Financial underperformance for Public County Hospitals is a well documented condition. This presentation features Natividad Medical Center, a County hospital in Salinas, CA, that for many years amassed losses. Strategies and tools utilized in this $35M turnaround including: revenue enhancements, expense control, cultural change and actions growing market share through initiatives like revamping the Emergency Department (ED) will be presented.

In 2006, Natividad hit a low point generating a $25M net income loss. This problem was widely recognized by the Monterey County Supervisors and extensively covered by local media. As symptomatic of the financial loss, the Hospital was losing market share in virtually all of its service lines. The Supervisors, acting as the Hospital governing board, concluded that the losses were unsustainable and took steps to remove top executives and contracted with the Huron Group to accomplish the needed turnaround.

A highly structured turnaround plan was developed including specific timelines. The time element was put in place to quickly reverse losses, revamp the organization culture and long term performance. The timeline was used to give the effort a blueprint and to insure that actions were taken in proper sequence. Sequencing is a major tool in the turnaround and will be fully demonstrated. Making sure action has a particular order is important for coordinating the effort as well as insuring that prerequisite conditions exist for subsequent steps . Questions such as what comes first or last and how the action steps are interdependent will be presented.

As part of the larger action item of growing revenue and overall revenue cycle enhancements updating contract payment rates was essential. Updating rates with payors had to be implemented over time and coordinated (sequenced) with other turnaround strategies in process. A sophisticated reimbursement model (presented in detail) was used to analyze contract rates at different levels and the impact on overall net revenue. Net revenue improved over 60% between FY 06 ($100M) and FY 09 ($160M).

Two other action steps will be discussed, including changing the organizational culture and controlling expenses. It was assumed that to make the changes effective over time, the organizational culture would have to change to support a different way of conducting operations. This effort was aimed at changing the County mindset that was used to explain and accept lower levels of performance. Having all the turnaround technology was necessary but not sufficient to make the turnaround stick.

Controlling expenses is also key to financial improvements and often crosses over with the culture initiative. Total expense per patient day in FY 06 was $3,247 and in FY 09 it was $3,280. Improvements in revenue and managing expenses allowed the organization to invest in capital equipment and more importantly in strategies to build volume and market share.

As an example of growing revenue from increased market share and improving margin on operations, management selected the ED as a service line to feature in the turnaround plan. The record shows that this effort was effective with monthly ED volume in FY 06 at 2,414 visits and FY 09 at 3,262, and contrary to conventional wisdom, improved contribution margin from the Department. The implementation of Rapid Medical Evaluation allowed the ED to improve productivity, patient satisfaction, reduce patient waiting times (FY 09 YTD 34 minutes). RME features a redesign of operations to more parallel processes in lieu of the traditional sequential approach and flexing staff (MDs and RNs) to meet volume demands throughout the day within the Department. Changing the process and flexing staff requires cultural changes in the Department. The tools utilized in this departments turnaround will be covered in detail