Medtronic has announced that at least 13 people might have died in connection with a heart device that it recalled in 2007 but was still in widespread use, including four patients whose deaths were related to efforts by doctors to surgically remove the product. The new data reflect the first fatality update by Medtronic since October 2007, when it recalled the device—a thin electrical cable that connects an implanted defibrillator to a patient's heart. The company cited five deaths when it recalled the product, saying fractures in the cable could cause a defibrillator to fail to deliver a lifesaving shock to an erratically beating heart, or to fire for no reason.
Officers from the State Parole Board have given a presentation to a dozen hospitals throughout New Jersey to help them identify the telltale signs of gang membership. Mary Ditri, director of professional practice for the New Jersey Hospital Association, said the association reached out to the parole board after altercations involving gang members were reported in other states.
Three years ago, Massachusetts brought near-universal health coverage to the state very quickly. To make it happen, Democratic lawmakers and Gov. Mitt Romney deferred until another day any serious effort to control the state's runaway health costs. But threatened first by rapid early enrollment in its new subsidized insurance program and now by a withering economy, the state's health overhaul has entered a second, more challenging phase. Due to new taxes and fees imposed last year, the health plan's jittery finances have stabilized for the moment. But government and industry officials agree that the plan will not be sustainable over the next 5 to 10 years if they do not take significant steps to arrest the growth of health spending.
I concur with most of what Finance Editor Philip Betbeze highlighted in his recent column, Healthcare, Meet The Great Deleveraging, but I believe the recent problems highlight a more important aspect of hospital finance. The real culprit is too much financial complexity. Too many healthcare executives took on very complex financial instruments and misunderstood all types of risk inherent in these complex financial products.
For the past 10 years, many not-for-profit hospitals and health systems were told everything should be done on a corporate model. Very complex debt structures with all of the bells and whistles became very common. Even small critical access hospitals were being told to use variable rate debt backed by a bank letter of credit and hedged with swaps.
Back in 1998 the Allegheny Health, Education and Research Foundation (AHERF) bond default was triggered by a weak debt security structure based on the corporate model and MBIA even insured it. The AHERF default temporarily raised a red flag that hospital executives and their finance officers should pay more attention to what they were buying. However, since that time, numerous products to tweak a few more basis points out of the market became the norm, even though conventional fixed rate financing rates were at historical lows from 2005 to 2007.
Products like auction-rate securities, a panoply of derivatives to hedge risk, and the use of third parties to guaranty creditworthiness, gave many hospital CEOs and CFOs a false sense of security that nothing "bad" could happen. Under such financially engineered products, the "real" creditworthiness of a hospital or system was hidden behind a curtain, and no one thought about the consequences. At least the majority ignored the long lists of risks detailed in the back of an appendix to the financing proposal.
Mr. Betbeze hit the nail on the head in talking about the great deleveraging, as even the big banks have had a wake-up call.
Now in order to be successful and prudent, healthcare executives must refocus on the simplicity of debt structures and the elimination of all kinds of risks from their financing. For example, they must focus on eliminating letter-of-credit renewal risk, swap termination risk, third party credit rating downgrade risk, and financial covenant risk. At the same time they must also refocus on their core operations and construct a strategy that includes quality initiatives, electronic health records, and physician integration.
"Back to basics" is an often overused phrase, but it definitely looks like that's what we're in for in the near future. That philosophy has been our basic view of good healthcare finance and our clients seem to be weathering the current storm very well.
Arlan Dohrmann is managing director in the Chicago offices of Stern Brothers & Co. He can be reached atadohrmann@sternbrothers.com.
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Physician leaders are being forced to trim operating expenditures, but they must be careful not to cut the legs out from under the organization while doing so. +
When it comes to the job market, the healthcare industry is not a bad one to be in. Nonfarm payroll employment declined by 2.6 million jobs in the past four months, according to February 2009 statistics from the U.S. Department of Labor. During that time, healthcare has added a little more than 100,000 jobs. But that doesn't mean that CEOs or any other senior executives should be sitting too comfortably. All one has to do is skim the healthcare headlines from this week to realize that the recession is still taking a toll on hospitals. Here's a sampling:
St. Francis Hospital and Health Centers announced it has postponed further work on a $265 million project at its Indianapolis campus. This announcement comes roughly a month after rival Clarian Health said it would stop work on the $475 million Simon Family Hospital Tower at Riley Hospital for Children.
