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That was the message from Hospital Development Foundation President Pete Sgro who spoke to the Guam Medical Society last Thursday about the new private hospital being built in Dededo.

Sgro compared Guam to Reno Nevada and Brownsville Texas. Reno he pointed out has 7 hospitals, Brownsville has 5.  He argued that the new Guam Medical City Hospital is needed to provide specialty medical services for island residents who now must go off  island for care. And to help ensure that some of the millions spent on medical care off-island, stays here.

Last week, ground clearing began on the site in Dededo where the new private hospital will be built. Construction on the $150-million dollar facility is expected to be completed by mid 2014.

READ Pete Sgro's Remarks to the Guam Medical Society below:

Guam Medical Society Induction Dinner
Summary of Considerations to Improve Standard of Care on Guam  
By Peter R. Sgro, Jr.; Chairman & President
January 12, 2011


1. Does Guam’s Medically Indigent Program need Reform?

* There is no such thing as free medical services. Guam’s Medically Indigent Program (“MIP”) is 100% locally funded by the taxpayers of Guam. It is intended to provide health care access for those persons who lack sufficient income to pay for care. According to the Executive Summary of the Department of Public Health Audit,  Report No. 10.03 dated June 2010, the Government of Guam spent $67.3 Million on MIP Benefits  between Fiscal Year 2005 and 2009. (hereinafter referred to as “OPA Summary”).  If a review of the total appropriated funds dedicated to MIP for the last 10 years, it is safe to say that over $100,000,000 Million dollars in tax funds went to this program. But did all the money go to provide access of care to Eligible Applicants? Who manages millions in health care dollars and has this money been managed properly?

* There is no Medical Director or any licensed physician involved in the determination of whether care funded under this program is medically necessary or not. Personal experience as a legally designated patient advocate with power of attorney to foster access to care, resulted in firsthand experience to witness the unconscionable. Parents of a cancer patient waited 8 months for a meeting with management of the MIP-Medicaid office. In the presence of social worker advocates, key and long time management admitted there was absolutely no licensed physician involved in the review of medical records with medically related decisions left in the hands of individuals that have no medical expertise. In one case, the referral of a Northern Public Health Clinic physician for care was denied for no apparent reason.

* OPA Summary states in one section “Our audit findings indicate that DPHSS could not provide reasonable assurance--nor could we conclude—that the $67.3 million (M) expended for MIP between FY 2005 and 2009 entirely benefited eligible recipients.”

* OPA Summary clearly indicates “Lack of Control Processes to Ensure Only Eligible Applicants are Approved”. 10 GCA Section 2904(b) requires a system of internal controls over the application process which were not established. Applications were processed with no independent review and no adequate separation of duties which increases the risk of error and fraud.

* No Limits: Guam’s MIP program is more than likely one of the most general health care plans in the entire nation. Compared to private insurance plans, MIP benefits cover up to three roundtrip airfares as medically necessary, offers up to 3 times more coverage days for skilled nursing facility, have no maximum cap for hemophilia-related blood products, and no lifetime caps.

* So if there are no limits and if MIP is more generous than private insurance plans and millions of dollars appropriated to this program, why are you and other providers of care either not paid with some waiting years to be paid?

* Increases Cost of Care: The MIP is the single most contributing factor to the increase in care on Guam. The reality of health care services is a cost is attached to all care. Cost of labor, supplies, medications, equipment, rent, power, water etc. In order to for many providers of care to remain financially stable, there is no choice but to increase the cost of care for those with private insurance or the ability to pay to off-set loses providers absorb from not being compensated for care to MIP applicants. The mis-management of MIP funds has historically also limited access to care, which is the very opposite of what MIP was intended to do.

* If MIP cannot even pay what is owed GMH for delivery of care, what more private providers of care. Also, it is not factual that the bulk of MIP dollars goes to care for immigrants.

