CHOC EXPECTS TO POST FIRST OPERATING PROFIT SINCE ’94
Children’s Hospital of Orange County has long enjoyed a strong reputation with parents as a place where kids are nursed back to health by a competent, kind staff.
More recently, it has had a reputation as one of OC’s biggest money-losing hospitals, piling up $43.2 million in red ink over the past five years.
Not anymore.
With the June 30 end of the fiscal year in sight, confident hospital officials say they are sure CHOC will finish without an operating loss. Through March, CHOC’s operations were in the black to the tune of about $3 million. Officials say the 35-year-old nonprofit medical center could end the 12-month reporting period up as much as $4.5 million.
“CHOC has significantly turned around within 2 to 2 1/2 years,” said Larry Ainsworth, president and CEO of St. Joseph Hospital, which has a management services agreement with CHOC.
It’s been a long crawl back to the black. In fiscal 1995, CHOC lost $5.5 million on operations. That jumped to $8.5 million in fiscal 1996. The red ink peaked in fiscal 1997, when CHOC’s loss skyrocketed to $19.4 million.
By fiscal 1998, signs of a rebound began to appear. The operational loss was cut to $8.6 million. In fiscal 1999, the loss dropped to just more than $1.2 million.
What turned the hospital around was improved billing and collections, an aggressive push to expand its patient base and a hard-earned understanding of managed care, said Kimberly Cripe, president and CEO of CHOC.
“A turnaround cannot be achieved by just focusing on operational efficiencies,” Cripe said.
A key move was CHOC’s decision to beef up its relationship with a neighbor across the street.
In 1997, when the hospital was in big trouble, it looked to St. Joseph Hospital for help. It made sense, since St. Joseph was known as an excellent birthing center. Besides, there was already an underground tunnel linking the two.
The hospitals signed a five-year management-services agreement. St. Joseph helped CHOC draft a three-year plan to restore it to financial health. The two hospitals began to share some operations, such as emergency rooms and operating suites, rather than duplicating services. CHOC utilized St. Joseph’s ancillary patient services and St. Joseph referred patients who required high-level pediatric specialists. “It’s a partnership atmosphere rather than competitive,” Cripe said.
In June 1999, what company officials call the coup de grace, CHOC was getting exclusive contracts with Bristol Park Medical Group (OC’s largest medical group) and Universal Care. CHOC and Children’s Hospital at Mission, CHOC’s sister facility in Mission Viejo, now provide all pediatric specialty care for Bristol Park and exclusive inpatient and outpatient pediatric care for Universal. The contracts served Cripe’s vision of CHOC as the leader for all pediatric care in the county.
The result has been a 27% increase in patient discharges (a patient volume indicator) in 1999 and a 16% increase this year.
CHOC has not been alone in its financial woes. Children’s hospitals across the country have been slow to adapt to the managed-care environment, said Mary Jane Foster, managed-care analyst for Medical Data International.
But CHOC seems to have learned how to position itself in the market. Officials went after insurance contracts, and the insurers and medical groups realized that offering a high-caliber local pediatric hospital added luster to their networks.
“They’re also credited for having marketed themselves in other areas,a place you go for a wide range of pediatric services. That has been a good, smart move for them, and it paid off,” Foster said.
Cripe said CHOC actively recruited physicians and created institutes for specialty care: heart, cancer and neuroscience. The hospital will have performed 200 open-heart surgeries this year, Cripe said. The hospital has spent some $10 million since 1997 to enhance and augment services, she said.
CHOC also will benefit from recent legislation, which its officials lobbied for, to provide federal funding for graduate pediatric medical programs at 40 freestanding children’s hospitals across the country. The bill, which passed in December, will give those hospitals $40 million to cover 1999 expenses. Hospitals are requesting $120 million for 2000.
“(The 40 hospitals) need $285 million. It costs CHOC $4.3 million a year to operate a pediatric residency program,” Cripe said.
Foster said CHOC officials were slow to realize how crucial cost was in the managed-care equation and didn’t understand that the hospital’s strong reputation wasn’t enough by itself to guarantee success in a new era.
“If you have a reputation for being the Rolls Royce of the industry, then there’s a question of whether you need that Rolls Royce or if another car would do fine,” she said.
And the turnaround isn’t just good news for CHOC,it’s a lesson for administrators at other facilities at a time when the healthcare industry seems under siege. “It’s further proof that (a turnaround) is possible even in difficult time for hospitals,” Foster said. n