Charlotte, NC-based Carolinas HealthCare System reported a net loss of more than $551 million for 2008, driven by significant investment losses and higher interest expenses.
Atlanta-based Grady Memorial Hospital has announced 150 job cuts, in response to severe economic pressures and an increase in indigent patients. Among those who left was the head of the hospital's cancer center.
The Mayo Clinic announced that it barely broke even in 2008, as expenses grew by 7.6% and revenue by 4.5%. The income from patient care fell by almost one third during the year.
Mason City, IA-based Mercy Medical Center will eliminate 59 jobs as it restructures its home healthcare service and hospice program. It is also closing a clinic in Rockwell.
Aurora Health Care Inc. has sold four Milwaukee-area medical office buildings to an investors group in an effort to reduce expenses. The buildings are being leased back to Aurora, which operates clinics at those locations.
Eastern Connecticut Health Network has called off its plans to buy Johnson Memorial Hospital in Stafford Springs due to financial reasons. Johnson Memorial has falling patient volume and revenue and greater-than-expected capital costs.
No CEO is safe from being asked to tender his or her resignation in times as tough as these. It doesn't matter if you have been with the organization for 10 years and successfully completed major capital expansion projects or grew services or negotiated partnership deals with physicians. That was then. It's not the same industry today that it was when many of those deals were brokered. Trustees are looking for a leader who can reduce expenses and stop the bleeding right now. More than 50% of hospitals are in the red, according to a report from Thomson Reuters. So what can CEOs do to hang onto their jobs?
Be honest. Now is not the time to sugarcoat problems. Hospital trustees need the cold, hard truth. If they are caught off guard, they may start questioning what else they don't know about.
Establish detailed plans. Every action plan right now should have very specific goals, timelines, projected outcomes, and assignment of responsibility to specific parties. Rather than saying, "The hospital plans to improve days cash on hand," hospital leaders should be telling the board, "We plan to improve days cash on hand by this much, by this date. This person is spearheading the effort and this is what the result will be."
Hold people accountable. Perhaps you have the plan, and the details are there. But the goals just aren't being met. What are you doing about it? It is on the leadership to follow up on a regular basis with staff members and hold the responsible parties accountable.
Establish good relationships with the medical staff. CEOs should be developing as many one-on-one relationships with the medical staff as they can muster. That the CEO has a great working relationship with key physicians can't hurt as trustees evaluate you.
These practices aren't just good business in tough times—these are fundamentals that CEOs should already be doing. The difference today is there is absolutely no cushion for error. Operations need to be as efficient as possible. If, as the CEO, you fail on these elements, you may be the next hospital employee sent packing.
Carrie Vaughan is leadership editor with HealthLeaders magazine. She can be reached at cvaughan@healthleadersmedia.com.
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Los Angeles County's new plan to reopen Martin Luther King Jr. Hospital was met with cheers in South Los Angeles, but the ambitious timetable will be difficult to meet. The county vows to reopen the facility in three years—an undertaking that would involve erecting two new buildings, rehabbing an existing medical building, and hiring doctors and nurses. The county also needs to find hundreds of millions of dollars to pay for it, and some officials worry they might not meet the 2012 target.
Citing the turbulent economy, St. Francis Hospital and Health Centers announced it has postponed further work on a $265 million project at its Indianapolis campus. St. Francis' decision to halt work at its flagship campus comes about a month after rival Clarian Health said it would stop work on the $475 million, Simon Family Hospital Tower at Riley Hospital for Children.
Philanthropist Charles F. Feeney is giving $125 million to the University of California San Francisco Medical Center to support development of a complex to provide medical services to children, women, and cancer patients on its new campus. The gift is the first of $100 million or more since last fall, according to the Center on Philanthropy at Indiana University.
Pennsylvania's hospitals say in a new survey they increasingly are feeling the pinch of the struggling economy, and a growing number say they are considering staff cuts. Since a similar survey in December, more hospitals also say they have fewer patients overall, but more who need financial help or have mental-health problems. The Hospital and Healthsystem Association of Pennsylvania said its latest survey is further evidence that state and federal leaders should maintain funding levels for Medicaid, Medicare, and other health programs.