2. Can Guam Support Two Hospitals?

Part of determining the financial viability of developing a hospital in any community must begin with comparables of communities of similar size and demographics. Calculating for instance what we refer to as “EBIT” or “Earnings Before Interest and Taxes, is one calculation that all investors should do to determine financial viability before deciding to embark on any viable business operation. Note the following indicators of two mainland communities:  

BROWNSVILLE, TEXAS: Located at the southern tip of the US-Mexican    border with a population of about 165,000.

o Guam has a population of about 170,000 people.
o Brownsville is 83 square miles / Guam is 209 square miles

* Brownville has a Tropical Climate / Guam Tropical Climate

o Brownsville attracts close to 2 million tourists annually---Guam attracts about 1.2 million tourists annually.

o About 92.5% of the population at Brownsville is Hispanic with the highest rate of diabetes and obesity per capita in the mainland United States.  We all know the extremely high rates of the same on Guam.

o Guam has one civilian hospital with 158 Acute Care Beds, 40 Long Term Care Beds and 32 Baby Bassinettes 208 beds when adding the long term care facility according to its website.

o Brownsville Hospital Infrastructure:  Brownsville has 5 hospitals including a surgical hospital, rehabilitation hospital and children’s hospital.

RENO, NEVADA: Reno and Guam are similar in several aspects. Guam’s population is approximately 170,000 and Reno’s population is approximately 180,000. Guam has a  tourism/government based economy and Reno has a tourism/government based economy. Reno and Guam differ in two key aspects: Population Growth and Medical Infrastructure.  

o The population of Reno is growing at the rate of 2.5% a year. The population of Guam is expected to grow 25% over the next six years which makes the second difference – the medical infrastructure of the two areas - so important.

o Guam has about 71 medical clinics/offices and two hospitals. Guam Memorial Hospital serves a resident civilian population of 150,000 +/- and Navy Regional Medical Center (NRMC) serves a resident military population of 20,000+/- .

o Reno has about 199 medical clinics/offices and seven hospitals (six civilian and one veteran’s facility) and the seven facilities have a combined capacity of 3,000 beds.

In spite of their bigger, better, and newer medical infrastructure, Reno Nevada public health officials considered the health care infrastructure to not be adequate for the demands of its people. Two years ago, one local television news broadcasts: “Reno's hospitals are facing severe health care shortages across the board. The need for nurses, doctors and other health care professionals is greater than ever, and the smaller the community, the bigger the problem.”


3. Do We Really Know What a Hospital’s Standard Should be With Only One Civilian Hospital?




On August 29th and 30th of 2006, I spent the entire day at The Avera Queen of Peace Hospital in Mitchell, South Dakota. This was my first visit to a hospital to begin learning about the how hospitals operate efficiently and how they are financially viable.

This hospital is a 120 bed licensed Joint Commission Accredited hospital in the city of Mitchell, South Dakota. The population of the City of Mitchell is approximately 16,000 with Avera being the only hospital in this small rural community. Surrounding smaller communities’ total population is approximately 40,000.  

In addition to being a 120 bed licensed facility, the hospital maintains a Cancer Care Center, 8 surgical suites, 8 intensive care beds with video monitoring systems in each intensive care room allowing intensive care specialists in other jurisdictions to view patients and vital signs. Other departments include an Emergency Room with 2 Trauma rooms with level 3 Trauma certification, a Nuclear Medicine Department, Pain Management Department, Radiology Department with CT Scan and MRI and a Nutrition Center. The hospital also maintains a helicopter pad and enclosed ambulance drop off site with roll-up doors to protect patients from the elements. Part of the hospital facility includes physician offices which are leased to physicians that maintain hospital privileges.  


Summary of Meetings, Construction Costs & Financing

During this visit I met Tom Rasmusson: Chief Operating Officer, Patrick Clark: Senior Vice-President & Chief Financial Officer and with several department supervisors. Rasmusson maintains over 35 years of hospital management experience and not only is responsible for the Avera Queen of Peace Hospital but also two additional smaller hospitals totaling 180 beds. For purposes of estimating construction costs for a hospital facility such as Avera, Tom Rasmusson suggested a figure of $1,000,000 per bed which includes total architectural costs, total construction cost, total costs of fixtures and total equipment costs necessary to begin accepting patients and to meet JACHO standards. Avera Queen of Peace Hospital maintains the highest rate of return of all Avera system hospitals with a return of 4%. Generally, non-profit hospitals operate at between 0% to .5% returns. Standard and Poors rated Avera with an A+ investment grade rating. Standard, Poors and Moody’s sets a standard for hospitals to maintain at least a 150 day cash reserve fund to cover all expenses. Avera exceeds this requirement by consistently maintaining a cash reserve fund of 210 days. The Break-Even point for the hospital is a 40% occupancy.

