HealthAlliance of the Hudson Valley CEO David Lundquist is currently the man in the middle. He’s been meeting with the mayor, the Lions Club, the Chamber of Commerce, making the rounds, trying to explain what’s happening with Kingston’s hospitals.

When word got out that the still-young affiliation of Benedictine and Kingston hospitals was losing money and considering scaling back to one campus, the blowback was intense. It wasn’t how he’d hoped to break the news to the community.

“I’ve been in this business for 30 years. In the last three years, the changes in health care have been more rapid and significant than anything thing I’ve seen,” Lundquist said. “We’d known for over a year that the dips in outpatient services weren’t cyclical — that with changes in health care this was an industry shift. When the auditors looked at the books from 2011 and pointed to two years of losses, the issue of a going concern was raised.”

That phrase, he said, put plans that were already being discussed on the fast track. Lundquist hoped for 90 days for planning and exploring options. Then he wanted to roll the ideas out to the hospital community over two or three weeks, making sure everyone understood the challenges and get community input on the options. But first, he went to the hospital board.

“There is nothing that doesn’t leak,” Lundquist noted ruefully.

Suddenly, rumors were flying that both hospitals were closing (never considered, he said).  Administrative salaries (some of which, he said, were for people who hadn’t worked at the hospitals in a long time) were published. And everyone wanted answers — now.

Kingston Mayor Shayne Gallo said Lundquist and hospital officials met with him as soon as the word got out.

“We understand that HealthAlliance is the victim of the metro [Medicare reimbursement] index, changes in the health care delivery system and the impact of the growing trend of physician groups that lower overhead for doctors but are having an impact on the hospitals’ ability to operate,” said Gallo.

Lundquist admitted to being a bit gun-shy when asked about what the options might be. “Our 90-day planning period started on May 16,” Lundquist said. “We don’t have answers yet.”

He’s emphatic about making the point that the HealthAlliance was successful its first year.  Lundquist pointed out that after years of losses and with no reserves, the hospitals showed $5 million profit their first year together.

“Our plan was a good one. The emergency rooms were combined at Kingston Hospital while Benedictine, the bigger, more convenient campus, took the elective surgery patients. There was no staff reduction. We reduced beds at both hospitals and increased efficiencies. We counted on growing Benedictine’s volume with the Behavioral unit, Oncology, Chronic and Specialty services. In fact, there’s been 30 percent growth at the Joint Center at Benedictine. But we’d been excluded from the expansion of Medicaid reimbursement, making us less competitive, and there has been very active steerage away from hospitals by payers. If a doctor can do a procedure in the office, insurance encourages that.”

Then the recession dried up discretionary income.

“Health care is traditionally immune from economic downturns,” Lundquist said. “Not this time.  We didn’t feel it until the end of ’09, but then we started to see declines.  People chose to postpone elective care. Either they’d lost their insurance, or they just didn’t feel like they could afford to do it.”

2010 saw continuing deterioration, with a three percent decline in inpatients as the country feared a flu epidemic.  It didn’t happen. Good news for people, but not for hospitals.

“We took a small loss but we were still able to cover our direct expenses.  But in 2011, the full impact of all those changes hit us broadside. At 70 percent occupancy, that’s not a sustainable model.”

Lundquist noted $5 million lost in outpatient revenue last year, partially due to the proliferation of medical equipment in doctor’s offices that was once only available in hospitals. Why get your colonoscopy screening in a hospital when you can go to your doctor’s office?