When Nashville-based NetCare Health Systems Inc. took over San Clemente Hospital and Medical Center in mid-1998, the hospital was, to use a medical metaphor, hemorrhaging money.
In the first five months of 1998, before NetCare bought the 71-bed facility from Columbia/HCA, the hospital had a net loss of $3.9 million,a life-threatening amount for a company with 1998 net patient revenue of $16.5 million.
But a year and a half later, the red ink seems to be fading. Under CEO Pat Wolfram (who joined the hospital three months after the purchase), the hospital executed a rapid turnaround. From June 1, 1998 to the end of the calendar year, the hospital’s net loss was $359,000, with earnings before capital costs of $94,500.
By the end of 1999, net patient revenue had increased by $3 million, to $19.5 million, with losses before capital costs of $580,000. Not bad, hospital officials said, considering they spent $700,000 on recruiting new physicians and took a $600,000 hit on bad debt that NetCare had inherited.
“We went back to basics and started to look at personnel and incidental costs we didn’t need,” said Wolfram, who was previously COO and administrator at Florida Medical Center in Fort Lauderdale.
Upgrades and Cuts
But the new managers didn’t just make cuts. Wolfram and CFO Shelley Diehm, who joined the hospital in November 1998, said they also went to work immediately on upgrading the hospital inside and out. They recruited new physicians, including specialists; negotiated with managed-care companies for better contract rates (as well as added new plans); and bought new equipment, including a $700,000 CAT scanner 20 times faster than the old model. They even kept open an unprofitable care unit because they agreed it was needed in the community.
The executives are optimistic the year 2000 will bring the hospital back in the black.
The hospital’s turnaround comes amid an upswing for hospitals in general. Even though hospital officials say they’re being squeezed from all sides by managed care and a federal cap on Medicare reimbursements, the Business Journal’s list of the county’s 35 hospitals with the highest net patient revenue indicate that net income among those hospitals went up 58% from $68.9 million to $109.0 million between 1995 and 1998. In 1997 (the most recent national figures available) aggregate profits climbed by 3% with total net revenue of $327.6 billion, according to American Hospital Association figures.
Building an Image
At San Clemente, Wolfram’s goal remains revamping not just the bottom line, but the image of the 25-year-old hospital. Such a makeover requires many steps,from teaching customer-service skills to healthcare workers to trying to understand the local market,and give it what it wants.
“Paying attention to details is really important,” Wolfram said. “Both Shelley and I came in with new eyes. I think that was what was needed.”
The turnaround began with the layoff of 28 people (mostly support staff, but including several nurses) prior to NetCare taking over.
Then officials offered four specialists timeshare of rental space in a building across the street from the hospital, so those doctors could be more available to treat patients.
From 1998 to 1999, NetCare spent $3.3 million in capital improvements, according to Diehm. A new roof was installed, the soil beneath the structure was stabilized and new computers installed. They also bought new anesthesia and ultrasound machines.
The hospital recently added seven more doctors to the staff of some 240 contracted doctors (five retired after NetCare took over). Today the hospital has 300 full- and part-time non-physician employees, 30 more than a year ago.
Outpatient Services a Key
Increasing outpatient services is the key to a healthy bottom line, Wolfram said. Hospital officials are looking at offering services such as wound care and open MRI.
Still, hospital executives have considered other factors besides profit and loss in making some crucial decisions. They’ve kept open the hospital’s skilled-care unit,interim rehabilitation,because the community has a need for it.
“It really does not make money for us at all,” Wolfram said.
They’re also seeking to turn what some had seen as a minus,being a relatively isolated, small hospital,into a plus. The key is raising the community’s expectations for the kind of services available in town and convincing people they don’t have to drive a long way for the quality care they expect. That means bringing in specialists, Diehm said.
“If you don’t have the physicians for the patients to go to, when they get sick, they’ll go elsewhere,” Wolfram said. “It’s convenient for people, so they don’t have to travel 12, 20 miles to see a urologist.”
“Ten years ago, the hospital had a bad reputation,” Diehm said. To change that perception, San Clemente Hospital promoted its services by offering a monthly lecture series with topics ranging from senior healthcare to pre-natal care to managing diabetes.
And if patients are pleased with one type of care, they’re more likely come back when they or their families have other health needs.
Now, Wolfram says, “We are the healthcare service for San Clemente.”
Alliances Sought
Even with shiny new equipment and a new management strategy, Wolfram knows the hospital,NetCare’s only facility on the West Coast,can’t do everything alone. Their hope is to form an alliance with larger healthcare systems in the county to ensure a steady flow of patients. Hospital officials also are in discussions with several undisclosed healthcare companies for joint marketing.
Meanwhile, Diehm and Wolfram say they’re doing whatever they can to run a profitable hospital, which means they’ve had to tinker with the corporate culture.
“Some people were not ready to make changes. I want people to realize that change is here and it’s faster and in 10 years it’s going to be like this,” said Wolfram making a chopping motion with one hand on top of the other.
“There’s a core group who have been here forever,” Diehm said. “They remember when the doctors owned it and when it was easier to make a living in a hospital. They haven’t adjusted as well as the others, but they’re getting there.” n
