French gets its heart back: Medical center is resurgent after years of neglect
After nearly a decade of deficit, French Hospital Medical Center is finally on the financial mend. Back on its feet, the center is making ambitious expansion plans for its future.
When Catholic Healthcare West acquired French Hospital Medical Center in 2004, the San Luis Obispo facility had not been profitable since 1996, and the previous owners had starved it of capital investment to the point where the roof had hundreds of leaks.
The 112-bed hospital had gone through five owners, three management companies and six chief executive officers in 10 years.
Its cardiac care program--once a source of pride in the community -- had equipment so outdated that "the only way to get parts was to scavenge them off decommissioned equipment," said Dr. Ke-Ping Tsao.
Tsao chaired French's community board for seven years until July, when he stepped down just after the hospital announced its first entire year of operating in the black in more than a decade.
In the past three years under the ownership and management of Catholic Healthcare West, a San Francisco-based nonprofit health system, the hospital has undergone a renaissance.
Once again, French boasts about its state-of-the art cardiac services. Not only has it repaired the leaky ceiling, it is renovating patient rooms with enhancements, such as individual flat-screen televisions attached to each bed.
Since he took over as chief executive officer in 2004, Alan Iftiniuk said his turnaround strategy has focused on patient satisfaction, redefining the hospital's strengths and forging relationships for community support.
"We don't try to be all things to all people," he said. "We can't; we're not big enough. But if we do (something), we do it extremely well."
A tumultuous decade
French's troubles began around 1996, when Tenet Healthcare Corp., which owns Sierra Vista Regional Medical Center in San Luis Obispo and Twin Cities Community Hospital in Templeton, bought out its parent company, Tennessee-based OrNda Healthcorp. Tenet gained 50 hospitals in the acquisition, including French and Arroyo Grande Community Hospital.
The Federal Trade Commission stepped in and ordered Tenet to sell French and Arroyo Grande Community Hospital to prevent the for-profit chain from having a monopoly in the county.
Vista Hospital Systems Inc. bought both hospitals in 1997 and struggled financially until it filed Chapter 11 bankruptcy protection in 2003. Vista sold the hospitals to for-profit Universal Health Services, which quickly sold them to Catholic Healthcare West.
Those tumultuous years were difficult and frustrating, said Grace Mitchell, former Cuesta College president and member of the hospital's community board, which is responsible for long-range planning and oversight of administrators.
"There didn't seem to be support for the hospital from the owners, both financially and morally," Mitchell said. "It didn't feel as though they cared very much if French succeeded or not."
Losing its advantage in cardiac services to cross-town competitor Sierra Vista Regional Medical Center in 2002 demonstrated the incompetence of the previous owners, said Dale Rowland, a pediatrician and current chief of French's medical staff.
Cardiac programs tend to be among the most profitable hospital services; in the late 1990s French's program had a statewide reputation for high survival rates.
Sierra Vista lured the heart specialists away by providing modern equipment, and "the cardiac department at French Hospital became a ghost town," Rowland said.
The cardiac tide, however, has shifted again. The heart specialists have moved back to French with its new $8 million Copeland, Forbes&Rossi Cardiac Care Center.
French's medical staff and the community made it clear from the day Catholic Healthcare West took over that rebuilding the cardiac center was a top priority, Iftiniuk said.
But the hospital had a long way to go. French was losing $3 million a year and had no cash to pay employees or utilities when Iftiniuk, a CHW executive who had turned around other struggling hospitals, took over.
Modernizing French's sorely neglected equipment and building required a major investment, Iftiniuk said.
CHW was able to pour millions into the hospital because it didn't have to lay out the cash to buy the hospital. The San Luis Obispo Physicians Alliance, a group of 50 local doctors and developer Rob Rossi, bought the building and surrounding property for an undisclosed amount and agreed to lease it to entice the nonprofit chain to the community.
The Alliance plans to sell the hospital building to CHW but will own the surrounding property and medical buildings, including any future development.
When he first arrived, Iftiniuk met with hundreds of local residents to convince them that CHW was committed to improving the hospital and community. He earned the community's buy-in, which has been a major part of the hospital's success, Mitchell said.
"(Iftiniuk's) networking with the community has yielded friendships and commitments to the hospital that have been extremely financially rewarding," Rowland said.
Between June 2006 and October 2007, French Hospital raised more than $6.8 million in community donations. Of that, $5.2 million went to the cardiac center and $1.4 million went to the Hearst Cancer Resource Center.
"We're successful in our ability to raise dollars," Iftiniuk said, "because the community has this deep-seated interest in French."
Tsao said the size and speed of the donations surprised him. He attributes the philanthropy to a pent-up desire to have a nonprofit community hospital, where the hospital's earnings are reinvested locally.
Another less visible part of the hospital's turnaround was using CHW's clout to renegotiate more favorable contracts with health insurance plans, Iftiniuk said. CHW owns 42 hospitals in California, Nevada and Arizona. Iftiniuk hopes to further improve the contracts but said "we have at least put a finger in that big hole that was leaking."
Competition: good or bad?
Now that San Luis Obispo once again has two strong hospitals, some health professionals are asking if the competition will be healthy for the community.
"In the history of medical money in this community, it's been one hospital pitted against the other," Rowland said.
In the past, Tsao said, competition led to unnecessary duplication of services, and he hopes that history is not repeated.
Many health care economists believe that when a community has more medical equipment and services than it needs, patients tend to receive more tests and procedures that may not be necessary. The end result is higher spending and higher costs.
Sierra Vista, a 165-bed hospital, has San Luis Obispo's only neurosurgical department, pediatric ward and neonatal intensive care unit.
French will not duplicate those services to compete, Tsao said. He and Rowland said French will forge ahead by concentrating on its strengths and trying to meet the community's unmet needs, such as cancer services.
"Competition all by itself isn't necessarily a great thing," Tsao said. "Competition in terms of doing what you do best and letting other people, who do something better, do that, is great."
Becoming financially self-sufficient is only the beginning of French's long-term goals, its leaders say.
Hospital leaders have dusted off a master plan created for the 14-acre site back in 1993 that lay dormant for a decade. They are planning future development that may include a 70,000-square-foot medical office building, an outpatient surgery center and a 30,000- square-foot cancer center, said developer Rossi.
The Physicians Alliance will own the future development, and Rossi said his real estate company will be in charge of the construction.
Tsao said he feels comfortable that the development plans will not create any conflicts of interest because the hospital's community board will make all the final decisions.
"No development will occur unless the strategic plan says that's what the community needs are," Tsao said.
Rossi, who donated personal money toward the cardiac center, said Catholic Healthcare West has lived up to his expectations.
"You can just feel the sense that this (hospital) campus is truly growing in a healthy way," he said.