Expansion of services in PCMH required hiring people to provide them, but income they generated was not increasing as rapidly as expenses. President Richardson asked trustees at their November 1986 meeting to approve increases averaging 16.2 percent in room rates, although the general inflation rate was running at only 4 percent. He cited the fact that the hospital had not raised its rates for three years, noting that even with the increase, the rates continued to be competitive with community hospitals in the region. They would still be lower than charges at comparable medical centers across the state.

Total operating costs for the next year were expected to be 14 percent higher than in the current year, with the largest single expense being salaries, $55.6 million for 2,632 full-time equivalent employees, plus fringe benefits, which would increase about 21 percent. The total budget submitted to the trustees, and approved by them, projected gross revenues of $144.54 million.

In the late fall, it began to appear that it might be impossible to meet the payroll. A computer problem involving Blue Cross, one of the hospital’s largest third party payers, had caused a possible temporary postponement of 30-35 percent of earnings. Dave McRae, who had recently been named president and CEO, consulted county officials about the possibility of borrowing money to cover the likely shortfall. He was told that a public institution, the hospital could not simply arrange for a line of credit or take out a loan. The only way to raise money was by issuing bonds. This was a slow and complicated procedure involving the Board of County Commissioners and the Local Government Commission, so that there was no way to borrow money in time to meet payments.

As Kathy Barger, the chief financial officer at the time, remembered, the monthly salary expense was about $2.5 million, and in November, the hospital’s cash reserves were down to $5 million. It would be February at the earliest before Blue Cross would pay the Medicare reimbursements. The employees, she was afraid, would just walk off the job if they did not get paid. Payments to vendors were being staggered, and the hospital was making vigorous efforts to collect bills, in the meantime freezing all capital expenditures. As it turned out, employees and the public were never aware of the problem.

The administration retained the firm of Arthur Anderson to help collect old outpatient bills. They attacked the numerous problems with the information system, and had to replace the county’s software that they were sharing. The billing errors and delays in billing had made it impossible for the billers and collectors to make much progress with old accounts receivable. The Arthur Anderson accountants took over the old accounts, and the hospital business office concentrated on new billings as they came off the system. With the rate increases that the trustees had approved, and the tightening up of the billing and collection processes, the flow of money into the system was brought back into line with operating costs. At the same time, the volume of patients was increasing steadily, although it did so quite slowly until 1990.

With all of the energetic and focused activity, the financial situation was eventually brought under control, and even after the huge outlay attendant on privatization, did not again face such a crisis as the one in 1987. By the 1990s the hospital was doing very well, had a more than adequate cash flow and an outstanding credit rating.

More Beds, More Beds!

In a time of tight budgets, it seemed reckless to undertake a major capital expansion, especially when, according to the state health facilities plan, the eastern region already had too many hospital beds. However, the new construction was to be part of the solution to the fiscal problem, by permitting more referral patients to be served. The board voted to apply for an additional 140 beds at a cost of about $40.6 million in addition to a $7.5 million renovation project. The need to provide facilities for teaching medical students and residents justified the additions and changes. The construction of the bed addition was expected to begin around October 1, 1989, and the renovation about October 1, 1992.

Acutely aware of the bed shortage, the medical staff and the local private practice association went on record in support of the expansion. The staff was already screening patients to ensure that only patients for whom a hospital stay was essential were admitted. In June 1987, for the second time they set up a 20-bed unit at the Holiday Inn as a stopgap measure for those who did not require a high level of nursing care.

Even before the proposal was approved by PCMH’s trustees, George Brandt, the administrator of Martin General Hospital in Williamston, had expressed his concern about the impact that the expansion might have on the primary care services of his hospital and others in the region. Richardson had replied on March 29 that the hospital needed the beds mainly for surgical, medical, neonatal, and pediatric intensive care units, to enlarge coronary care services and the cardiac catheterization laboratory, and to relocate and enlarge the obstetrics area.

