Doing the Right Thing

Editor's note: This piece is adapted from Philip Betbeze's Sept. 3 online column, "Competitors Lead Hospital's Financial Turnaround."

Two hospitals in Monterey County, CA, about 60 to 70 miles south of San Francisco, knew they had a problem in late 2006. Their neighbor and competito, the county-owned public hospital, Natividad Medical Center, was hemorrhaging cash to the tune of $25 million that year. It had lost $15 million the year before, and the trend wasn't looking good.

As one of 15 public safety-net hospitals in California, and the smallest, the 166-year-old, 172-bed hospital wasn't alone in losing money. In fact, in 2009, says Harry Weis, the CEO hired in 2006 to turn the place around, public hospitals in his state lost between $1.4 billion and $1.6 billion. That averages out to a loss of about $107 million per facility.

Natividad lost $3.7 million as recently as 2007. But it hasn't lost any since. In 2008, it made $10.5 million. In 2009, $7.6 million. And in fiscal year 2010, it made $10.5 million. How is this possible?

The two hospitals I mentioned earlier recognized and helped solve the problem; they were the two other nonprofits in town, Community Hospital of the Monterey Peninsula and Salinas Valley Memorial Healthcare System.

Essentially, the two competitors paid for significant turnaround efforts at Natividad: CHOMP donated $4 million over two years and Salinas donated $6 million over three years. Why?