10 Successful Hospital Turnarounds

  • November 4, 2010

Written by Rachel Fields, Beckers Hospital Review

Novermber 4, 2010 — Strong leadership and smart changes can make the difference between closing your doors and leading the market. Here are 10 hospitals that accomplished successful turnarounds.

1. Anaheim (Calif.) General Hospital.
In late Oct. 2010, Anaheim General Hospital regained approval to bill Medicare and Medi-Cal following two unannounced inspections in April and July. The hospital did not collect any payment for treating patients for a year after a series of failed safety inspections cut off government funding. In an interview with MSNBC, CEO Tom Salerno called the recertification "a rare achievement." He credited the accomplishment to the medical staff that worked hard to address safety problems.

Funding from Medicare and Medi-Cal is rarely pulled, but when it is, hospitals often fail financially. Martin Luther King Jr./Drew Medical Center in Los Angeles closed in 2007 after similar failed inspections that lost the hospital its $200 million annual funding. In Feb. 2008, inspectors found five immediate jeopardies, including a lack of necessary medication in the operating room and unsafe medical equipment.

In order to regain Medicare and Medi-Cal funding, the hospital required its staff of 320 to go through extensive training on infection control, patient falls and medication safety. The hospital recently purchased new lab equipment and started a $1.2 million expansion of the emergency room. Though patient volume has dropped considerably since funding was pulled, Mr. Salerno is confident that volume will pick up due to increased hiring.

2. Auburn (N.Y.) Memorial Hospital.
Over the course of a decade, Auburn Memorial Hospital experienced a prolonged period of financial contraction due to the departure of physicians, patients and service lines. Cash reserves were reduced, and the hospital found itself unable to invest. The hospital declared bankruptcy in April 2007.

President and CEO Scott Berlucchi arrived at the hospital following the declaration of bankruptcy. The hospital had been forced to close its ob/gyn unit and reduce available beds from 180 to 99 following a Berger Commission Report in late 2006. Mr. Berlucchi asked the state to revisit the recommendation to close the ob/gyn unit and explained that the need to provide ob/gyn services to the Auburn community was directly in line with the hospital’s core values. The recommendation was reversed after six months of discussions.

The hospital was able to acquire a state grant secured by Sen. Michael Nozzolio for a new CT scanner, as well as additional upgrades, and Mr. Berlucchi approached multiple foundations for grants in the Auburn community. In addition, a hospital turnaround consultant spent six months reviewing and streamlining operations through personnel management, corporate restructuring and improving efficiency of core operations. The hospital board, along with Mr. Berlucchi, also targeted ORs, private rooms, heating and ventilation and other areas for upgrades. The hospital has seen dramatic financial and clinical turnarounds since the turnaround strategy was implemented upon Mr. Berlucchi’s arrival.  

3. Children’s Hospital of Orange County (Calif.). Just over a decade ago, Children’s Hospital of Orange County was in genuine danger of financial failure, losing $48 million between 1997 and 1999. Hospital officials feared the hospital might be forced to close. In a 2007 interview with Smart Business, Kim Cripe, president and CEO of CHOC, said the hospital is now thriving. In 2007, the hospital took a plan to its board to build a new patient tower — one with a $510 million price tag.

In 1996, the hospital was hit by a change to the reimbursement scheme for hospitals mandated by California’s Medicaid insurance program to serve the indigent population. The change steered patients to other hospitals and damaged CHOC’s market share, according to the Smart Business report. To counter these problems, Ms. Cripe combined cost-cutting efforts with a plan to provide high-value, high-tech services to set the hospital apart from others in the region.

This plan required putting a new management team together, replacing all 13 members of the hospital’s senior management over the course of 18 months. Ms. Cripe appointed new members with strong financial skills, business development, marketing and human resources experience. With that team, the hospital went into the black by 2000 and had taken revenue to $377 million by 2006.

