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Building from Scratch

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A CEO builds financial accountability into a hospital that was the ward of the county.

What kind of financial shape would your hospital be in if your managed care plans were paying you less than your state Medicaid program? Imagine that and a host of other financial problems, and you have what Michael Young signed on for nearly three years ago when he agreed to become president and chief executive officer of 550-staffed-bed Erie County Medical Center in Buffalo.

It wasn't that the last CEO had run Erie County, the western New York city's "hospital of last resort," into the ground. There never was a CEO, nor a chief financial officer, nor any other traditional management structure at the hospital, which was losing about $29 million a year when the county board decided having the county budget supervisor run the hospital from afar wasn't working.

Young didn't need the job after riding the helm at Lancaster (PA) General, a perennial Solucient Top 100 hospital, for 16 years. But it was another challenge. Young went to work on the low-hanging fruit, but not before he put some risk in the game for himself and his management team. In return for a one-time $70 million infusion of capital from the county, Young agreed that the hospital would take no subsidy beginning in 2008. "It was a big risk," he says, but one he was willing to take because the hospital needed so much capital investment to improve perception and performance.

Erie County had some things going for it. It is the de facto teaching hospital for the area, drawing 95 percent of its medical staff from the University of Buffalo faculty. In initial patient surveys, the hospital scored well for trauma. Still, scores were not so good for pretty much everything else, and the hospital physical plant was run down after 20 years of depreciation.

"The medical care was always very good, but no one knew it, except possibly for trauma," he says. "So we elected to build off that clinical quality." Cash flow was the biggest issue, second was patient acquisition and third was renovation, he says. Fourth, the hospital has the second highest case mix index (2.93) in the state, and Young wanted to draw patients other than the sickest patients the hospital had depended on. He decided to tackle those priorities together rather than one at a time.

He took some of the capital infusion from the county and refreshed the lobby, which "looked like a bus station," and the 30-year-old nursing units, which "had never been touched." He brought in a new CFO (Sue McCarthy) from the University of Pittsburgh Medical Center and went to work on the balance sheet, costs and contracts.

"When I came here we were collecting about $395,000 a day in cash," he says. "Today it's $910,000." Further, by revamping the business office, McCarthy and Young got receivable days down from 100 in early 2005 to 40 currently. In 2005, admissions rose 4.5 percent and rose another 5 percent in 2006. This year admissions are up 6.1 percent, while OR volumes are up 40 percent in three years. Length of stay is down sharply and the balance sheet now has about $140 million in unrestricted assets.

Young also worked an innovative deal with VHA Inc. that stipulated the hospital would join VHA when the organization was able to achieve $3 million in supply-chain savings for Erie County. "We said when you do we'll pay dues," Young quips. "In the first nine months, they reduced our supply-chain expenses by $3 million." And the all-important patient surveys now show that since 2005, Erie County has gone from fourth or fifth among local hospitals to first or second in most services, Young says.

Now the hospital of last resort has gained momentum, says Young. "Doctors who wouldn't have talked to us three years ago are now interested in coming here."

-Philip Betbeze

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