by BRIAN COOPER
TH executive editor
This has been a "good news-bad news-good news year" for Mercy Medical Center and Rusty Knight, president and chief executive officer.

TH: In looking over your resume, I assume you were interested in health care administration early on.
RK: My father (Jim) was a hospital administrator in the small town in southern California where I grew up. (Santa Paula). My dad had an interesting situation. He was working for a big hospital in San Jose, Calif. Somebody called him and said, "We're going to build a hospital in this little town of Santa Paula," which only had about 8,000 people at the time. Now it's about 30,000. He said, "Why would I want to leave a big city and go to a small town where they don't even have a hospital?" But he went and fell in love with it. When he was hired, he was the first employee. It was just him and an architect. They designed it together and built it, staffed it, and ran it for nearly 30 years before he died. He didn't talk much about, he didn't talk really at all about work at home. But you could tell that it was a position that the people in the community appreciated. I could tell that he was really engaged and committed to the job. So, I didn't really know what I was getting in to, but I had a positive role model in him.

TH: Your father had the opportunity to be the first employee of a hospital. You're president and CEO of a hospital that's finishing up its 125th anniversary. What type of weight of tradition do you feel when you're the guy in charge on a major anniversary such as this?
RK: It has just been a great year. I think it has reacquainted all of us with some of the history and traditions and some of the legacy and the story of those first sisters coming up by cart from Davenport or the Quad Cities in response to the call from an archbishop, with no consultant study, no feasibility report, no fund-raising, no business plan. Just, "Here's a call and here's our response to a need." We have tried to really focus on that as something worthy of celebration during this year. Then all the great people that have come along ever since that time. One of our stated values as an organization is stewardship, which may sound kind of odd. It goes along with compassion, respect, excellence, concern for those who are poor, but in the mix there, one of the five is stewardship. What we've tried to use the 125th anniversary for is to underscore the importance of that value. This community and all of us who work here at Mercy have this incredible facility and equipment and programs and services and most of us who are here now had comparatively little to do with assembling it. Other people who went before us did that. So the value of stewardship is to appreciate what other people have put in place and to take care of it and build on it so that, 125 years from now, people will look back and appreciate what we've been able to add. So, yeah, you're right. When you come in at the 125-year mark, you feel a real responsibility to respect the people that went before you and made it happen. And also an obligation to make it better for the ones who are gong to come later.

TH: What do you consider to be the strengths, the strongest attributes of Mercy?
RK: Well, unquestionably, it starts with the values that I talked about earlier. Then it builds on those to the willingness of the people who are here voluntarily to uphold those values. So it's the combination of the values and the people who have signed on to them that is THE most important thing. Then, close on the heels of that, is the relationships that Mercy people form with patients and their family members and with each other. I intentionally don't talk about Mercy as a family, because I don't think that's the best or most appropriate metaphor, but it certainly has a lot of the characteristics of a family. Tight-knit people who care about each other and are concerned for each other's welfare and support each other in tough times and celebrate together in good times. But to me, a more appropriate metaphor is team, where everybody recognizes the unique contributions of every other person. It hinges on the respect of each person for the role played by each of the others. Whatever it is. Whether it's visible, less visible, right up front with the patients or a few steps removed. We try to cultivate the idea that every single job is important.

TH: In terms of your programming and service offerings, what would you consider to be the stronger programs?
RK: We're obviously known for our cardiovascular services. We are the regional health center. By that what I mean is that we have the cardiac catheterization laboratory facility and our project that's under way now will expand capacities there. That is where open heart surgery can be performed, whether it's bypass or valve repair or pacemaker. So we're well-known for that. And we should be well-known for that because we've got significant resources devoted to cardiovascular care. But I think we have outstanding programs in orthopedics and oncology and maternal-child health. Certainly we have a great community resource in behavioral health that the community depends on very heavily. A high degree of excellence in general medicine and general surgery, as well.

TH: On the other side of the coin, are there certain areas where you would like to see the program improve, grow?
RK: The community lacks a neurosurgeon. We have some excellent neurologists but we do not have a neurosurgeon. Haven't for three years - maybe, four years. Two at least. That's a problem. That's a problem. We are flying a fair number of people with head injuries or other serious neurological problems down to Iowa City. So that's a - I'm not sure if I would say that's a Mercy weakness, it's a community weakness. Actually, I think what a lot of people maybe don't understand is how relatively fragile the health care system in Dubuque actually is. You look at it and you see there's a big hospital here on the bluff and there's Finley Hospital a few blocks away. There are impressive clinic structures and facilities, but the population supporting all of this is small. It can be a struggle to support the degree of expertise that the community, I think, wants with the base being as small as it really is. Neurosurgery is the prime example of that. But we can see that in psychiatry. The community has lost two or three psychiatrists in recent months and that's enough to put a big dent in the capacity to take care of people with behavioral health problems.

TH: Is it unusual for a community Dubuque's size to have two facilities like Finley and Mercy?
RK: Yes. I would guess that we are one of the smallest two hospital towns in the Midwest. I know it's a source of community pride that there are these two hospitals, but it's frankly an expensive way to provide hospital care for a community of this size. So, whether people know it or not, they're paying for the privilege of a system that's designed that way.

