Former CEO of Financially Struggling Hospital Explains Successful Turnaround

When Michael Young was CEO of Erie County Medical Center, he took the 550-bed hospital in Buffalo, N.Y., from losing $30 million a year in 2005 to making a $17 million profit in 2007. Mr. Young, now CEO of another financially struggling hospital, 953-bed Grady Health System in Atlanta, explains how he pulled off Erie's turn-around and discusses hopes for a future turnaround of the much larger Grady system.

The basic challenge is really very simple. Turning a hospital around involves a very simple formula, really: increase revenue and decrease expenses. When you do that, good things happen. In two years, we stopped the hospital's death spiral.

Attitudes matter. When I arrived at Erie, people referred to the hospital as "the county." Everyone used that term. It was like they were saying, "the scourge." Needless to say, I didn't want anyone calling it that.

Tear down your old image. We wanted to change our image, so we tore down the old building in front of the hospital, put in a brand new lobby with a coffee shop and replaced some old elevators. Several relatively inexpensive cosmetic changes in public areas made the hospital look clean and inviting. For example, we spent $52,000 on new ceiling tiles and lights in the front lobby.

Let your strengths be known. Already when I arrived, the hospital had the best clinical outcomes in the city and the best trauma center in the state. But we needed to tell people that. Though we had no money for advertising in our first 18 months, there was plenty of free publicity on radio and TV talk shows, and we used it. When the chief of cardiology at another hospital had a heart attack and told the ambulance driver to take him to Erie because it has the best care in the city, we talked a lot about that. You have to focus on the advantages you have. If you don't have any advantages and you're at the bottom of the list, well, then, you've got to get to the top.

Enhance customer satisfaction. We began improving processes, with a focus on our patients. For example, we gave telephone operators scripts to ensure that consistent messages went out to the public. Through things like this we were able to greatly improve customer satisfaction.

Build up key programs. When I got to Erie, the cardiology department was dormant. Orthopedics had a good clinical reputation but couldn't get cases through the OR fast enough, so it was dormant too. The ER needed time to grow volume. We significantly grew patient volume for each of these programs by focusing on upgrading the technology and improving patient throughput. As a result, the average daily census increased from 345 to 377 patients and ER visits increased 10 percent over two years.    

Build a strong executive team. I wanted to build a strong executive team by adding new vice presidents and by developing the existing ones. We instilled accountability by setting goals and measuring performance. We tried to see what was not working right. And we identified weaknesses in some members and got them into training for those things. They learned how to budget and how to measure operations on a day-to-day basis.

Be tough with labor contracts. The nurses had a very expensive benefits package that was much richer than what was offered by other hospitals in the area. It was not sustainable. The public unions were not interested in negotiating, so we simply operated without a new contract for all four and a half years that I was CEO. To show our good faith, we offered the nurses a generous gainsharing program, but it was not accepted. The nurses said to me, "If there's no contract, this hospital will die." I said to them, "Well, in that case, you'd be out of a job." The existing contract that we operated on allowed us to raise starting salaries, so we could recruit new nurses at good salaries.

Upgrade your computers. Something as simple as providing new computers can make a huge difference in efficiency. Our old computers were incredibly slow. I went to the billing office to see for myself and then I went to the CIO and ordered 100 new computers. They were up and running in a week. With that one change, each staff member in the billing department went from processing 30 claims to 80 claims a day.

Collect the money. We made sure that cash was collected every day. When billing staff performed well, we e-mailed them and said, "Great job!" People felt good about what they were doing. We held a celebration to recognize efforts throughout the organization on charging for services. Revenue grew 24 percent in 24 months. We grew expenses by 6 percent a year, which worked out to a 12 percent net improvement in the operating margin.

Question expenses. The hospital instituted expense controls. We asked all the time, "Do I need to buy this? Do you need to buy that?" We got our orthopedic surgeons to agree to standardize artificial hips, which brought the price of one hip down from $7,000 to $4,500. Since there were only two large orthopedics groups associated with the hospital, it was fairly easy to find agreement. If a hospital is really struggling, the doctors will sympathize. On the other hand, if a hospital is doing very well, they will be less willing to help.

Make strategic purchases. When more money started coming in, we were able to buy new clinical equipment, which then brought in more doctors, who then bring in more patients.

Grady is a greater challenge. We're seeing many of the same opportunities here that we saw at Erie, but Grady is three times bigger and four times as hard to fix. I've brought in a few members of my top management team at Erie, including the CFO and the CIO. When I arrived here last year, we were one second away from that gurgling sound you hear when the water goes down your toilet. Grady was targeted to lose $50 million last year but we drove that down to a $38 million loss. It looks like we'll do better than that this year. The recession makes a turnaround more difficult. Greater Atlanta has lost 250,000 jobs in the past 12 months. At first, the unemployed had COBRA coverage, but now those policies are starting to run out. With less insurance coverage, we expect we'll have to offer $30 million in additional free care this year.