Methodist financial turnaround 'remarkable'

Methodist Hospitals’ financial turnaround has impressed hospital analysts and bond ratings agencies.

In May, New York bond-rating firm Standard & Poor’s changed its outlook on Methodist’s long-term bonds from negative to stable, reflecting its “improved operating performance and an improved balance sheet in fiscal 2009.”

Hospital financial consultant James Unland, president of the Chicago-based Health Capital Group, said Methodist’s financial ratios have improved tremendously from 2008 to 2009. “And I’m not surprised to learn that their 2010 numbers are similar,” Unland said. “They’ve made a remarkable turnaround. They’re paying their bills and their long-term debt has remained consistent. The next five years will be crucial to this financially challenged hospital system, but I am impressed with what they’ve done so far.”

In 2004 at a public hearing, a Methodist Hospitals official suggested the Northlake Campus of the two-hospital health system might need to close unless it changed its financial model and improved its financial performance.

That sparked a community uproar, a no-confidence vote from the board of directors and a change in leadership.

But that former Methodist executive was only saying publicly what many had been whispering for years: The Gary hospital’s future was unsustainable if it continued on its same path. It had lost more than $58 million between 2005 and 2007 and had been subsidized for years by the profitability of its sister hospital in Merrillville.

In June 2004 the state Health Department investigated Methodist about patient safety complaints and the federal Centers for Medicare and Medicaid Services threatened to withhold certification. Had that happened, Methodist would have been ineligible to receive reimbursement from state or federal payers like Medicaid or Medicare, which account for nearly 70 percent of its revenue. It would have doomed the hospital.

In 2005 the Joint Commission on the Accreditation of Healthcare Organizations, the largest hospital accrediting organization, denied Methodist its accreditation. But CMS found it in compliance that year and Methodist switched to another hospital accreditation firm, which granted accreditation, saving $80,000 in annual fees. While Methodist’s troubles with regulatory and accrediting agencies seemed settled, its financial and operational difficulties continued.

Leadership changes

Between 2003 when longtime President and CEO John Betjemann retired and 2008 when current Methodist chief Ian McFadden was hired, Methodist was managed by three different top executives, including a hospital turnaround firm. It also witnessed the defection of numerous physicians, nurses and key staff. McFadden’s team succeeded in stemming the losses and right-sizing operations during one of the most challenging economic periods in decades.

In his first 18 months McFadden said his team staunched the bleeding.

“We had to buckle down and put some traction into the turnaround and make that happen as soon as we could,” he said. “It normally takes two to four years to make that kind of correction. In the first year we erased all losses and were able to show a small operating margin and we’ve continued that since. We’re much better off financially and operationally much better run than we were then.”

Methodist has recorded two consecutive years of profits in a turnaround some say has saved the hospital. It lurched from a $54.7 million net loss on $280.6 million total revenue in 2008 to a $15.7 million profit on $301.7 million total revenue in 2009. That was accomplished chiefly by cost-cutting measures and efficiencies, said0 McFadden and Vice President and CFO Loren Chandler.

Chandler said Methodist saved $8.7 million by hiring staff nurses to replace contract nurses working for agencies. It saved $8.4 million by implementing benchmarking quality and accountability measures and by closing a skilled nursing unit. It postponed some maintenance and repairs, while investing in an information technology and electronic medical record system and focused on maximizing group purchasing discounts.

Gradually, McFadden’s team began winning back the trust of physicians, nurses, employers and the community.

Better than expected

Other indicators point to improved quality and better outcomes. The U.S. News & World Report’s “Best Hospital Rankings 2010” ranked Methodist Hospitals “better than expected” or “much better than expected” in eight of the 11 service lines it offers, topping the list of area hospitals in the treatment of cancer and in the medical specialties of gynecology, diabetes and endocrinology, neurology and neurosurgery, urology and gastroenterology. 

While Methodist is improving in its quality measures, it doesn’t perform as well in patient satisfaction rankings in the federal database Hospital Compare, which lags about 18 months behind. But McFadden said the hospital is working to improve those and has hired a consulting group to help raise scores and improve the patient experience.

Now the hard work begins to transform Methodist into a competitive health system able to compete locally and regionally on quality and cost. At the same time Methodist is investing capital and attempting to increase patients.

Methodist has spent millions of dollars to purchase and integrate an electronic medical records and information technology system, EPIC, which will eventually be used by all Methodist departments, clinics and physicians.

“Because everything will be on line and accessible we will see quicker turnaround times, with less waiting and faster responses.

“We’ve recruited six new doctors in the last few months and we’re rebuilding our primary care base. We honestly believe that if we continue at this same pace, we will be there by 2014,” McFadden said.