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Jim Johnson

Fellowship Story Showcase

Jim Johnson

Picture of Jennifer Harris

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Tuesday, August 24, 2010

Laura Zehm was shocked at the fiscal mess she encountered while attending her first meeting as a member of the Natividad Medical Center board of trustees. Zehm, a veteran administrator for Community Hospital of the Monterey Peninsula, was among four representatives from Community Hospital and Salinas Valley Memorial Hospital summoned to join the county-owned hospital’s board in 2006. Officials at Community Hospital and Salinas Valley were eager to lend a hand to Natividad, fearing a countywide health care calamity if the county hospital collapsed.

Natividad had just lost $25 million in a fiscal year and was on the verge of being sold or closed. The other hospitals stepped in to offer oversight and cash in what was generally regarded as a last-ditch effort to turn Natividad’s finances around.

Zehm said she and the rest ofthe Natividad board were asked to approve expenditures, including invoices already years old, without any accompanying financial report. When Zehm spoke up, hospital officials responded defensively.

It was an eye-opener for Zehm, who was accustomed to much stricter accounting standards at the private hospital where she worked.
“I was thinking, ‘Are you kid- ding me?’ ” Zehm said. “There was no way to tell what was going on. It was absurd. If I tried that at Community Hospital I would have been fired immediately. There was no one minding the store. There was no oversight. It was obviously very poorly managed. I was surprised (Natividad) didn’t go down sooner.”

A bad reputation

It was well known that Natividad’s finances were in disarray, and had been for some time, when the county Board of Supervisors brought in the two area hospitals to help guide the turnaround effort.
The hospital’s dysfunction was readily apparent to Zehm and the other new trustees — Community Hospital’s Dr. Kurt Sligar and Salinas Valley’s Liz Lorenzi and Leonard Breschini.
But it wasn’t until the county-hired consultants from Chicago-based Huron Consulting Inc. arrived in November 2006 that the extent of Natividad’s operational challenges were made clear.
County officials hired Huron under a two-year, $3.3 million contract to offer management expertise, with the cost to be offset by up to $8 million from Salinas Valley Memorial and Community Hospital as part of their two-year agreement with the county.
By offering financial assistance and expertise, the two area hospitals acknowledged the importance of Natividad’s role: to provide care to the county’s economically disad-
vantaged residents.
Huron brought in an interim management team, including Chief Executive
Officer Thomas Winston, Chief Financial Officer Harry Weis and Chief Medical
Officer Dr. Jan Radke. They promised to conduct a hospital-wide needs assessment and create an improvement plan.
They were met with plenty of pessimism from hospital employees and the community. Hospital employees and their union leadership worried that the consultants would recommend massive cuts in jobs and services.
Patient advocates worried that the consultants would suggest measures designed to improve the hospital’s bottom line at the expense of access to care.
Few seemed convinced that anyone could turn the hospital around.

Poor management

Bill Foley, Natividad’s current interim chief executive officer, who replaced Winston in April 2007, said the consultants’ biggest concern coming in was the level of micro-management of Natividad by the county.
County officials, including the supervisors and department managers, had the hospital’s finances and operations in a “vise grip” of restrictive policies and regulation, much of it due to the hospital’s history of financial struggles.
Foley said county politics had heavily influenced the makeup of the hospital’s board of trustees. According to several sources, supervisors had historically appointed trustees with little expertise in health care finance or in business.
They insisted the hospital treat all patients, whether they paid anything or not, often at the expense of the hospital’s fiscal and operational efficiency. That attitude also trickled down to the hospital management and staff.
When the consultants’ needs assessment study was unveiled in early 2007, along with a sweeping improvement plan, it took direct aim at the county’s oversight.
The study said the hospital’s struggles were largely due to inept oversight by the county and as a result Natividad had become “an inefficient and ineffective organization in virtually every facet of (its) operations.”
The assessment blamed the county’s “very rigid and redundant polices” for restricting the hospital’s ability to adjust to changing con-
ditions in the marketplace, and it found that the hospital’s wages and benefits, disciplinary process, billing procedures and patient care had all been compromised as a result.

Creating stability

In addition, according to the assessment, the hospital’s management structure had led to “constant leadership turnover with weak middle management and distrusting physicians” operating with inadequate accountability and dated equipment.
Foley said Natividad’s problems weren’t unique in the public hospital world.
“We see many hospitals out there that are managed poorly in the same areas, especially in the community, not-for-profit industry,” he said. “The hospital just can’t
be run like a department of the county.”
The consultants realized
that Natividad’s troubles
were so deeply ingrained,
Foley said, and its image so
tarnished, that any turn-
around attempt would have
to go beyond the financial
bottom line.
The hospital’s operations
and service quality, as well as
employee morale, had been
degraded along with its
finances, Foley said.
“Natividad had a very poor
image in the community,”
Foley said. “It was viewed as
the place where, if you were
sick and you had a choice,
you wouldn’t go.”
An ambitious improve-
ment plan recommended
changes at every level of the
hospital’s operations. It
called for hiring a series of
top-level managers, as well as
a team of consultants to over-
see the improvements.
The consultants were
allowed to institute the
changes recommended in
the improvement plan in a
series of six-month phases
beginning in April 2007, each
followed by a progress
report. The improvement
plan boosted the cost of the
consultants’ contract to $12.4
million over a 30-month span
after the supervisors asked
them to stay an additional six
months through April 2009.
The consultants have
made major strides in several
areas, Foley said, including
recruitment and retention of
management, physicians and
medical staff; revenue cycle
improvements; service and
performance tracking; and
labor and productivity
tracking.
Progress, he said, is con-
tinuing on the delegation of
authority, which would grant
the hospital management a
level of autonomy from the
county in certain day-to-day
business decisions.
Under Weis’ direction, the
hospital renegotiated payer
contracts, including commer-
cial insurance payers, and
updated its charging proce-
dures, some nearly a decade
old.
It also improved the accu-
racy of its registration, as
well as its billing and collec-
tions processes. And the con-
sultants were able to con-
vince the supervisors to
allow the hospital to invest in
technology to aid its tracking
processes.
In addition, Weis secured
about $7.6 million in settle-
ments from Medicare on
accounts dating back to the
late 1990s.

