distressed hospitals purchased a hospital.
They put money back in to fix it up. They
make a commitment to invest in the
community over five years to keep the
hospital open. It may be in a different
format, way, shape, or form; they might
have reduced some of the practices.
But again, where is the vision, what is
the execution plan, and who is going
to help not only the organization but
also the community to get there?
I found, and please
correct me if you see it differently, that
in some hospitals there is also an issue
on the cost side, which obviously
contributes to financial distress, where
you have physicians that prescribe, let’s
say excessively, certain procedures that
hospitals will not be reimbursed for.
Have you observed similar issues?
It is hard to say, but what I’ve
found with distressed hospitals is at
times it can be about positioning and
leverage. For instance, in a recent
situation the purchaser had a plethora
of doctor practices. If one doctor
practice is trying to charge too much or
trying to hijack the hospital, the buyer
has other doctor practices at their
disposal that are looking for variable
income, so they’ll kick out the
incumbent and bring in the others
without missing a beat.
To your point, if you do a cost/
benefit analysis, it’s like product
profitability and customer profitability.
Which doctor practices are your
most profitable and most efficient?
It’s not based on what they charge,
it’s based on what they collect. That
criteria lets you know who you
want to keep and who you want to
get rid of. It’s the old 80/20 rule.
That is a great point. It’s like
any great business. It’s knowing what
you’re good at and trying to have a
competitive advantage and not trying to
be all things to all people. To your earlier
point about lenders and hospitals trying
to finance these things and work
through all the investment options,
that’s why it’s so important to know
you’re good at certain things. If it’s a
particular need in your community, you
invest in those things. For other things
that aren’t necessarily your strengths,
you form affiliations with other
providers and other hospitals, and you
have referral networks. You can still offer
the services, but you’re not investing in
them and doing all of the things to
burden your capacity.
On the front end, when you’re
financing or looking to refinance, you
really want to know who your partner
is. It’s a cliché, but I always said when
times are good, it’s really easy—
everyone wants to lend or invest
money. But you really need to know
what their appetite is if things aren’t
going well. How will they handle it
when you hit a bump in the road,
because everyone at some point will hit
that pothole? When you’re in, it’s too
late. It’s critical to understand that and
talk to someone who has been in a
workout situation with that lender. You
want to understand what the rules and
practices are when times are tough.
Some of these issues that
both of you mentioned were actually
key to a successful turnaround that was
nationally reported, Grady Hospital in
Atlanta. This is arguably the Southeast’s
best and most successful level one
trauma center, and it was in deep
distress. But the turnaround followed
pretty much all of these steps in this
conversation, and that has led to a very
Let’s move on to operations. There
are two areas in operations I’d like to
touch on, although there are obviously
many more. One is more short-term,
what I would call a quick fix. The other
one is a more strategic measure.
Regarding the quick fix, it never ceases
to amaze me how many hospitals are
still fairly inefficient at scheduling
their staff. That leads to significant
costs that are avoidable, both in
terms of the number of people on
duty at any given time, as well as the
qualifications of the people on duty
at any given time. Today, we can buy
efficient scheduling software, available
through a number of vendors, that
can help us in large hospitals. The
successful ones already do this.
I have seen small hospitals at the
extreme where scheduling is done
on paper and is based on preferences,
which are given to people who have
more seniority. This, however, is highly
inefficient. That may lead at times to
having much more staff on duty than
you actually need to run the operation,
and at other times, it is exactly the
opposite. You’re running short, which
leads to excessive wait times for patients
in the hospitals and emergency rooms.
That is one issue, and it’s a fairly easy
fix to get the right software. Give
administrators the right training, and
do not schedule a registered nurse for
a job that a candy striper can do. Make
sure you don’t have any people on staff
that you do not need at any given time.
Every day, every morning, typically,
hospitals run a census of the number
of people in the hospital, and that is the
basis for determining how many people
are needed and where they are needed.
That’s what we do as CTPs.
We try to look across not just this
industry, but others, just like any
business or industry. What you’re
talking about is the commonality of
knowing your strengths, knowing what
you do, and continually reviewing what
you offer. Your patients in your hospital
are your customers, along with the
physicians that you’re dealing with. It’s
fundamental in following those metrics.
The other thing that is going
to become more prominent in the
coming years is called “bundled
services.” If a hospital discharges
someone and they get readmitted, the
hospital is penalized on its
reimbursements. I am a board member
of a prominent senior care facility, and
while they are relatively small, they are
moving up in prestige because when
their patients are transitioned, they
have almost no readmission rates.
So how do you pick out, as Ed said, your
partners and knowing that you won’t
get charged back for readmittance?
It’s an opportunity, again, to find your
partners and work well together.
That’s absolutely true.
Moving on to the next operational
issue, which is more strategic in nature,
one of the bigger financial black holes
in the hospital operation is the
emergency room. Some hospitals
around the country have realized that
this is probably the least efficient way to
handle nonemergency walk-ins. ERs
are designed to handle serious
emergencies that typically lead to
admittance to the hospitals, such as
injuries from car accidents and
disasters, serious diseases, and so on.
They are very inefficient when it comes
to treating relatively minor things, such
as someone who has the flu.
One issue is to keep the people who
shouldn’t be seen in the emergency
room out of the ER. What some
hospitals have done, and it takes