Skip to main content

Orlando Health Bucks Trend, Stays Independent

 |  By John Commins  
   July 02, 2014

The lengthy process of vetting potential partners allowed the not-for-profit system to reassess its strengths and weaknesses while it improved its balance sheets.

 


Dianna Morgan
Orlando Health Board Chairwoman

When Orlando Health announced last fall that it would court partners for a merger or affiliation, the six-hospital health system was following a well-read script used by scores of hospitals and health systems across the country.

So at first glance it came as a surprise late last month when Orlando Health announced that it would not pursue an affiliation with any of the eight or more health systems it had met with confidentially over the past eight months.

When you look a little deeper, however, the decision to go it alone seems well grounded.

Orlando Health Board Chairwoman Dianna Morgan says the long courting process allowed the not-for-profit system to reassess its strengths and weaknesses while it improved its balance sheets. In the end, she said the board at the health system decided they were strong enough to remain independent, at least for now.

"Through the process we just gained confidence about who we were as a system and our ability to compete without giving up independence or control," Morgan says. "We also left the board room agreeing that this is the right decision today, but knowing that this is a dynamic healthcare environment we are in and we need to always stay open to other options."

The health system controls 35% of the market in Orlando, making it the second-largest player behind Adventist Health System's Florida Hospital, which controls 52% of the market. The search for a partner was prompted in 2013 as Orlando Health recorded a $9.3 million operating loss in a year that saw the resignation of CEO Sherrie Sitarik.

In the past several months the health system has stemmed the red ink, thanks in part to a financial improvement plan implemented in 2012 that identified about $174 million in cost reductions for labor, supplies, and maintenance.

Financial Stability Regained
Under the leadership of Interim CEO Jamal Hakim, MD, Orlando Health turned the ledgers and is projected to generate a $36.4 million profit in 2014. Through the first six months of the current fiscal year, Orlando Health had a net operating income of $57.5 million compared to a $2.4 million loss over the same period of fiscal 2013.

Admissions are up too, passing the 100,000 mark for the first time since 2009. In April, Fitch Ratings affirmed an "A" rating for Orlando Health's $848 million outstanding debt, with a stable outlook.

The improved finances lessened the need for a deep-pocketed partner. Now, Morgan says, Orlando Health can focus on "nurturing" clinical collaborations already in place with UF Health and other partners in cardiology, oncology, neurosurgery, pediatrics, urology, and behavioral health.

"We have gone through a pretty exhaustive cost structure analysis and have better aligned our cost structure with our future projections," she says. "That was happening while we were looking at strategic partnerships. We were also seeing our financial results improve quarter-to-quarter. So, at the end of the day, the board I don't think felt we had a burning platform or a reason to enter into a more structured merger."

'Like an MBA in Healthcare'

Morgan says the 10 months have been educational for the board and senior leadership.

"Any process like this must start with a real clear vision of what you are trying to achieve," she says. "It began as an opportunity to gain financial strength. At the end of the day as we became financially stronger we looked at different values that the partnership could bring and yet felt that many of those values could be obtained through our own more disciplined management."

"We began this drive for improved financial results but came away with a strong appreciation for who we are here in a Central Florida community and appreciating our team culture, our physician relations, [and] our ability to continue to grow market share in a pretty healthy market."

Negotiating with top health systems from across the country also exposed Orlando Health to some of the best thinking from some of the best-run organizations in the country.

"You don't immerse yourself in that without coming away with best practices and operations in clinical services," she says. "You gain a little more confidence as you realize that your margins are actually higher than some of the people that you are talking with."

"One of our board members said this was like an MBA in healthcare going through this process. We do believe that as a result we have a board that is certainly is engaged and more educated as to what we need to be in the future."

With the move toward value-based care and population health, however, the mantra in healthcare now is bigger is better. At some point, is an affiliation or a merger for Orlando Health inevitable?

"The only way I would answer that question is by asking how big is big enough," Morgan says. "This is a community that has two large systems, Orlando Health and Adventist System. You would think we've got a healthy equilibrium in this market. We have a respected competitor, but when we get together we can meet the healthcare needs in this community, which is first and foremost our focus."

John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

Tagged Under:


Get the latest on healthcare leadership in your inbox.