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Parkland Redux

Philip Betbeze, for HealthLeaders Media, December 1, 2008

Many of the faithful readers of this column may remember that I wrote last summer about Parkland Health System in Dallas, which was asking voters in Dallas County to agree to a tax increase to fund a $747 million portion of the construction of a $1.3 billion replacement hospital.

Talk about bad timing.

The economy was horrible in July. I'm not telling you anything you don't already know, but it's much worse now. Back in July, I was skeptical to a degree whether taxpayers would agree to increase their tax bill to fund a hospital that many of them will never need—even if much of the current facility was built in 1954. It seemed like a tough sell to say the least to ask taxpayers who are feeling the economic pinch to agree to raise their property taxes gradually from $254 per $100,000 of assessed value to $289 by 2014.

Hospitals are hurting in today's economy. The most recent economic outlook by Moody's Investors Service on the financial health of hospitals generally is depressing, cutting the outlook for the nonprofit hospital industry from stable to negative in November.

"The not-for-profit hospital industry operates under a challenging business model characterized by fierce competition and third-party reimbursements designed to control cost inflation while also maintaining market efficiencies," says Moody's senior vice president Lisa Goldstein.

"While most hospitals showed resiliency when initial economic weakening began in late 2007, we have begun to see in recent months greater-than-anticipated erosion in performance and liquidity."

She says even some of the larger hospital systems with economies of scale to absorb most challenges are reporting a downturn in financial performance brought on by the weakening economy with increasing charity care and bad debt levels.

"Volumes are softening, particularly in surgical cases, also contributing to financial performance declines," Goldstein says. "Likewise, the ongoing credit crisis, culminating in limited access to the capital markets in recent weeks, is also a factor. The tax-exempt debt market is a primary source of funding for not-for-profit hospitals."

But in terms of Parkland's sales effort on the voters of Dallas County, it turns out I couldn't have been more wrong. The measure passed overwhelmingly. More than 80% of voters approved it. I can't think of any politician in recent memory who's won by such a wide margin.

I took a trip to Dallas in September to visit with Parkland's senior leadership team for a story in HealthLeaders magazine that we're planning for next year on public hospitals. I found out that they clearly expected the measure to pass, but that was rooted not in cockiness but in a connection with and understanding of the community. The aim, according to CEO Ron Anderson, MD, was to make the cramped, old, and crowded 675-bed Parkland a modern 862-bed hospital of choice rather than a hospital of last resort. I don't know if the new facility will achieve that goal, but if the dedication of the employees is any indicator, I wouldn't bet against them.

Truth is, voters aren't stupid. They saw how well that hospital has been run over the past 60 years or so. They saw a dedicated CEO who's been working for less than he could have elsewhere for the past 30 years or so. They saw a board of directors that developed a comprehensive capital campaign that solicited roughly the other half of the construction cost from wealthy donors who pledged their portion based on successful passage of the bond election.

"Very few health systems truly know what their community thinks of them," Anderson said following the election. "With the vote in November, we know that we are overwhelmingly valued by the Dallas community."

Finally, voters saw a hospital system that instead of bleeding red ink for the past umpteen years like so many other public hospitals across the country was making it work financially despite the current facility's shortcomings. Parkland hadn't asked locals for money for construction in 28 years. If they are asking, voters must've said to themselves, they must really need the money.

They do. The hallways are crowded, many of the rooms are not private—a quality-of-care issue, not a luxury—and the mechanicals are old. There's no room for modern technology, and workarounds were costing a lot of money, too.

"The voters not only affirmed Parkland's history, they committed to invest in our future," Anderson adds. "What a powerful statement of regard and trust."


Philip Betbeze is finance editor with HealthLeaders magazine. He can be reached at pbetbeze@healthleadersmedia.com.
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