Another small hospital to fly the IU Health flag

Indiana University Health is betting that plunking down $1 million a year to operate a small, county hospital about 50 miles northwest of Indianapolis will pay off.

IU Health — the state's largest health system — has won a five-year contract to operate Frankfort Hospital, a 25-bed facility with a basic lineup of services.

The move will give IU Health yet another campus to add to its network of 15 hospitals, which stretches from Muncie to Bloomington. And it will help bulk up IU Health's vast feeder system, which is set up to offer basic care for patients in their home communities, and send more complicated cases to nearby hub hospitals (Arnett Hospital in Lafayette, about 20 miles away, in this case). The most serious cases can go to Methodist, University or Riley hospitals in Indianapolis.

“We try to have all the care stay local, if possible,” said Ryan Kitchell, IU Health’s executive vice president and chief administrative officer. “And then if additional levels of care are needed, we want a regional hub nearby and a true system of care.”

For its sprawling size, IU Health is not shy about operating small hospitals. It runs small, critical-access hospitals in Paoli, Bedford, Tipton, Hartford City and Monticello.

“Critical-access” is a designation given to certain rural hospitals with no more than 25 beds by the Centers for Medicare and Medicaid Services, allowing them to get slightly higher government reimbursements. It's meant to keep entire counties, often hours from big cities, from becoming hospital deserts.

Frankfort Hospital offers a standard array of basic hospital services, including emergency, maternity, surgery, imaging and rehabilitation services. It rang up about $25 million last year in operating revenues. After expenses, it claims operating profit of about 10 percent – in line with IU Health’s overall margin’s Kitchell said.

St. Vincent, who operated the hospital for the past two decades, decided not to renew the lease with the county that ends May 31, 2017. The Indianapolis-based system did not comment on its plans.

The change will take place June 1. Under the contract, IU Health will get all revenues from the hospital, and will pay Clinton County $1 million a year in rent. Both sides can renew the least for up to 15 years.

IU Health has promised to keep all of Frankfort Hospital’s 108 employees at their current salary and recognize their existing service time and vesting under any new benefit program.

IU Health also will conduct a facilities review to see what kind of programs and services could be enhanced. Initially, IU Health expects that such review will show the need for it to make a “substantial investment” in the hospital’s electronic health record system and other IT modifications to make the hospital’s systems compatible with IU Health’s statewide systems, according the master lease agreement, signed Nov. 10.

“IU Health believes that the cost of such improvements could potentially be as much as $6.5 million,” the agreement said.

 Kitchell said community leaders already have asked the hospital to provide more obstetric and behavior health services.

Clinton County leaders who negotiated the contract say they are pleased with the outcome. The move gives Frankfort access to IU Health’s vast system of health care, and indirectly, a link to new doctors and treatments at the Indiana University School of Medicine.

In addition, it gives the county $1 million a year in lease payments, which is the backbone of Clinton County’s emergency medical services.

“Taken together, this agreement was a significant win for the residents of Clinton County,” president of county council.

It could also be a big win for IU Health, if the system can pick up more patients and boost revenues, while keeping expenses under control.