4. Erie County Medical Center in Buffalo, N.Y. During his time as CEO of Erie County Medical Center, CEO Michael Young took the hospital from a $30 million loss in 2005 to a $17 million profit in 2007. According to Mr. Young, when he arrived at Erie, everyone referred to the hospital as "the county," a term he didn’t like because it immediately focused on the negative financial performance of the hospital. In order to turn the hospital around, he started by changing its image. "We tore down the old building in front of the hospital, put in a brand new lobby with a coffee shop and replaced some old elevators," he said. "Several relatively inexpensive cosmetic changes in public areas made the hospital look clean and inviting. For example, we spent $52,000 on new ceiling tiles and tights in the front lobby."

Mr. Young also led the hospital in publicizing its great clinical outcomes and trauma center. "Though we had no money for advertising in our first 18 months, there was plenty of free publicity on radio and TV talk shows, and we used it," he said. He said hospitals looking to turn around have to focus on their strengths and make sure people know about them.

During Erie County Medical Center’s turnaround, the hospital also increased its average daily census and ER visits by upgrading technology and improving patient throughput, upgrading facility computers and making sure cash was collected every day. "When more money started coming in, we were able to buy new clinical equipment, which then brought in more doctors, who then bring in more patients," Mr. Young said.

5. Floyd Memorial in New Albany, Ind. After losing $12 million in 2008, Floyd Memorial Hospital & Health Services accomplished a financial turnaround that resulted in a net income of $18.2 million in 2009. The hospital strengthened finances by recruiting physicians to grow inpatient volume. Nearly 33 physicians joined the medical staff in 2008, bringing the total number of active and courtesy physicians on staff to 439, and hospital employment grew from 1,732 to 1,809 in the same year.

CFO Ted Miller said the hospital improved its revenue cycle and critically evaluated expenditures to strengthen its financial position. For the 11-month period ended Nov. 30, 2009, acute-care inpatient discharges grew by 6.4 percent from a year earlier, inpatient surgeries grew by 6.8 percent and days worth of cash on hand grew by 8 percent.

Jerrol Z. Miles, chairman of Floyd’s board, credited the improvement to the involvement of physicians, employees, board members and specialized committees focused on finance, as well as the efforts of hospital administration.

6. Medical Center of Plano in Dallas. From 1975 until the late 1990s, Medical Center of Plano was in good financial health and had developed a solid medical reputation that drew patients from across the country, according to a Gallup Management Journal report. But when the hospital decided to transition from a rural community hospital to a 427-bed state-of-the-art tertiary care hospital, it began to see problems with staffing, turnover and morale. Retention became a serious problem, and the hospital started spending a lot of money on staff turnover. During the first year of the transition, the hospital lost 300 staff members — 25 percent of the staff as a whole and 70 percent of first-year employees.

The administration realized that purchasing new medical equipment, airing more commercials and recruiting more staff wouldn’t fix the hospital’s problems. Instead, MCP needed to increase employee engagement or risk losing  patients to one of its 29 competitors. The medical center turned to outside help to increase employee engagement by hiring a company to measure employee expectations — which turned out to be near the bottom for all HCA hospitals, with 27 percent of employees actively disengaged.

To bring up engagement levels, MCP concentrated on every item measured in the employee survey and also examined pay and benefits programs to ensure the hospital’s competitiveness. In spring 2004, turnover among first-year employees plunged from 70 to 30 percent, according to the report, and in 2005, the percentage of actively disengaged employees had dropped from 27 percent to 9 percent. As engagement levels have risen, so has revenue  — a few years after the turnaround began, the Medical Center made almost a billion dollars.

7. Natividad Medical Center in Monterey County, Calif. In late 2006, Natividad Medical Center, the smallest public safety net hospital in California, was hemorrhaging around $25 million a year, according to a Health Care Finance News report. It had lost $15 million the year before, and the hospital expected the losses to continue. In 2006, the hospital hired CEO Harry Weis to turn the hospital around, and in 2008, the hospital made $10.5 million dollars. In 2009, that number decreased slightly to $7.6 million and jumped back up to $10.5 million in fiscal year 2010.

