The following content is sponsored by Community Hospital Corp.
As a community hospital in Meridian, Miss., Anderson Regional Medical Center's priority, like many community hospitals across the country, is to ensure healthcare is made easily available to the community it serves. Unfortunately, ARMC found itself in some financial difficulty, what CEO Ray Humphreys calls a "cash flow challenge." The 400-bed hospital in eastern Mississippi feared whether it could pay bills and meet payroll in 2011.
The issues stemmed from a variety of factors, the primary one being the decision to expand using cash reserves as opposed to using long term debt options. The major contributing expansion decision was to purchase the other hospitals in town from Naples, Fla.-based Health Management Associates. That, combined with looming pressures from healthcare reform, left ARMC with a question mark financially. So, in 2012, Mr. Humphreys and the hospital's board called in outside help. "We needed to have a full, organizationwide assessment to see where the inefficiencies were," he explains.
This isn't an unusual situation for small or midsize rural hospitals, especially in today's environment of staggering change in the industry. "A lot of the small to midsize hospitals have less margin for error," Wilson Weber, executive vice president and COO of Community Hospital Corp., says. "They are more vulnerable in a lot of ways."
It is especially important for hospitals to look at their operations now, as changes related to healthcare reform and population health management start kicking in — most notably lower reimbursements and utilization. "In order to optimally perform, every component has to be tightly focused on and managed," Mr. Weber says. And even if a hospital isn't feeling downward pressure in those areas currently, it's smart to look ahead. "The most prudent [hospitals] get ahead of the curve."
Operational assessment
To get a better look at how things are running and where opportunities for improvements lie, Mr. Weber recommends hospitals perform a full operational assessment, or a deep-dive into all aspects of the facility's operations.
ARMC underwent a full operational assessment with Community Hospital Corp. in 2012. "They did a marvelous job bringing in a team of people who went into every aspect of our organization and the financial activities," Mr. Humphreys says. The process included interviewing several members of the medical staff and other employees as well.
The following are some of the main areas to focus on during an operational assessment.
Labor management. Traditionally, about half of a hospital's budget goes toward its workforce, so hospitals need "discipline around managing labor," Mr. Weber says. Through assessing its labor productivity and adjusting staffing levels and its benefit program, ARMC was able to achieve $3 million in savings.
Supply costs. Another large expense for hospitals is supplies, so closely examining supply chain spend can lead to major savings. This includes looking into getting the best pricing available — possibly considering joining a group purchasing organization — and also rightsizing inventory levels. "Excess inventory is cash that could be redeployed into the hospital for strategic purposes," Mr. Weber explains. By examining and changing its supply chain factors, ARMC saved $1.5 million.
Revenue cycle. Mr. Weber says hospitals' revenue cycles have "gotten much more complicated" through the years, and this area should get a close look during the assessment. "That had a dramatic impact on our cash position," Mr. Humphreys says. "It increased our cash flow."
Overall, ARMC saw an immediate $6 million improvement in its operational profile and a total bottom line impact of more than $9 million annually, thanks to the operational assessment and changes made over a 20-month process.
Tips to make change
While insights gained and suggestions made during an operational assessment can lead to improved efficiencies and savings, those changes must actually be made, which is easier said than done. "You don't [make improvements] without a very well orchestrated communication program," Mr. Humphreys says. For the most part, transparency is key.
To start, the entire leadership team at the hospital must be on the same page as to why drastic changes are necessary. "Make them fully understand what the position of the hospital is [and that] failure to address the issues would lead to circumstances no one desired that were not good for the community," he explains. He recommended holding full Q&A sessions and being extremely open with all the leaders.
It is also important to be transparent with the medical staff. "Laying out the full plan with the medical staff brought about support," Mr. Humphreys says. Data is important when it comes to conversations with the physicians, he says, as it "indicated we were being very factual and truthful with every step in the picture."
New strategic plan
An operational assessment can put a hospital in good financial standing, but in order to be successful in the future under healthcare reform, hospitals should also reevaluate what they provide to their community and how to remain viable in the future. Ideally, a community hospital's new, rethought business plan should have strategies pertinent to healthcare reform and population health management, like linking with an accountable care organization or forming new partnerships with physicians, according to Mr. Weber. "That has to be a new element in the business plan. If [hospitals] don't have a section relative to that, they are missing something."
When developing a new business plan, it is especially important to actively seek input from the hospital's board. Hospital leaders can capitalize on board members' knowledge of the community; board members are community leaders as well. "They have perspective both on the mission of the organization and how [changes] would position the hospital relative to the needs of the community," Mr. Weber explains.
Medical staff members also need to be consulted when developing a new strategic plan, as physician relationships become especially important in the era of population health management. "If hospitals don't have healthy, positive relationships with the medical staff, working together from a strategic perspective…they'll be well behind the curve," says Mr. Weber. In fact, he recommends having physicians be voting members on the board.
Now that ARMC is more financially stable from efficiencies found through the operational assessment, the hospital leadership is examining how to move forward in the new healthcare landscape. "We are putting a lot of data together to determine which direction to go," Mr. Humphreys says, with the ultimate goal being to continually make healthcare available to the community ARMC serves for decades to come.