Brandt, the Martin hospital Board of Directors, and its medical staff met April 11, 1988, inviting N.C. Senator Thomas F. Taft, Representative R. Eugene Rogers, and Charles McLawhorn, Taft’s opponent in the campaign for the senate. Brandt said that they were not clear what PCMH intended. He agreed that the more tertiary care PCMH provided, the better it was for all the small hospitals unable to provide it. He was concerned that the additional beds would free up primary care beds and take primary care patients away from Martin General and other area hospitals. For example, the enlargement of the obstetrics area at PCMH sounded to him like an expansion in primary care facilities. He said also that the PCMH expansion, that might require recruitment of 600 new staff members, would make it difficult for Martin General to retain medical personnel. He was concerned that PCMH would later expand its primary care services, although he admitted that so far, MGH had detected no decrease in business attributable directly to PCMH’s growth.

Expansion at the Pitt hospital might also worsen the already critical shortage of nurses in the area. Brandt said, “We have to compete now with Pitt for nurses and other hospital staff. This will make it that much more difficult to get the staff we need.” He commented further that the state health plan already showed a surplus of acute care beds in the region, such that additional beds would not be needed until 1992 at earliest.
The competitive battle was also waged among the smaller hospitals in the region, many of whom squabbled about overlapping markets. For instance, an administrator of the tiny Robersonville hospital, now closed, once commented at a Bethel Rotary Club meeting, “You can’t imagine how hard it is competing with a mammoth organization just down the road.” The PCMH partisans in the audience steeled themselves for an attack on their already large and still growing hospital. The Robersonville administrator began to bemoan the task of competing against Martin General with its 49 inpatient beds and three outpatient clinics. The Pitt crowd breathed a sigh of relief.

Despite PCMH’s efforts to assuage their concerns, Martin County Hospital’s directors went on record unanimously opposing PCMH’s plan to add beds, arguing that the addition would make it more difficult for the smaller hospitals in the area to remain solvent. They were sending their objections to Pitt County Memorial Hospital officials, to state facilities services officials, and to area legislators.

Richardson wrote Brandt that the proposed additional beds would benefit all the hospitals in the area. “We don’t see this as taking away from surrounding hospitals, but rather as adding to them,” he wrote. Sixty percent of PCMH’s patients came from outside Pitt County, and were beginning to fill the hospital to such an extent that patients from the county had to wait for beds.

PCMH had 400,000 square feet of space and 370 beds when it opened in April 1977 as a community hospital costing $15.5 million. Since the affiliation agreement was signed between the county and the university, the hospital had become a teaching and research facility of 700,000 square feet valued at $70 million, exclusive of the $20 million in equipment. The expansion would add 230,000 square feet and renovate 80,000 square feet in the present building for less than $50 million.

By 1988 the hospital had become Pitt County’s largest employer, with 3,016 employees and a $57.8 million annual payroll.

Medical center officials insisted at the hearing before state regulatory officials in August 1988 that adding 143 tertiary care beds to the Pitt hospital would not interfere with the operation of other medical facilities in the region. Dave McRae, then vice president and chief operating officer, emphasized the delays that patients had faced during the past year because no rooms were available. Physicians had referred many patients for treatments available nowhere else in eastern North Carolina, who had to be given precedence, leaving no beds for less critical patients.

Timothy R. Ford, the state’s project analyst, said that the program, to cost about $50 million, went against the state medical facilities plan’s contention that no additional beds would be needed before 1992. If it was approved, it would be the largest publicly funded construction project east of Raleigh up to that time. The central point of the argument for the approval of the Certificate of Need was that the lack of space was interfering with the hospital’s function as an academic teaching institution. It was clear that the request would not be approved just because the hospital was busy and had a waiting list for patients to enter the hospital.

Another issue voiced by state officials was the ability to staff such a large addition. Of particular concern was the question whether PCMH would draw staff from neighboring hospitals in its zeal to recruit employees. Nurses were of major importance, because they were already in short supply locally, regionally, and nationally.

