Expert: Doing nothing to change health-care system not an option

The Kenai Peninsula Borough health-care system should adopt a regional alignment strategy and embrace the future as national health care moves from a fee-for-service to a population-based payment model. 

That’s the recommendation of a report released Tuesday afternoon in a briefing by Eric Shell, director of Stroudwater Associates, at Homer City Hall. About 20 people attended the meeting, many of them health-care professionals.

The borough hired Stroudwater of Portland, Maine, in February to analyze current health-care systems on the peninsula, including South Peninsula Hospital. Shell also discussed the report in a meeting on Wednesday with the Kenai Peninsula Borough Health Care Task Force.

Fee-for-service, or sick care, is the current model. That’s changing to a model where doctors, health clinics and hospitals work together to manage patient health. Rather than being paid for a single-service — for example, treating a heart attack — health care providers get paid for keeping that patient healthy, such as encouraging exercise, weight loss and good nutrition.

“I want to be part of a model where we’re getting paid to create health, but have access to sick care,” Shell said. “Right now we’re paying for sick care, and we’re paying for a lot of it.”

The Stroudwater report took two options off the table: closing South Peninsula Hospital or selling it to a private company.

“There is a need for a full-service hospital in Homer,” Shell said. “We’re not going to back down on that one.”

Doing nothing also isn’t an option, Shell said. The report looked at what happens if the status quo continues with fee-for-service payments. A strong Alaska oil economy has cushioned the impact of rising health care costs, but with that in decline, more expensive health care will hit harder. Central Peninsula Hospital in Soldotna has an operating margin of 14 percent. 

SPH has a margin of 4 percent, but that’s including revenues from property taxes paid to the SPH service area.

If costs keep rising 10 percent a year, and hospitals increase charges 6 percent a year, commercial health insurance — that provided by private employers — will become unaffordable and the market will decrease. At the same time, Medicaid will cut payments by 2 percent a year.

Put it all together, and by 2024, even if the Soldotna, Seward and Homer hospitals consolidate, operating income becomes negative.

The borough has to move to a different model, Shell said.

“The time to change is now before somebody has a gun to our head,” he said. “This model we’re living in is not going to work.”

To get to a population-based payment model, the borough should adopt what the Stroudwater report called a “regional alignment strategy.” That has these components:

• Collaborate with local and regional service providers to enhance and coordinate care;

• Establish a shared services organization to help reduce costs and efficiencies; and

• Maintain local governance and decision making while at the same time enabling regional cooperation.

After briefing the health-care task force, Shell also was scheduled to meet with Kenai Peninsula Borough Mayor Mike Navarre and his staff to discuss the report. Borough assembly member Kelly Cooper of Homer, also a member of the task force, said the intent is to keep the whole process transparent and open to the public. That’s why Shell came to Homer on Tuesday. Wednesday’s task force meeting was not designed to be the finished product, she said.

“What it is is narrowing it down to recommendations we would like to make to the community,” she said. “If there are any significant changes, it would have to go to a borough vote. Just know this has been transparent.”

Michael Armstrong can be reached at

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