Methodist may have a blueprint (Part 2)

This is the second in a series of articles tracking a planned two-year turnaround effort at Methodist Hospitals, a two-hospital, not-for-profit system based in Gary, Ind., that has suffered financial losses and quality problems in recent years. The first article, describing how Methodist decided to seek outside help, was published in Modern Healthcare magazine Jan. 15, 2007, p. 16, and can be found online, here.

Financially troubled Methodist Hospitals, a not-for-profit system based in Gary, Ind., may be on the ropes, but executives there are hoping it can repeat the recent success of another inner-city Indiana hospital that once battled similar problems, Wishard Health Services of Indianapolis.

Like Methodist, 509-bed Wishard suffered deep financial losses and faced drastic service reductions or closure when it decided to bring in outside help. Like Methodist, Wishard hired Brentwood, Tenn.-based turnaround firm, FTI Cambio Health Solutions.

Though Methodist’s current situation is in some ways more tenuous than Wishard’s, executives there hope to follow the same path Wishard took to financial health.

“We were economically plummeting like a rock,” said Matthew Gutwein, president and chief executive officer of the Health and Hospital Corp. of Marion County (Indianapolis), the county entity and parent company of publicly owned Wishard. “We knew we needed help and looked at a whole range of options, including bringing in a turnaround firm.”

Wishard, the safety net hospital for Indianapolis and surrounding Marion County, turned to Cambio in 2003, after posting a $70 million net loss on 2002 total revenue of $350 million.

Gutwein said Cambio encouraged a two-pronged turnaround approach. Wishard hired physician Lisa Harris, who had spent her entire career since medical school at the public hospital, to serve as CEO, and brought in Cambio experts to work with Wishard executives to analyze the system’s problems and partner to resolve them over a two-year period in 2004-2005.

“We didn’t have the luxury of time,” Harris said. “We needed an infusion of talent and extra horsepower to makes these gains in the short period of time we had to turn this hospital around.”

She said Wishard faced either a 33% reduction of services or closing altogether. “That was Plan A. There was no Plan B. We thought before we did that, we needed to exhaust every other opportunity.”

Ed Charbonneau, Methodist’s president and chief executive officer, said Methodist’s situation differs somewhat from the one faced by Wishard in a couple of ways. Wishard enjoys a strong relationship with the Indiana University School of Medicine physician faculty and residents and receives a large county tax subsidy. Methodist has a more limited relationship with Indiana University’s medical school and has no similar tax subsidy. The Indiana medical school does operate a satellite school in Gary that allows students to go there for the first two years of their schooling, but Methodist Hospital officials hope Indiana University will expand it into a four-year program that would include the benefits of internships and residencies.

“Beyond those factors our circumstances are quite similar: inner-city hospitals serving large numbers of poor uninsured and Medicaid patients,” Charbonneau said.

But Gutwein noted that Wishard didn’t face the community backlash that currently confronts Methodist, which is under fire from many sides. “By the time FTI Cambio came, we’d hit rock bottom and morale could not have been lower. Our options seemed so limited then,” he said. “We experienced very significant support from the community. That was not a big challenge for us. Most people thought bringing in Cambio sounded better than firing one-third of the staff and closing one-third of the beds or shutting the hospital down. People were very worried about the future of the place and were pulling for us to succeed.”

Methodist, on the other hand, had seemed detached from its community. Political leaders and even its medical staff appeared to be locked in a permanent battle with the hospital’s former leadership. The former CEO resigned last year under pressure, and Methodist has since reached out to its medical staff, hospital employees and the Gary community to heal relations.

And the differences are much greater now, with Wishard so much further along in the restructuring process. Since 2005 when FTI Cambio’s assignment ended, Wishard has expanded services and added 53 beds, opened a community center and reported a 2005 profit of $23 million, according to Gutwein. And he said the hospital predicts Wishard will earn 2006 net income of $20 million, creating what would essentially be a $90 million turnaround within two years.

Gutwein said the turnaround was accomplished by revamping the revenue cycle, a system he said was “leaking at all stages.” By improving billings and collections and other steps, there was annual impact of $35 million, going from 50% accuracy in billings to 98%, Gutwein said. Another big piece involved productivity. Harris added that Wishard had ranked below the 25th percentile. “We were anchoring the bottom and helping everyone else’s statistics,” she said.

Productivity improvements produced another $22 million in annual savings, and the hospital rocketed from below the 25th percentile to the 83rd percentile in productivity. She said staff reductions were accomplished through voluntary severance-package offers and natural attrition. “Outside of a few disciplinary cases, we didn’t have to issue pink slips or conduct layoffs,” Harris said.

Wishard staff peaked at 3,600 in 2002 and dropped to 3,100.

Gutwein said improving the hospital’s payer mix contributed to the turnaround success. “Our operations and efficiency have improved greatly. Doctors enjoy practicing here more now and are referring more patients, which attracts more private-payer patients, and that has helped. The combination of Dr. Harris and Cambio’s ideas and expertise brought us here. We worked together in a partnership.”

Infectious disease specialist Virginia Caine, director of the Marion County Health Department and a longtime Wishard staff physician, said the biggest changes are the vast improvements in information technology and revenue-cycle management. “They are much more efficient in getting paid for the services they provide,” Caine said. “They’ve beefed up there, and that has been huge.”

Caine said even before the restructuring, Wishard’s board had authorized money for expansion to improve the hospital’s appearance. She said those improvements, coupled with improved efficiency, helped Wishard attract more commercial payers, improving payer mix and increasing revenues. She said Wishard also improved customer service, from telephone receptionists to physician behavior.

“The whole paradigm has changed,” Caine said, while cautioning: “Right now there’s no doubt about it that this has been a real success. But the real test will be in three to five years to see whether the improvements will last.”

Another lesson Gutwein gleaned from the Wishard turnaround was to be as open and as honest with staff and the community as possible throughout the process. “We were the most successful when we were completely transparent in all of our turnaround efforts and included all members of the Wishard family, top to bottom,” he said.

He said Wishard, which has worked with Methodist leaders on issues ranging from charity care, Medicaid and the uninsured to disproportionate-share hospital funding, wishes the system similar success. “They have an important mission. We have confidence in Cambio and are optimistic they will do better.”

Methodist’s Charbonneau said he believes the system’s payer mix can be improved, but was reluctant to disclose how that could be accomplished, citing upcoming recommendations to the board slated to be presented by FTI Cambio on Feb. 13. The consultant will offer suggestions to streamline and improve Methodist’s operations and finances and an action plan for implementing them.

Charbonneau called Methodist “the poster child of safety net hospitals in Indiana. If something happened to force us to close our doors, it would be disastrous to this community, and we’re not going to let that happen. But what the final outcome looks like, nobody knows.”

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