Recruitment & Retention

Being a small rural town about 65 miles away from the next largest city, Avera Queen of Peace Hospital maintains recruitment challenges since “who wants to work in the sticks of South Dakota”. The hospital staff includes a full time recruiter by the name of Rise Waldera who I had the opportunity to talk to about how the hospital addresses their recruiting challenges. The recruitment process begins as early as the high school level with the hospital sponsoring “Health Career Days.” High School students are also invited to the hospital for tours and given an opportunity to interact with hospital staff. As part of the hospitals budget, an active physician recruitment program involves what they refer to as a “Practice Development Program” which is offered to physicians in their final year of residency. The program is a loan program that can range between $20,000 to $120,000 paid out during the last year of residency. For every year the recipient of this loan remains with the hospital, 25% of the loan is forgiven. Thus, after four years of remaining with the hospital, the entire loan is forgiven. Another recruitment incentive involves a Stipend Program where a physician is projected to earn a certain amount of dollars in a given year. If for instance a new Orthopedic Surgeon is guaranteed $400,000 in a stipend but his practice did not develop as quickly as anticipated resulting in generating $300,000 in a stipend, the hospital will pay the physician the difference of $100,000. When recruited physicians and their spouses visit the hospital for the first time, the hospital will “roll out the red carpet”  and “wine and dine not only the physician but the physician’s spouse.”  The hospital CEO will host dinners or cocktail parties for the recruited physician and spouse which is attended by all medical staff. Although the financial incentives are important to the recruitment process, “it is important to make them feel at home in our community and at our hospital.” The hospitals full time recruiter is also responsible for keeping track of medical students in their 3rd and 4th year of medical school, knowing where they are, how they can be reached and communicating with them from time to time. Soon the recruitment process will involve tracking students as early as their 2nd year of medical school. At a cost of $5,000 annually, the hospital recruitment office is linked on-line to a service called “Practice Link” which is a data base of physicians seeking employment opportunities. The recruitment office also utilizes the services of a company in St. Louis called “Practice Match” which provides another data base of physicians seeking employment opportunities. Both data bases provide the recruiting office with the opportunity for direct mail correspondence, e-mail correspondence and telephone conferences with prospective recruits.  


Cost Effective Purchasing of Equipment

The hospital CEO said it was not enough to have a non-profit status for purposes of purchasing equipment at the lowest possible costs. He suggested that the new hospital affiliate with volume medical equipment purchasers such as a company called “Premier.”  He used as an example the need for one particular expensive piece of equipment but instead of the hospital purchasing the one unit, Premier will seek ten or more units for other purchasers all at the same time and thus pass on the volume purchase discount to the consumer.

Financial Performance

The hospital Chief Financial Officer provided me with the hospital’s  “Financial and Capital Plan Fiscal Year 2007”and reviewed various sections of the report with me. For Fiscal Year 2007 budget, note the following significant entries which indicates a hospital that maintains strong financial management practices:

* Total Gross Patient Revenue……...…$103,207,888
* Salaries and Wages…………………...$22,227,485    (22% of Gross Revenue)
* Employee Benefits………………….....$7,356,021     (7% of Gross Revenue)
* Bad Debts (ie. Patient refuses to pay)..$1,032,079   (1% of Gross Revenue)
* Charity Care (ie. Patient can’t pay)…...$1,548,118   (1.567% of Gross)
* OPERATING INCOME……………....$3,839,390    (4% Margin)


Summary of Points Relative to New Guam Hospital

1. Original Conveyance Approved by Congress Permitted Use for “Hospitals:” Under ,United States Public Law 103-339  parcels of land to be transferred under this Act shall be for the “public benefit” use including, but not limited to, housing, schools, hospitals, libraries, child care centers, parks and recreation, conservation, economic development, public health and public safety.........."

2. Significant Shortage of Hospital Beds: There is a significant shortage of hospital beds for a community the size of Guam. Utilizing a commonly used industry formula developed by the University of Oregon, Department of Economics, for purposes of calculating a community hospital bed need, Guam maintains a shortage of at least 317 hospital beds.

3. The calculation to determine Guam’s hospital bed shortage is determined on a ratio of 2.7 Medical / Surgical Hospital Beds per 1,000 people under the age of 65, which is then added to the ratio of 13 Medical / Surgical Hospital Beds per 1,000 people over the age of 65. The current number of hospital beds available to the civilian community is then subtracted from the total of the two ratios added above.

