Published October
2004
Road
to Recovery
After years of net losses, Stevens Hospital
is making strides toward fiscal health
By
Kimberly Hilden
SCBJ Assistant Editor
Albert Einstein once
said that in the middle of every difficulty lies opportunity. For the
past nine months, Stevens Hospital has been learning the truth of that
wisdom firsthand.
In January, the public
hospital board fired Stevens’ chief executive of 14 years, Steve McCary,
following a string of annual financial losses, including a $2.4 million
net loss in 2003.
|
Snohomish County
Business Journal/
KIMBERLY HILDEN
Stevens Hospital
in Edmonds has been serving the south Snohomish County community since
1964. In 2003, the hospital handled more than 42,000 emergency department
visits as well as 1,239 births and 6,565 surgical procedures.
|
McCary’s firing,
executed outside the public arena and accompanied by a $2.1 million severance
package, ignited increased public scrutiny and calls for greater openness
within Snohomish County’s Public Hospital District No. 2.
It was, according
to hospital officials, a time of turmoil for the Edmonds hospital — one
that tested the resolve of both the institution and the public it serves.
With the help of
a national health-care consultant and increased public outreach efforts,
however, Stevens’ fortunes are turning. Net losses are expected to decline
this year, and public representation is expected to increase, with a ballot
measure to add two hospital district board commissioners going to a vote
in November.
Those changes, while
having a positive impact in the short run, should make the hospital better
able to serve its community in the long run as well, hospital officials
say.
“We hope Stevens
will be in a solid financial position with improved community relations
— including the community at large as well as the community of physicians,”
said Dr. John Todd, Stevens’ chief executive.
Road to recovery
begins
When he was named to the post in February, Todd, then Stevens’ medical
director, decided to separate the issues facing the hospital and resolve
them one by one. The most pressing, he decided, was the hospital’s financial
situation.
Between 1999 and
2003, the hospital reported a combined $15.8 million in net losses. The
reasons for those losses were similar to those facing hospitals across
the state and the country, Todd said, including the increasing cost of
health care combined with a decrease in reimbursement for those services.
According to a report
released in 2002 by the Washington State Hospital Association, hospitals
are receiving only 60 percent of the amount they bill for health services,
leaving “no allowance for margin” and no additional funds for technology
and facility improvements.
At the same time,
premiums for insurance are on the rise, premiums that Stevens has to pay
for its own employee health-care benefits, thus reducing the bottom line,
Todd said.
Another expense is
caring for the uninsured, he said. “When they are ill and present at our
emergency department, we must, by law, evaluate and stabilize their condition,”
Todd said. In
2002, charity care at Stevens totaled almost $1.8 million; in 2003, that
number had risen to $1.9 million.
And then there is
the issue of malpractice costs, he said, which come in the form of premiums
for malpractice insurance as well as in the “defensive medicine” that
is practiced to prevent possible litigation down the line.
“Every possible condition
is evaluated,” Todd said of defensive medicine. “So that adds not only
to the premiums but the cost of health care in general.”
To get a better handle
on Stevens’ situation, consulting firm Wellspring Partners Ltd. was hired
in May to advise the hospital’s board and leadership. During the following
six weeks, Wellspring performed a hospital assessment, finding multiple
areas that needed attention, Todd said. Those areas included:
- The hospital’s
revenue cycle — the documentation, coding and billing that goes on in
the “back office,” Todd said.
- The hospital’s
management of nonlabor expense, which includes supplies and contracts
and comprises a third of the hospital’s budget.
- The hospital’s
governance, including its board size and function.
- The hospital’s
physician relations, which needed to be enhanced.
“We are approaching
this in six-month intervals, and we are now two months into the project,”
Todd said, adding that the hospital expects the overall improvement project
to take two years, with four six-month intervals.
Already, steps have
been taken to improve the revenue cycle, the hospital noted, including
increasing the price for a white blood cell count closer to the regional
average of $41. Previously, Stevens had been charging $20; it now charges
$26. Such actions are expected to keep net losses to about $1 million
this year.
“I have a great deal
of confidence that things will continue to improve,” Todd said.
Community relations
Along with a solid financial footing, Stevens has been working to build
a stronger relationship with the community it serves — a relationship
that was put to the test following the termination of McCary.
At the time, some
members of the public were upset by the private nature in which the firing
was carried out. It was a decision hospital district Board President Fred
Langer said was made with the intention of handling the situation with
dignity.
“There’s no question
that we complied with the statutory requirements when it came to notifying
(the appropriate people). We just decided to handle Mr. McCary’s termination
outside of the public limelight, because how we treat people is really
going to, I think, impact our ability to recruit new people,” he said.
The termination brought
with it a resurgence of interest in the function of the hospital, Langer
added, with one of the first comments from the public being that the three-member
board of commissioners should be increased.
After looking at
the work required of the board, Wellspring Partners and the commissioners
agreed, noting that a larger board would enable greater efficiency and
effectiveness in carrying out board duties, such as serving on hospital
committees.
Under Washington
state’s Open Public Meetings Act, the public has to have prior notice
every time a quorum of a public governing body meets. In the case of the
three-member hospital board, that means every time two members meet to
talk about hospital matters, a public meeting must be called.
“That’s really onerous
for the commissioners and the hospital,” Langer said, especially when
it comes to serving on such things as the hospital’s Performance Improvement
Committee, where privileged information is discussed in looking at clinical
performance.
“I’m the only commissioner
that’s allowed to be on that. If another commissioner joins us, every
time that happens, it becomes a public meeting,” he said.
The other benefit
to increasing the board is to better serve the growing community of Snohomish
County Public Hospital District No. 2, which includes Edmonds, Lynnwood,
Brier, Woodway and Mountlake Terrace, Langer said.
Since the hospital’s
founding in the early 1960s, the population has more than tripled, Langer
said, from “maybe 100,000 to over 300,000 — and that population has not
only grown, it has become more diverse.”
This summer, the
board passed a measure asking voters to approve adding two more members
in the coming November election, bringing the number of commissioners
to five. There was a debate about growing to seven members, but that seemed
“too unwieldy,” Langer said.
“The two public hospital
districts that are in the Puget Sound area that I look to as being effective
boards and well-run institutions are Evergreen and Valley,” he said. “People
may debate that, but they have boards of five, and they look a whole lot
more like we do than if you take a look at the Monroe public hospital
that has a board of commissioners of three.”
If the measure is
approved, the current board members, Langer, Dena Knutsen and Jack Tawney,
would appoint two new members until the next time a board seat is up for
re-election, in November 2005.
What’s next
As Stevens continues with its turnaround, it will have a steadfast leader
in Todd, who thought he would only be filling in for “a few months” when
he was named acting chief executive in February.
In June, however,
the hospital district board voted unanimously to retain Todd for the next
two years, following the recommendation of the hospital district’s CEO
search committee.
“They didn’t think
a search for a CEO at this time was appropriate because it would be unlikely
that a CEO would stay beyond the turnaround,” said Todd.
Instead, the search
for a new chief executive will start in mid-2005, and the process could
take up to a year, at which time, Todd said, he will be ready to retire.
And the hospital
— well, it will be in a more stable position, he said.
“It will be in a
place where the new person can succeed.”
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