One year on the job: Altru CEO provides update on new hospital, describes challenges facing industry

Apr. 5—GRAND FORKS — As he completes his first year on the job, Altru Health System CEO Todd Forkel said his organization's operating margins are above the national average and a planned new hospital is on schedule for completion in 2024.

It's been a little more than a year since Forkel joined Altru in 2022. He came to Grand Forks after working in the Avera Health system in South Dakota, including in Pierre and Aberdeen.

"I love it here," Forkel said of his first year in Grand Forks. "I love the people I work with — there are a lot of people in this organization committed to excellence. Health care is facing a lot of challenges, but when you work with really good people, the task of adapting to those challenges is easier."

Over the course of his first year, there have been notable challenges, including the ongoing construction of a new $475 million hospital, an unprecedented collaboration that might lead to a new hospital in Devils Lake and slim margins as the cost of doing business increases.

In mid-March, Forkel and Altru President Dr. Joshua Deere visited with the Herald and outlined the challenges faced during the past year, as well as the hospital's efforts to overcome them.

The meeting took place at the Altru campus, just a few yards from the rising seven-story building that next year will become the community's new Altru Hospital.

The building is nearing its 60% completion mark. After it is finished, Forkel said extensive inspections will be required before any patients can be seen.

"After they hand the keys over to us, we go through a 30-, 60- and 90-day process with multiple inspections," said Forkel. "This will involve joint commissions, the State Department of Health and fire marshal."

Although the building structure likely will be completed in 2024, "we keep telling people we'll see our first patient in early 2025," Forkel said.

Forkel also said the decommissioning process for Altru's existing hospital will be extensive.

"This building will stand for about six months while the new one is in operation," he said. "That's because it has to be decommissioned — copper wiring removed, any materials that need to be vacated such as fluorescent lights. It's a very invasive process."

Although Forkel said the new hospital is "on time and on target," Altru will need to borrow around $100 million to $125 million to account for increases in the project's budget, which Forkel attributes to rising costs of labor and building materials.

"We'll likely do this in the middle of this summer," said Forkel. "We do know that the rating agencies have been very favorable to us, based on all the things we've been doing to stay ahead of what's hitting health care right now."

Deere, who also is a practicing family physician, said the new hospital will "enhance the experience for UND's medical students, as they break off into their clinical years."

Forkel also said the new facility has the potential to transform Grand Forks into a destination for medical tourism.

"An untapped area for us is Grand Forks as a medical destination, versus patients going to a higher-end or larger facility, wherever that may be," said Forkel. "There are a lot of services available here that we need to do a better job of articulating to the community. Our cardiology and stroke care for example, are rated in the 90th percentile nationally."

Although Forkel is pleased with the progress of construction, he said Altru — like the health care industry at large — faces operational challenges.

Among them is a decline in profit margins. According to Deere, the average operating margin for hospitals nationwide declined from 2.5% in 2021 to minus-0.5% in 2022 — the largest single-year decline on record.

Despite declining margins nationally, Forkel said Altru managed to stay in the black and is in a better position than many of its counterparts. Altru's margin in the last fiscal year was 0.5% — not necessarily a windfall, but at least better than the national average.

"We're definitely proud of where we finished last year," said Forkel. "While it's not where we want or need to be moving forward, we finished the year at a positive 0.5% operating margin, which equates to 5.7% positive cashflow."

Forkel said Altru has recently cut some staff to bring levels more in line with its workload.

"We took a look at our executive team, and trimmed the number of executives from nine to six," said Forkel. "We think that better fits an organization of our size. We also did an early retirement incentive, which 34 employees took advantage of. We continue to staff according to workload, which is a concept that is very prevalent across health care at large."

Another challenge for hospitals around the nation is inflation, he said. According to Forkel, inflation in the health care sector averages 12-15% — more than double the national rate of 6% measured by the Consumer Price Index.

"We're on fixed revenue, meaning we only have contract negotiations with our payers every two to three years," said Forkel. "If you're on a fixed revenue, and your costs have gone up 12-15%, you need to be proactive to stay ahead of that curve."

Forkel also said around 70% of Altru's patients are covered by federal insurance programs such as Medicare. Although Medicare has increased its payouts to hospitals, Forkel said it has not kept pace with inflation.

"Medicare gave us a 4% increase this year, which we are very grateful for," he said. "I think it's the largest increase they've given in decades. However, it doesn't take a math major to figure out that you need to stay very efficient when facing such high inflation."

Forkel also pointed to shifting demographics in the U.S. as a future challenge for the industry. According to Forkel, 40 million Americans were beneficiaries of Medicare in 2000 — a figure projected to double by 2030.

"When you double the population of people on Medicare in 30 years, and you have half the amount of people in the workforce supporting it, our next president and Congress are really going to have to tackle Medicare's sustainability," he said.

Despite the challenges, Deere said he is "really optimistic for the future of Altru and the care we can provide for the region going forward."

Deere also said employee engagement, measured by a recent survey, is up 12% for Altru's physicians and 33% for all other employees. He said the survey asks employees and healthcare providers over 100 questions gauging their satisfaction on issues such as pay and benefits, work culture and whether they believe Altru provides quality care.

Deere said positive employee engagement translates into improved health care outcomes.

"Engagement is really tied to quality," said Deere. "It improves outcomes. It reduces hospital length of stay. There are major studies stating that an engaged workforce in healthcare leads directly to the bedside."

Late last month, the Herald reported that Altru is in the midst of placing a value on the system's care in the immediate Devils Lake area

, part of an ongoing process to create a new health care center there. It's all part of a four-entity collaboration that also includes Essentia Health, the city of Devil's Lake and the Spirit Lake Nation.

"We continue to be excited about the possibilities of this partnership," Forkel said.