4. In calculating the current hospital beds on Guam to determine the shortage of beds considering the demographics of Guam, Long Term Care Beds located in Barrigada, Baby Bassinets and Naval Hospital Beds should not be included in the calculation. The calculation supporting that Guam has a shortage of 317 hospital beds for a community with its demographics, is a realistic calculation which does not account for the fact that Guam is ranked per capita as one of the highest places in the United States for certain chronic diseases such as diabetes and cancer.

5. In actuality, the hospital bed shortage for Guam is more than 317 since in using the ratio above, one must subtract existing hospital beds or Acute Care Beds. The number of acute care beds at the Naval Hospital are not considered in the calculation. The 317 bed shortage number uses the number of 230 hospital beds which has for years been indicated in literature related to the bed count at the

6. Guam Memorial Hospital. But there are actually only 158 Acute Care Beds at the Guam Memorial Hospital since the 40 long term care beds are not suppose to be factored into any community hospital bed need calculation, nor are baby bassinets

Economic Impact:

1. Approximately $82 Million in health care dollars originating from Guam leaves our island economy annually to pay for care at private hospitals outside of Guam, with many families left not able to afford the additional cost of air fare, hotel, car rentals and related expenses. The first Phase of this project is projected to retain up to 65% of patients now leaving Guam to be able to stay on Guam for care. Additionally, just the construction will employ up to 320 construction workers. The hospital itself will create up to 450 new jobs for care of patients and support staff for hospital operations.

2. There is only one hospital on Guam to serve the entire civilian community. According to a January 2011 Guam Economic Development Authority Briefing Paper……..”current Medical Insurance statistics indicate that approximately 35% of medical cases leave off-island for in-patient services (surgeries or procedures not available on island). For outpatient services (includes annual physical examinations, secondary medical opinion etc.), approximately 20% travel off-island.”

3. The total number of patients, excluding family members that leave Guam monthly, has been estimated to be up to 325 patients based on a compilation of health insurance information, Guam Medical Referral Office information and other information related to off-island care.

4. Guam Physician Shortage:

United States Public Health has designated Guam a Physician Shortage Area

1. According to a January 2011 Guam Economic Authority Briefing Paper, “Guam’s Medical Community is also currently experiencing a shortage of physicians in the field of Family Medicine. In addition to the shortage the average age of these physicians is 55+ years. The additional resident doctors would create a larger resource for this discipline on island. There are still critical physician shortage areas within the community that need to be filled , such as, orthopedics and neuro-surgery, cardiac surgery and urology

2. The development of a state of the art new hospital with the resources and equipment needed especially for specialty health care services will attract more physicians to Guam.

3. In developing staffing patterns and salaries for medical professionals for the Guam Regional Medical City, the most recent Hay Study was one of several studies used to determine compensation levels which will be competitive with US mainland standards.

4. There are doctors born and raised on Guam now practicing in the US mainland, wanting to come home to Guam, but are not able to since they do not have the tools they need to practice what they have been trained to do.

5. Medical Tourism: The Guam Visitor Industry has for years been investing in trying to attract the Silver Market to Guam but competing destinations continue to invest in new hospitals or expansions of hospitals since Silver Market visitors with more disposable income will only go to places they feel safe and also will have access to care if they become sick or injured during a vacation. Relationships have been established for the rotation of US Board Certified Japanese and Korean Doctors for a medical tourism component of this hospital project

6. Recruitment: The recruitment process started several years ago which includes reaching out to U.S. Board Certified physicians practicing on the mainland either born and raised on Guam or have ties to Guam. Relationships have been established with Medical Schools including the University of Pittsburgh Medical Schools, one of our board member being a faculty member of the University of Hawaii Medical School and friends of the Foundation with relationships with the likes of Stanford University, Loma Linda University, Catholic Health Care West, Adventist health care system and Associations of Guam and Philippine communities in California that have offered to assist with reaching out to medical professionals to return home. Also, there is a large pool of U.S Board Certified Physicians practicing in the Philippines, Japan and Korea that are eligible for licensure on Guam.

7. No Military Build-up Consideration: Since this effort first started over five years ago, those involved in the process all agreed that it would not be prudent to proceed with this hospital project and include factors related to the military build-up. The rationale for this decision was based on the fact that none of us has any control over the government policies of the United States and Japan, and thus did not feel this was a risk that should be undertaken. This same position has been accepted by the applicant. This is a project that is not dependent on any military build-up with the investment being made based on current demand of our community. This demonstrates a long term commitment to our community and region.