Money matters                      

As a result, the hospital
was able to boost its revenue
from about $100.4 million in
2005-06 to $141.3 million in
2007-08, and is projecting
$146.5 million in revenue this
fiscal year. It also managed
to keep costs relatively in
check without layoffs and
major service cuts.
Meanwhile, hospital man-
agement got the usually
tight-fisted county board to
agree to a revamped
employee compensation pol-
icy in an attempt to make
Natividad salaries competi-
tive, which helped with
recruitment and retention of
top managers, physicians,
nurses and medical staff.
“We tried to educate the
Board of Supervisors that if
you’re going to be competi-
tive you have to pay competi-
tively, so we’re not just com-
paring ourselves to other
public hospitals but the
entire industry,” Foley said.
The hospital also saw a
steady growth in patients,
which Foley credits to
improvements in the hospi-
tal’s image, such as changes
in key women’s health and
primary care services,
including the creation of the
new Natividad Medical
Group, a family medicine out-
patient practice.
The rate of privately
insured patients seeking care
at Natividad is expected to
rise to more than 20 percent
this year, which should also
boost the hospital’s earning
potential in a key area.
The improvement efforts
were reflected in the hospi-
tal’s bottom line almost
immediately. At the end of
the 2006-07 fiscal year, Nativ-
idad had cut its operating
losses to just $3.8 million and
posted its first positive cash
balance in recent memory —
$12 million, including the $10
million county subsidy. In
the 2007-08 fiscal year, the
hospital posted a record
$10.5 million profit, and col-
lected $24 million in cash,
including a $4.2 million
county subsidy.

Giving back                             

Weis’ projections indicate
the hospital will likely end up
breaking about even in the
fiscal year ending June 30,
largely due to the rising costs
of providing health care to a
growing uninsured popula-
tion, the drooping economy
and shrinking government
reimbursement. But he has
also suggested the hospital
may decline the county’s
budgeted $1.55 million sub-
sidy because of the county’s
own $24.9 million budget
deficit.
As a result, the consultants
have earned high praise,
especially Weis for his work
on the finances.
“It’s beyond anybody’s
expectations,” Supervisor
Dave Potter said. “Everybody
knew there were a lot of
opportunities (for improve-
ments) at Natividad, but it’s
such a dramatic turnaround.”
Potter said he believed the
consultants succeeded by
bringing a private hospital
model to a public institution,
and they managed the turn-
around without a “scorched
earth” policy of drastic cut-
backs and employee layoffs
so common in the private
world.
Community Hospital’s
Zehm said Natividad’s
improvements range far
beyond its bottom line,
which she said is merely an
indicator of a more funda-
mental change.
“This is a much better
place than it was 21⁄2 years
ago,” Zehm said. “Good man-
agement is making the differ-
ence. The quality processes
are part of the way they do
business now. It’s not magic.
I don’t know why it wasn’t
being done before.”
Dr. Marc Tunzi, a Nativ-
idad veteran and former
chief of staff who sat on the
hospital board during much
of the turnaround, praised
the consultants.
“We didn’t have leadership
before they came,” Tunzi
said. “They’re phenomenally
effective at recognizing bro-
ken systems. And Harry
Weis is a bit of a wizard.”
Nevertheless, there is gen-
eral consensus that there
remains much work to be
done. A permanent CEO and
his executive management
team have yet to be installed,
and a new hospital board of
trustees appointed, even
though the consultants will
leave soon. A new CEO is
expected to be announced by
the end of the month, and
could be in place by March.
The strategic plan for the
hospital’s future, unveiled
nearly two years ago, is still
in the fledgling stages. And,
though Foley insists
progress is being made,
there are already concerns
that a controversial proposal
to merge Natividad with the
county’s primary health clin-
ics is delaying implementa-
tion of long-range
improvements.
There are also indications
the hospital’s finances will
face long-term challenges as
the cost of health care rises
and one-time revenue
improvement opportunities
are no longer available.
“It’s been a pretty remark-
able journey,” Weis said.
“But it’s a journey and we
have a long way to go. It’s my
mission to prepare Monterey
County for the future.”
Tuesday: Challenges still lie
ahead for Natividad Medical
Center, despite its remarkable
resurgence, as the hospital’s
consultants prepare to leave
and be replaced by permanent
management during tenuous
economic times.
Jim Johnson can be reached
at 753-6753 or jjohnson@
montereyherald.com.
Natividad
From page A1
                                                                                                                                         VERN FISHER/Herald file
Natividad doctors, nurses and staff, here at a rally in 2006, were concerned that consultants
called in to help the hospital would recommend massive cuts in jobs and services.
Dr. Jan Radke
chief medical
officer of
interim
management
team.
Bill Foley
Chief officer
says Natividad
had been known
as a place where
the sick didn’t
want to go.
Harry Weis
chief financial
officer calls
turnaround
‘remarkable
journey.’