No ones calling it Mission Impossible yet.
But when board members for two-campus Methodist Hospitals decided to bring in an outsider to develop and implement a turnaround plan for the financially troubled system based in Gary, Ind., they knew it wouldnt be easy.
Methodist officials have begun to overhaul the system, taking steps to rework vendor contracts, making changes to its management and working to get local physicians and the rest of the community more involved in its operation.
But months into the process, the systems future remains in doubt, with a state legislator calling for an overhaul of Methodists governance board and wondering if the organization would be better run by a for-profit system.
The system lost $24.3 million in the
10 months ended in October of last year on revenue of $225.8 million, according to Methodists unaudited financial figures. In 2005, the system lost $23.6 million on revenue of $293.9 million.
Methodists financial troubles continue to stem from its Gary campus, where a big chunk of patients rely heavily on government assistance or have no insurance at all. At the Gary campus, only about 11% of patients are with contracted and commercial payers, while about 41% of its patients are on Medicaid, about 32% of patients are Medicare beneficiaries and 16% of patients are uninsured or self-pay, according to Carole Biancardi, a spokeswoman for the system.
That mix of payers could in the end prove lethal to the system. It is an extraordinarily difficult challenge to overcome a set of facts like that, said George Whetsell, managing director of turnaround firm Wellspring Partners, in reference to Methodists poor payer mix, high number of uninsured and charity-care patients, and the economic depression of Methodists Gary market. (Wellspring was recently bought by Huron Consulting Group, Jan. 8, p. 7.)
Methodists problems, while similar to those of other urban health systems, reached a boiling point in the spring of last year. At that time, Methodist officials predicted the Gary campus would close if the safety net provider was unable to change its financial model and improve earnings. A community uproar ensued, resulting in a vote of no confidence in the administration by the medical staff, the resignation of the systems president and chief executive officer and culminating in a board vote to award FTI Cambio Health Solutions, Brentwood, Tenn., a contract to save a vital health system on life support.
Quality problems have dogged the system as well. In addition to treating large numbers of uninsured and Medicaid patients in a market that has lost nearly half of its population and much of its industrial and commercial base in the past 20 years, Methodist was cited by state and federal certifying agencies and accreditation bodies in 2005 for quality-of-care issues.
HHS inspector general office threatened to exclude Methodist from federal health programs and the Joint Commission issued a preliminary denial of accreditation for nursing deficiencies relating to two patient deaths in 2003 and 2004.
While the quality issues have been resolved, the system still faces a sea of red ink. The Indiana state agency responsible for disbursing disproportionate-share hospital funds has been slow to reimburse Methodist; and two credit rating agencies placed Methodist bonds on negative watch lists.
Further complicating matters is a nearly 30-year-old federal consent decree compelling parity of services and equipment between its predominantly black Gary campus and its newer hospital, the Southlake campus, in mostly white Merrillville. That decree, which was written when the then-booming Gary had nearly twice its current population, has imposed constraints on managements abilities to manage costs and efficiently marshal resources throughout the system, hospital officials said.
The payer mix at the Southlake campus is much better than Garys. About 29% of patients use contracted and commercial payers, about 15% are covered by Medicaid, about 49% are covered by Medicare and about 7% are uninsured or self-pay.
Whetsell praised FTI Cambio executives as smart and talented, but said any firm would face an uphill battle to turn around Methodist. The reality is, unless you can change the payer mix, there really is no solution.
If a hospital is saddled with a high percentage of patients on Medicaid, which doesnt cover a hospitals costs for providing care, and is treating large numbers of charity-care and uninsured patients, The harsh reality is there may be no way to make the organization financially stable, he said.
Whetsell said its possible to cut losses through improvements in billing and collection practices and group purchasing, and reviewing labor contracts, as he predicted FTI Cambio would do to make the hospitals more efficient.
But its not out of the question for them to go Chapter 11, shut down and let the courts deal with the consent decree, he said. Theres just no way that the status quo can be maintained. If your payer mix doesnt cover your costs and you can no longer have one hospital subsidize the other, then you will go out of business.
The threat of closure has community members angling for more than just the help of a turnaround firm. Indiana State Rep. Charlie Brown, who chairs the Indiana House Public Health Committee, said Methodist needs to restructure its board to bring in modern thinkers. Some of those board members seem like theyve been there for 30 years and are antagonistic to the needs of the people of Gary, said Brown, who unsuccessfully sought to prevent the closing of the citys only other hospital, St. Mary Medical Center, in the early 90s.
