In these tough economic times, its easy for any chief executive officer to lose sleep about the state of our nations economy and its effect on our respective organizations. Believe me, I know. Ive been through five recessions working in the healthcare industry, and its certainly no picnic.
But in the spirit of demonstrating brighter days are indeed ahead, today it is my intention to offer some hope with a story about a mighty childrens hospital that, in just six short years, moved from the very edge of financial failure to embarking on a $588 million expansion that will make it the largest pediatric medical center in the country.
In 2002, I was vice president and national director for Health Strategy Practice of Cap Gemini Ernst & Young. One day, we received a call that Phoenix Childrens Hospital was in serious financial trouble and needed our guidance to pull through its difficult situation. Phoenix Childrens, a not-for-profit medical center providing inpatient, outpatient and emergency care to acutely ill pediatric patients, had recently moved from its home within another metro-Phoenix hospital to its own free-standing building just a few miles away.
When I arrived at Phoenix Childrens, I quickly realized the hospital was dangerously close to shutting its doors. A series of construction delays, a tough economy and a flood in the operating rooms had placed the hospital in a precarious state. It had just eight days of cash on hand, and was facing a $46 million loss.
But not to go unnoticed, the hospitals greatest asset was its team of doctors, board members and other longtime employees who refused to allow Phoenix Childrens dream to vanish. An innovative transition team was immediately assembled that worked hard to get the hospital in working order, and when we hit our darkest hour, we worked even harder to pull through the financial crisis. The inspiring passion of the Phoenix Childrens teamand the dire need for a world-class pediatric medical center in one of the fastest-growing states in the countryled me to accept a full-time position as Phoenix Childrens president and CEO.
Our work was just beginning at this point. We stopped operating the hospital like a small community organization and started running it like a business. We eliminated contracts that didnt make sense for the operation. We enhanced our tools for tracking budget, cash flow and variances. And we studied other industries outside of healthcare and adapted their methodologies to the hospital setting, especially in the areas of strategic planning.
Over the next few years, we brought the entire patient-accounting system in-house, establishing procedures for billing and collections that improved customer satisfaction and reduced days in accounts receivable to 59. Soon contract negotiation, renegotiation and/or termination decisions were based on both financial and operational performance history.
The result: We took income from operations from a $46 million loss to a $49 million gain in just five years. Our bond rating has improved from BBB- to A. In the Goldman Sachs Groups 2007 report about members of the Child Health Corporation of America, Phoenix Childrens placed No. 1 in operating cash flow margin and No. 2 in operating margin against approximately 40 member childrens hospitals nationwide.
And we did it all without ever compromising our commitment to family-centered care.
But even with this remarkable turnaround, I knew our work was not done. Here in the Southwest, population growth outpaces that of other regions. This growth is most pronounced in the pediatric population. By 2030, the number of children in metropolitan Phoenix alone is projected to reach 1.5 million, up from about 1 million today.
Simply put, we have to grow.
The turnaround of Phoenix Childrens Hospital was inspirational and impressive. But it was also necessary to make sure we would be here to serve our community for years to come. As we endure the barrage of bad financial news for the time being, I encourage my colleagues to hang in there and keep their eyes on the needs of the next generation.