The way Richard Salluzzo assembles a hospitals operations is analogous to the way an artist composes a pointillist painting.
Pointillism uses thousands of paint dots in the primary colors to produce an image. To the eye, the primary colors blend to form secondary colors, even though the dots remain distinct when examined up close. Each dot must be the right size and shape to produce the desired image.
By the same token, hospitals are collections of scores of distinct processes. In the three years since Salluzzo joined Wellmont Health System, Kingsport, Tenn., the system has introduced 175 processes that employees follow, said Salluzzo, president and chief executive officer of the system and a physician. Each of those processes is further broken down into two to seven steps, he said.
Wellmonts focus on those small stepsa process that Salluzzo refers to as microprocess improvement or micro-PIhas been a key to providing the financial wherewithal for Wellmont to paint on more and more canvasses, so to speak. Just as important, the twin emphases on patient safety and patient, physician and employee satisfaction have helped Wellmont draw more patients, Salluzzo said.
Revenue-cycle improvements also helped. As a result of all of these changes, the system went from an operating loss of $10.8 million on $436.5 million in net patient service revenue in fiscal 2004 to an operating profit of $15 million on net patient service revenue of $547.9 million in fiscal 2006. The system will have grown from four hospitals in two states in 2004 to 11 hospitals in three states (See map) once two pending deals are completed. Within the next four years, Salluzzo predicted, Wellmont will be a
$1 billion per year system.
If you can fix the processes, whether they be on the clinical side or the financial side or on the operational side, Salluzzo said, youre going to be a success.
Last week, Wellmont announced the more recent of those deals to acquire two hospitals in Virginia from for-profit Health Management Associates, Naples, Fla. Terms were not disclosed. The hospitals are 133-bed Mountain View Regional Medical Center, Norton, Va., and 52-bed Lee Regional Medical Center, Pennington Gap, Va. The deal is expected to close by Aug. 1, pending regulatory approval. Of the two hospitals Wellmont is acquiring from HMA, Lee Regional has been more successful financially, according to figures supplied by the American Hospital Directory. Lee Regional has reported net income between $2.5 million and $4.4 million in each of the four most recent Medicare cost reports that it has filed through the fiscal year ended Sept. 30, 2005, the directory said. Mountain View, however, was in the red for three years until posting a $1.3 million net income in the 11 months ended Dec. 31, 2005, according to the cost reports compiled by the directory.
In April, Wellmont said it agreed to a joint venture with HealthSouth Corp., Birmingham, Ala., to operate 50-bed Rehabilitation Hospital in Kingsport and develop a new rehabilitation hospital in Bristol, Va. Last month, 25-bed Jenkins (Ky.) Community Hospital joined the system.
One risk that Wellmont faces in growing so rapidly is the possibility that it wont be able to truly integrate these hospitals into the system, David Atchison said. Atchison is president and CEO of Ponder & Co., which has provided investment banking and deal advisory services to not-for-profit healthcare systems, including Wellmont, within the past two years. Atchison said it is a challenge even for a
well-run system like Wellmont to ensure that all of the shared services from the system, such as payroll processing, human resources policies and procedures and information technology, are introduced in the new hospitals.
Wellmonts strategy is part of its pitched battle with Mountain States Health Alliance for referrals in what is known as the Tri-Cities area of East Tennessee, Atchison said. Mountain States is based in Johnson City, Tenn., and operates nine hospitals in two states.
Everyone has to focus on how much theyre investing to lock up those referrals, both in acquisition costs and any operational shortfalls that may result, Atchison said. The risk is that the referrals wont develop after the hospitals have been acquired, Atchison said. You cant formally lock up referrals, he said. You can influence that through certain means, but you cant guarantee, once you invest the money, that the referrals will flow.