The hospital accomplished the turnaround with the help of two other non-profit facilities — Community Hospital of the Monterey Peninsula and Salinas Valley Memorial Healthcare System. CHOMP donated $4 million to Natividad over two years, while Salinas donated $6 million over three years, knowing that if Natividad were to close its doors, the hospitals would take the annual hit for uncompensated care for the uninsured.

In return for the donation, each donor was allowed two seats on Natividad’s board while the money was being disbursed. Natividad also used a consulting firm to work on revenue cycle and renegotiate care contracts. The hospital currently supports its county by running a medical indigent program and giving hundreds of thousands a year to the county health department.

8. Scripps Health in San Diego, Calif. CEO Chris Van Gorder was named leader of San Diego-based Scripps Health in 2000. When he joined the health system, the organization was losing $21 million a year, and the previous CEO had just left office after receiving votes of no confidence from Scripps’ physicians. By 2008, eight years after the introduction of Mr. Van Gorder, Scripps Health had an operating margin of $109 million.

Mr. Van Gorder said his predecessor had a good strategic plan for managing the hospital’s turnaround, but he hadn’t worked with system physicians in order to implement the plan. The difference between the two approaches was crucial: Mr. Van Gorder called the approximately 3,000 physicians on staff at Scripps "the key to our financial turnaround."

He said one of the keys to turning around the health system was brining physician voices into the executive suite. "The Physician Leadership Cabinet is a monthly forum between elected physician leaders and hospital administrators," he said." The goal is to share information and address controversial issues as a team, before they can become problems. It is an advisory group, but for the past 10 years, we have accepted 100 percent of its recommendations."

9. South Hampton Community Hospital in Dallas. Ed Downs started the position as CEO of South Hampton Community Hospital in the summer of 2009, when the hospital was coming out of its second bankruptcy. Financial problems had forced a closure of the facility, dropping its census from around 50 patients to zero without any warning to the hospital’s staff. Though the doors were quickly reopened, the closing was highly publicized, making the recovery process more difficult.

As the hospital’s new CEO, Mr. Downs’ goal was to get the facility back to living off its revenue — a feat he accomplished in one year with the help of management, physicians and staff. He said his first 120 days at the hospital were filled with meetings with medical directors, physicians, employees, vendors and community members to determine the hospital’s most pressing issues. The second step was to fix inefficient process, such as the method for admitting new inpatients. Once processes had been thoroughly examined, the hospital focused on customer service and providing great patient care, using a full-time marketing employee to regularly visit EMT shifts and collect complaints or compliments about the hospital.

The final goal for the hospital was to attract new physicians, a feat it accomplished by meeting with physicians who had stopped sending patients to the hospital to find out their issues with the facility. Mr. Downs used the hospitals’ biggest physician champion to provide a physician’s point of view at the meetings. By offering block time and new product lines, as well as using medical staff to reach out to colleagues, the hospital added a number of physicians, including nephrologists, vascular surgeons and a pediatric cardiologist. South Hampton emerged from bankruptcy within the year, and the hospital’s census and outpatient visits are up.

10. UCSF Medical Center in San Francisco. Mark Laret, CEO of USCF Medical Center, was brought in to lead the hospital 10 years ago following a financially disastrous and brief merger with Stanford Hospital & Clinics in the late-1990s. He took a hospital that was losing $1.5 million per week and helped turn it into one of the top 10 hospitals in the country, according to U.S. News & World Report. "In my first year here, we were projected to lose $60 million and, currently, we have been making between $60 million-$100 million over the last several years," he said.

He said the hospital started its turnaround by developing a management team with common values and getting "the entire organization, not just the staff, but the medical staff and academic leadership" on the same page concerning the organization’s goals. He put together a non-fiduciary advisory board that included senior leaders in the community to focus the hospital’s priorities.

Mr. Laret said one of the main lessons he learned about executing a successful turnaround is that academic medical centers are high-dollar volume, low margin business. "If you’re losing money, a few changes can give you a big turnaround," he said.



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