outpatient services—for example, an imaging center. A group of investors started their imaging center that is able to provide MRIs, CAT scans, ultrasounds, and mammograms and competes with not-for-profit hospitals. I think in Illinois, there have been two for-profit hospitals that have been private equity purchases.

Could you speak to the advantages of privately owned small hospitals versus hospitals owned by private equity firms?

The hospital has been here since 1897 and we know the community well. I think we have a good feel for what our citizens need. Many of us who work here live in the community, go to the same churches, our kids go to the same schools, and we see each other in the grocery stores. That's what rural hospitals are all about. When we have private equity entrances into a hospital ownership situation, they may look at short-term results instead of long-term sustainability. I think that can be complicated for hospitals. It can threaten the sustainability of those hospitals over a long period of time. There’s also that impact on access. For example, we would look at service lines like obstetrics or inpatient behavioral health units. We lose money on those, and we have since they opened, and it's a part of our mission to provide those services to our community. If a private equity firm came in, they could look at those service lines and say those are offerings we're not going to have here. Around the country, rural hospitals have closed OB over the last few years for financial reasons.

An advantage is employee engagement and morale, the idea of pride that we take in working for our local community hospital. It could be difficult to get that same level of pride for investors. Sixty-five percent of our total expenses are for compensation and benefits. We are the largest employer in our community and have a significant economic impact on it. There is the idea around community relationships. We work very hard to have a good relationship with our City Council, county elected officials, and elected representatives at the state and federal levels. I think that's a little bit different when they're working with those of us who work for a not-for-profit Community Hospital as opposed to PE firms that are a little faceless. They're certainly not located in the community that they serve. PE firms would rely on the people with boots on the ground to know the local flavor. I think boots on the ground are important in rural hospitals. A significant amount of my time is spent in community relations, supporting United Way, being on the Chamber of Commerce, and in Rotary. Rural hospitals are such an important part of the fabric of small communities.

On the flip side, recapitalization is one of the biggest challenges for rural hospitals. Our organization had a capital budget of about 7,000,000 per year before the pandemic, and our balance sheet has been weakened so much from the pandemic. It's hard to see how we'll get our cash back up to the point where we can capitalize the way we want to. Private equity can help with that; they can provide cash infusions that rural hospitals have a hard time achieving. Thirty percent of rural hospitals had a risk of closing, and 50 percent had negative margins.

How does executive leadership differ in privately owned hospitals from PE-owned hospitals?

Every decision we make is consistent with our long-term strategic plan. We do those in three-year buckets. My understanding of private equity firms is that it would be more of a Wall Street model of quarterly returns. I think that's difficult when making decisions in a hospital setting, trying to do what's best for the next three months as opposed to what's best for the next three to five years. PE is driven by short-term profitability, especially if they're publicly traded and they have expectations of shareholder return. Everything we have on the profit side is reinvested into the organization. We don’t have shareholders. We don’t have investors expecting a dividend or investment return.

What are some of the most valuable learnings from the smaller and rural hospitals experience?

I think there are certainly best practices that private equity and for-profit hospital systems have that we can learn from. There are ways to gain efficiency and reduce our expenses; we should pay attention to those. I also feel there needs to be a groundswell nationally at the federal level about the way rural hospitals are reimbursed. The current model is not sustainable, and if we want to have hospitals near the populations that we serve, then there has to be something done differently on the reimbursement front. To tell you a story, we had two hospitals that are within 60 miles of us that closed at the same time. At our hospital, we have about 365 births a year. Those communities where the hospital closed had their deliveries here at KSB Hospital. One of those moms delivered in her car about five miles outside of town while she was driving here. I think that's the risk of rural hospitals closing; you have to go far for care, which introduces risk. If we look at the bigger-is-better and regional health systems, we get away from the care that can be provided to our communities in the communities we serve.

Do you have advice for PE-owned hospitals that want to learn from smaller and rural hospitals?

Engage in your local community and make sure that your executives on site are active in the communities in which they live. Even though they may be competitors, reach out to other hospital executives from rural communities and ask about best practices. The goal of all of us, regardless of your corporate structure, is to take care of the people we serve.

Do you collaborate with other hospitals?

We're unique in the geography that we live in; we have four rural hospitals that are less than 100 miles away from each other. We, meaning the CEOs, get together for meals. Last week, our Chief Financial Officer went out for lunch with the Chief Financial Officer for another independent rural hospital 10 miles away. There’s healthy competition, but we're also secure in our market share. If there are ways that we can work together in an even more robust way to spread those costs across more than just our organization, then I think that's something we need to look forward to.

What are the economics of upgrading and maintaining health information systems (HIE) in small hospitals?

It's a black hole that you continuously pour money into to keep up with the upgrades and the technological advances; there's no new reimbursement for any of those things. We have to absorb that within our expense structure, and it's very, very difficult to do. And as an independent hospital, we don't have anywhere to spread the costs.

How do you deal with cybersecurity? A breach could shut a small hospital down.

We invest strategically in programs and services that help us to monitor that. We're aggressive in having things like intrusion audits done to ensure that we have an outside firm come in and look for places where we might have weaknesses. We can do all of those things right, and we can still get hacked because it's happened to some of the world's best businesses, whether healthcare-related or not.

Could you tell me a little about the themes in your new book?

It’s based on my doctoral research. I had the opportunity to interview five of the best-performing hospital CEOs in the country and members of their administrative teams. I found some best practices and engagement to communicate more effectively with the people who matter to you the most. It might be the president of your medical staff or all of your physicians, board members, administrative team, employees, and community members. The book has three major themes, each with five sub-themes underneath them. There are 15 things that people can do to engage more meaningfully.

What compelled you to write about this?

When I did my research, I found things that I thought could help rural healthcare leaders and executives in any industry. These things were common among all the leaders that I talked to. These communication tools work in every setting, and they even work at home. I describe the audience as any leader. I'm so proud that a portion of the proceeds of that work is going to our hospital's foundation.

What is the book's biggest takeaway you want readers to have?

Kindness. It's that idea of being engaged with the person in front of you. The title refers to the idea that if we have an opportunity to meet for the day, I would love it if you went home that evening and talked to your family about that time as the best part of the day.

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