The PCMH administration hoped to convince the state officials that they should allow an exemption. This was permitted to Pitt and three other hospitals in the state designated as academic medical center teaching hospitals, if an expansion did not harm community hospitals. No other hospitals in the eastern region had shown that the new construction would interfere with their ability to fulfill the needs of their patient populations. The hospitals in Washington and Martin counties that had opposed the expansion when it was announced had later withdrawn their objections. Others in the area had neither supported nor opposed the additional bed space.

Dr. William E. Laupus, ECU vice chancellor for health sciences and dean of the medical school said, “The present facilities are severely overtaxed as we strive to fulfill the demands being placed on them by our combined educational and service needs.” He said that the student-patient ratio at the hospital was already marginal when the first class of 72 students was admitted in 1986, especially in medicine, obstetrics, pediatrics, psychiatry and surgery, which were focal educational departments. Tertiary care patients referred from surrounding hospitals were not only forcing the Pitt hospital to postpone scheduling patients for more routine procedures, but also causing the medical school to have to delay an increase in class size to 80, as set by the N.C. General Assembly.

Not having enough patients also limited the number of residents that could be accepted into the various programs. Laupus continued, “At present, we accept 50 first-year residents when we should be accepting about 80 per year. Viewed in terms of total resident numbers, our programs should provide education for about 200 to 240 residents per year, instead of the 155 we now have. Only the family medicine and emergency medicine programs operate at full strength, and both of these departments operate largely in the outpatient setting.” He was quite sure that the expansion would not hurt other hospitals in the area.

Dr. Robert Agee, a surgeon from Williamston, said he would support increasing beds at PCMH if they were for a level of medical care that outlying hospitals could not provide. However, there was unfair competition from private physicians in Greenville. “We need more outreach into the communities. We need physicians coming out to these hospitals. We need healthcare spread through eastern North Carolina and not just centered in Greenville,” he said. PCMH, of course, was already reaching out to the entire region in the form of dozens of satellite clinics, and would continue doing so through the later acquisitions of and affiliations with outlying hospitals.

Earl Bassett, speaking on behalf of several physicians at the Wilson Clinic, said that the doctors needed Pitt’s tertiary care facilities, but had a problem with the hospital’s competitive role as a primary care provider.
Dr. Michael Weaver, PCMH chief of staff, argued that the expansion could only help surrounding hospitals. “To date, 72 physicians who received training at ECU are practicing in eastern North Carolina, outside of Pitt County,” he said. “Our role is to support and strengthen surrounding hospitals by providing trained staff and accepting their referrals. And we’re doing this.”

Dr. Jim Carter, a member of the PCMH board of trustees and a respected surgeon in private practice, said that a bed at PCMH was not the same as a bed in a surrounding hospital. Ninety percent of the patients who came from other counties—60 percent of the hospital’s patients—came for tertiary care not available at their local hospitals.

Others who spoke in support of the expansion were representatives from the allied health programs at Pitt and Beaufort community colleges, an ECU nursing school instructor, a nursing student, the mayor of Plymouth, and the chairman of the Pitt County commissioners. McRae said, “If the development is not approved, it will compromise healthcare in eastern North Carolina, curtailing local access to tertiary care. The need for additional beds results from the multiple role of the hospital, which is at once a community hospital for Pitt County, an academic medical center for ECU’s medical school, and a regional referral center. Unless the hospital can expand it will soon be forced to turn away patients from outside Pitt County.” To illustrate the hospital’s role as both community hospital and regional center, he showed a videotape that became part of the public record.

PCMH supporters, all waiting for the opportunity to show their support, packed the hearing. At the close of McRae’s presentation, he asked those favoring the application to stand, and virtually everyone rose in affirmation. The atmosphere was like that of an old-fashioned revival meeting.

State officials must have been convinced, because a few months later they approved the hospital’s plans.