TH: How would you describe the relationship between Mercy and Finley?
RK: Competitive. It's competitive. It has been on that track since late 1996, early 1997. I wouldn't be here if it wasn't. There was an attempt, as you know, for the two hospitals to join together. That was challenged by the Justice Department. It was appealed by the two hospitals and the two hospitals together were gaining ground in the appeal, but toward the end of that process, The Finley Hospital decided that it was in its interest, its best long-range interest, to leave that strategy and join with the Iowa Health System. It was really at that point that it was clear that the two hospitals were going to be in a competitive posture. That was the backdrop against which I was recruited. I'm kind of a competitive person, so I sort of liked being in a town where people have that choice and where you can work hard for the right to, or the opportunity or privilege, to provide the service to people because they do have a choice. So I kind of enjoy it, but it really is not the most cost-effective model of care in a community this size, in my opinion.

TH: Do you think that consumers of health care in this community realize that?
RK: No. In the conversations I have outside of the hospital in a variety settings with what you might call typical consumers and what you might call key community leaders, I think the belief is the opposite. That it may be less expensive to do it this way. I don't think that's correct, but I think it's a strongly held perception in the community, so I have to respect that.

TH: Earlier this year, you have a setback with the decision on the John Deere Health Plan and a change in how those many people are going to have their health care provided. What has happened? And what does that mean for Mercy?
RK: Well, "setback" is exactly the right word for it. It is a setback for us and a fairly significant one. We did have the opportunity to make a proposal to the John Deere Premier Plan. We continue to be a contracted provider for John Deere Traditional, Select, Choice; so we're just talking about the Premier Plan. We submitted what we thought was a very strong and competitive proposal, but it was not successful. We're disappointed in that because the John Deere company is important to us and all of the John Deere people are important to us. We've provided a substantial portion, if not the major portion of their care for years. We don't want to lose them. We're hoping some of them may choose to come to Mercy through their point of service benefit they have in the new plan, but that will cost them money out-of-pocket that they haven't previously had to pay. So we're disappointed because our preference would be to continue to serve them and we want the John Deere company to be profitable and successful, just like we would wish every employer in Dubuque to be profitable and successful, but we can't sacrifice ourselves and our long-range interests in order to make that happen. So, yeah, it is a setback for us. Now we do have in addition to the Choice, Select and Traditional contracts, we did sign what is called a carve-out agreement with the John Deere Health Plan for emergency and referral services, so people will still be able to use Mercy in an emergency and for services that have been referred here because they're not available at The Finley Hospital. But, yeah, being excluded from the basic Premier plan is a loss to us and it's going to be detrimental to us.

TH: How is that playing out in terms of staffing, facilities and that sort of thing?
RK: The first group of people moved Oct. 1 and we saw little drop in our volume of activity in the month of October. But now (the first nine days of November), we've been extremely busy. So we don't know if we've felt in impact from that change yet or not. The bigger impact will occur in January. We staff our patient care areas based on the volume of patients that day, that shift. So we fluctuate up and down all the time. We will do that. We will probably have to do, unfortunately, more of that in January than we usually do. The people who work in patient care, for them, that has become a fact of life. We get a lot of admissions and the census jumps and we call people and ask them to come in. We get a lot of discharges and the census drops and we tell them we don't need them to come in. The nature of our business is such that it's not an exaggeration to say we could see a 50 to 60 percent fluctuation in demand for our services over a course of a 12-to-24 hour period. So we're adjusting constantly, constantly. The big question for us is with the loss of revenue from the John Deere folks, how do we cover the expenses that don't fluctuate.

TH: How many people are we talking about in terms of patients or potential patients with the John Deere change?
RK: Well, you count it in terms of what is called "covered lives." Of course, we don't have direct access to that information, but what we've been told by the representatives from the John Deere Health Plan is that there were 2,500 covered lives affected in October and another 5,000 to be affected in January. We don't have any way independently to verify that, but those are the numbers that we've been told.

TH: One other area that you, not just you but Iowa hospitals and I think also Midwestern hospitals struggle with, is the reimbursement you receive for services from the government through Medicare and I guess also from Medicaid.
RK: Right.

TH: Iowa continues to be at the bottom or real close to the bottom
RK: Down near the bottom, yeah.

