Healthcare organizations, and hospitals in particular, find at one time or another that they are in need of a turnaround. This discussion will focus on a hospital, but the key points can be applied to all organizations.
Future in Doubt
There can be many reasons why a hospital finds itself in distress. Failure to adapt to market changes, reimbursement declines, medical staff upheaval, etc. The end result is a financial crisis that threatens the future and viability of the institution. Jobs, access to care, and community support can be lost when a hospital closes or has to curtail services. With so much at stake, it is imperative for the Board, Corporate (if applicable), and leadership to come together and begin the process of a turnaround.
Steps Toward Turnaround
The key term in the last sentence is process. You can’t gut your way into a turnaround. It needs to be systematic with the implementation of simultaneous actions. The following are steps that I have taken when I have been given the opportunity to turnaround a hospital.
Diagnosis. This is the most important step on the turnaround journey. It should not only address the short-term crisis, but it should also set the groundwork for a stable and growth-oriented future.
- Starting with the income statement, the chief operating officer (CEO) must identify quick opportunities to reduce the loss. Although, expense reduction is never the long-term solution, it is the first step. This should be a tedious and in-depth review. A line-by-line examination of the general ledger is in order. Comparing current expenses to last year and budget (given certain volumes) will identify opportunities down to the smallest detail. The time for a broad brush review has passed. Your chief financial officer (CFO) and department managers should have performed a general-ledger review at budget time. Did they adjust expenses for volume? Did they identify expense variances and adjust proactively? Or is the general ledger a tool they dust off once a year?
- Next, review what is affecting revenues. Volume, commercial contracts, payor mix, volume mix, case mix, etc. There are many factors that affect revenue, but identifying the degradation in the revenues is the first step toward a long-term solution. In my experience, neglecting existing medical staff and taking their volume for granted AND not expanding the medical staff through recruitment are the main culprits for volume decreases. In addition, not expanding successful product lines, adding new technology to retain or attract physicians and patients, and letting your competition outwork you are the main factors in losing volume. There can be other reasons such as a new competitor to the market, a physician-owned surgery center, or a lost commercial contract can also contribute to decreasing market share. However, those items should have been addressed by hospital leadership long before they became a crisis.
Leadership. Evaluating the leadership of the hospital is vital. The first step in evaluating the leadership lies in the ability of leaders to communicate to you an objective analysis of the hospital’s departments. A leader must not only have the ability to analyze, identify, and correct the issues in his or her department, a leader must accept that there will be a correction in the institution and that includes the department or departments which that leader oversees. Even if a leader has the best run department in the facility, he or she will also have to contribute to the common good. There will have to be very difficult actions taken over the next 90 days. Without buy-in and support from your management team, you will not be successful.
Improving the income statement. As we all know, improving the income statement requires increasing revenues and reducing expenses to match volumes. In addition, eliminating programs, which takes courage, must be done quickly.
- Expense reduction does not have to only be in human capital, although it is usually the largest expense and is usually the last to be addressed. It should be first to be evaluated and swift action should be taken. Once the hospital is on stable financial footing, expansion of the staff can be reexamined. Programs that do not contribute to the bottom line should be evaluated for reduction or elimination. Adjustments to supplies, outside services, and physician contracts, to name a few, can have an immediate, positive financial effect on the hospital.
- Revenue improvement. Volume will be addressed in number 4. Improving existing revenue falls squarely on the shoulders of the CFO. Whether it is the revenue cycle, physician documentation, upfront collections, etc., the CFO must take ownership and put people in place to improve it. Evaluating the ability of the CFO to meet these goals should be one of your first priorities.
Volume. It all starts with the medical staff.
- Reviewing historical volumes and addressing physicians with volume decreases is key. Although gathering information from physicians that support your facility must be undertaken, those physicians that have left your facility will have good explanations for why they left and what needs to be improved. For a physician to leave a facility and change practice routines means he or she has given up. Whether you can convince a physician to return to the fold or not, the information that the physician provides can be used to correct processes to retain the staff that hasn’t left.
- Longer-term, medical staff succession must be addressed. Unless there is zero outmigration, no physicians retiring, or a plethora of specialists, bringing new physicians to the community is necessary to grow volumes and keep the medical staff vibrant.
- Program expansion and additions. When an institution is in crisis, existing, successful programs are usually in need of an infusion of capital. Although addressing those needs may take time, it is crucial that the CEO communicate a plan to stakeholders to assure them that she is committed to the program and will address capital needs. The same plan should take place for new programs. If the competition has a successful program, or the community is seeking care outside of your service area, develop a plan to add programs that make sense for the community and medical staff.
Communicate. Be visible.
- I cannot overemphasize the need for communication from the CEO. If the hospital and medical staff, board, and community are not educated about the situation and the plan for success, they will lose faith and wait for the next disaster to be announced. The CEO must meet with employees on all shifts, regularly. Individual meetings with physicians must be undertaken not only to communicate, but also to give the reassurance that these employees are important to both to the CEO personally and to the hospital. Every day, for the first 90-120 days, the CEO should have several meetings planned to communicate and reassure. Be honest and realistic. Deliver the bad news with the good. No one likes surprises.
- Progress reports. The first 120 days are the critical phase in communicating where the institution stands and what is being done to improve the business. Thereafter, a progress report on successes and failures should be offered with the same enthusiasm and vigor that was presented when this process started. The CEO will, again, reassure the stakeholders that he is still laser focused on the plan and that he is either still on track, ahead of the game, or devising a course correction. Additionally, the relationships that the CEO builds today will bear a lot of fruit in the future.
Re-evaluate. This is not the annual budgeting process. The CEO should build into her turnaround plan a timetable to evaluate progress. More frequently at first, then less so as operations go from crisis to stability to growth.
A turnaround can be daunting, frustrating, challenging, and extremely satisfying. It is not for the faint of heart, but when a CEO can reflect on what he has done for the employees, physicians, and community, he may well realize that there is nothing more professionally satisfying.
Josh Porter is currently a consultant with DCCS Consulting. According to the company’s website, “DCCS is a full-service consulting firm with a strong foundation in healthcare leadership focused on responding to the exponential changes affecting today's healthcare.”
Prior to his work at DCCS, Mr. Putter was President of Steward Health Care in Boston; Division President, Division Five (Florida), with Health Management Associates, Inc. in Naples, Florida; CEO of the Charlotte Regional Medical Center in Punta Gorda, Florida; CEO of the Medical Center of Southeastern Oklahoma, in Durant; CEO of Highlands Regional Medical Center in Sebring, Florida; CEO of Brazos Valley Medical Center in Bryan/College Station, Texas; and Assistant Executive Director of Clear Lake Regional Medical Center in Webster, Texas. He also spent 2 years as an Owner Operator of Orange Leaf Frozen Yogurt, in Delray Beach, Florida.