Brown said Methodist should use its more successful Southlake campus as leverage to help in Gary. To hold Methodist staff privileges, doctors need to be on the staff of both hospitals and should admit patients to both hospitals, Brown said. And Methodist needs to appeal to the large employers in our area and their self-insured health plans to improve their payer mix. And of course they have to cultivate their physicians.
Brown, who is part of a community group that meets monthly with Methodist and FTI Cambio officials, said closing Methodist would absolutely be devastating to this community and this region. A city the size of Gary cannot be without a hospital.
He even suggested that like Porterthe former Porter Memorial Hospital in nearby Valparaiso, Ind., which agreed to be acquired by Dallas-based for profit Triad HospitalsMethodist could think of partnering with a deep pockets system.
Methodist has no shortage of critics, but few want the hospital to fail. Darryl Fortson, a longtime Methodist staff physician and critic, said FTI Cambio and Methodist need to appeal personally to physicians to address their concerns so they will admit patients again. They almost have to go door-to-door to doctors and church-to-church, parish-to-parish in this community, Fortson said.
Ed Charbonneau, Methodist interim CEO and a retired manager of government relations for U.S. Steel Corp., said since FTI Cambio began its assessment on Oct. 1, 2006, its executive team and Methodist have held a series of community meetings with citizens, reaching out to community leaders and elected officials. You could understand their anger and confusion after theyd heard talk of closing the hospital, Charbonneau said.
The hospital also hosted employee meetings on all shifts, including get-togethers with physicians. It was primarily to let people see, hear, talk to and touch our Cambio partners, a key to winning back their trust, he said. They wanted to know what we would do over the course of the assessment period. And we promised to continue to inform them throughout the process and once we had a plan, to take it to the employees and tell them how we intend to implement it.
Fortson applauded FTI Cambio for getting rid of some people who desperately needed getting rid of and reopening communications with medical staff, who had voted no confidence in the previous administration. Overall the hospital is cleaner. The main thing is morale is higher. And so far I like the new leaderships style. Theyve engaged the physicians and the community so far. I think theyre accessible, knowledgeable and capable of doing whats necessary to turn this hospital around.
Claude Watts, an FTI Cambio senior executive who heads operations at Methodist, said hospital management has been given a limited honeymoon period by the medical staff to deliver on its promises. Theyre watching and listening to see if were making the changes that impact their business. The goal is to show everyone that we are changing the way Methodist does business.
Watts said having a management team on site means some issues have already been tackled, without waiting until the still-undefined plan is implemented in March. He said physicians had long complained about cleanliness. We went on rounds with them and saw it was an issue and immediately directed resources there, he said. Theres been a noticeable improvement in the cleanliness of the hospital, and physicians have pointed that out.
And Methodist has also brought in a new nursing leader to improve nursing education, another physician criticism. Physicians now have a stronger role in the selection of new equipment purchases, giving them a buy-in to the process, Watts said.
Alfred Mansfield, an FTI Cambio senior financial manager, said the company took an extensive inventory, something he said has never been done before at the system. That information is valuable to Methodist to assess improvements in the supply chain. Were reviewing all of our contracts, he said. There are tremendous opportunities here for improvement and they will be pursued.
Mansfield said Methodist not only needs to carefully assess and negotiate managed-care contracts, but needs to do a better job of managing those contracts, particularly in the area of denial management activities, assuring payers that proper pre-certification, timely filing and billing information have been completed and that the hospital is paid what it is due for treatment it has given. The hospitals also integrated new financial systems.
CEO Charbonneau said a special board operations committee meets every two weeks with FTI Cambios team for a status report. Methodists board plans to meet in an all-day session Feb. 13 to hear and debate FTI Cambios action plan and is expected to vote on it within weeks.
We have a two-year window, Charbonneau said. This is like a 700-page novel. We think it will be a best-seller, but right now were only on the early chapters. To date, nothing has been shocking. Cambio has brought in their experts to deal with situations calling for expertise. Our problems are pretty fundamental. We took our eyes off the basics and were finding out through a lot of straight talk just how serious this is. Thats something we as a hospital needed to hear: blunt, honest discussion about where we are and what we need to do.