TH: the amount of reimbursement. Do you see any progress? Is there any hope that Iowa facilities will get closer to at least to average?
RK: Well, there is. And we made significant progress a year ago. We didn't jump in the rankings because we're so far down that it would take a huge increase to move up in the rankings. So in a relative sense, we didn't make tremendous progress. But in an absolute dollar sense, Iowa clearly benefited from the hospital payment provisions of the Medicare Reform Bill. Now the focus of that bill was on the prescription drug benefit. But a part of the bill addressed payment in rural states. Really, the credit goes to Congressman Nussle and Sen. Grassley because Congressman Nussle is chairman of the House Budget Committee and Sen. Grassley is chairman of the Senate Finance Committee. The two of them were able to attach to the Medicare Prescription Drug Bill significant payment increases for Iowa. I think if I remember the exact number for us, I think was on the order of $750,000 per year in additional Medicare payment. Medicaid's a different story. That's set at the state level. And it's grim. I saw a quote by one of the state legislative leaders - not from Dubuque, I think from the western part of the state - was quoted as saying, "Well, we've increased the Medicaid rolls by 25 percent and total payments have only gone up 2 percent, so we must be doing something right." I mean that's not an exact quote, but that was the gist of it. Really what's happened is that the payments to the hospitals have been frozen while the enrollment in the Medicaid program has increased fairly dramatically. So to me, it's a worn-out phrase, but it's accurate. It's an unfunded mandate that is growing bigger, or has grown bigger in recent years.

TH: Who's picking up the slack?
RK: Honestly, I would say hospital workers pick up the slack. That's one place where it happens. The other place is - there's a dirty little secret in health care called cross-subsidies. And what that means is that when public programs like Medicare and Medicaid are underfunded and when hospitals lose money on every Medicare and Medicaid patient they take care of, hospitals search for other people to make them whole. And those would be other insurers, other employers, other individuals. It's not a fair system, but that's how the system has evolved over the years. So who makes up the difference first? People who work in hospitals ... and, second, is everybody else who's paying the cost.

TH: So if I come in and I've got a decent health insurance plan and I can make the co-pay and all of that, I'm helping pay for someone else's care?
RK: You are, and if it's an employer-sponsored plan, your employer is. If it's a commercial insurance plan, that commercial insurance company is. It's a system that is designed to produce exactly that result. My view of it is that that is not fair. I suppose a case could be made that people with jobs and people who own companies should subsidize the care of the elderly and the poor. But I think a lot of people in that position would object strenuously to that idea.

TH: Especially since they're already paying taxes that go toward Medicaid and Medicare.
RK: Right. Especially since their own insurance premiums and their own out-of-pockets costs are not low.

TH: You referred to the people who work here and a big area, of course, is nursing. Is it as hard or harder to recruit nurses as it was a few years ago?
RK: Well, we've been doing really well. There is a good chance that by the time this interview runs, we may have been recognized as the second "magnet hospital" in the state of Iowa. (Mercy subsequently received that designation.)

TH: What is a magnet hospital?
RK: A magnet hospital is one that has met the highest standards of excellence in patient care services and has achieved the highest levels of professional nursing practice. It's a certification awarded after an extremely rigorous process by the American Nurses Credentialing Center. It's to hospitals that meet very tough criteria. But those hospitals have shown a couple of things. There are only about 115 of them in the country and as I said, there's only one other one in Iowa, that's the University of Iowa Hospital. But what they have shown is an ability to attract and retain nurses that exceeds the typical hospital and they can now show better patient care outcomes as well at the magnet hospitals, which makes sense. If you have low vacancy rates; if you have good staffing levels; good staffing systems; if the nurses have a voice in the decisions that affect them and their patients; if they have a mechanism and a process to constantly improve the care they provide; and if they're recognized for that and supported for that, it makes sense that the patient care would show it. And it does. The research clearly shows that. So, you know, in spite of the pressures on the compensation side, we've been able to keep our vacancy rates for nurses around 2 to 3 percent and our turnover rate is about 6 percent for all causes, including normal retirements. So we've got a very healthy climate right now, very stable, and being recognized as a magnet hospital is very exciting to all of us. The 500-plus nurses here have worked extremely hard to obtain that. And it's been all of them.

TH: What's ahead for Mercy in the next 5 years? 10 years? What will Mercy be like in 2014?
RK: Well, I hope we will be even more patient-centered and family-centered that we are now. We had our own wake up call here about five years ago with a union-organizing campaign. It was clear that we needed to become more employee-centered. And we've spent the last five years working very hard at that, changing the environment - it's an overworked term, but the culture of the organization. We've made a lot of progress. In the next 10 years, we'll continue to heavily emphasize that, but we will combine that with a very strong emphasis on patient-centered care, family-centered care. We will also have some improved facilities to support that. We've taken care of some of our most glaring deficiencies, like the old skilled nursing unit and the emergency department. Now the cardiology center. We'll follow that with the revamped behavioral health unit. Then the big thing we need to do is the intensive care unit. Over the course of the next five years, I think it's realistic to get that done as well. I think at the same time, we'll continue to strengthen partnerships with physicians and physician groups. We'll emphasize working together with them, combining what they do best with what we do best to maximize the value for patients.

TH: What's a good day at work for you?
RK: I kind of thrive on the variety. There's so much variety in this job that almost makes every day a good day. But for me what is satisfying is when I can see the people around me accomplishing ambitious goals that they've set for themselves. Whether it's financial performance or a new clinical program or working toward magnet hospital recognition or anything else that creative people, energetic people have conceived of and put together and pulled it off. I like that. I don't have much of a hand in very much of that, but it's satisfying for me to watch the people I interact with doing those kinds of things.