Former Presence CEO: Illinois' budget woes, malpractice climate contributed to system's $186M operating loss

Becker's Hospital Review received the following letter from Sandra Bruce, former president and CEO of Chicago-based Presence Health. Ms. Bruce retired at the end of 2015. Presence recently recorded a $186 million operating loss in fiscal year 2015 and announced plans to cut 250 jobs and leave another 450 unfilled. Ms. Bruce's letter was received March 25 and lightly edited for clarity and style.

The headline characterizing Presence Health as an "ailing system" and other articles written by Chicago newspapers are a disservice to the organization. Several people have urged me to shed light on the situation from my perspective as the previous chief executive of the organization, which I am doing in this letter.

The full performance record since the merger of Chicago-based Resurrection Healthcare and Mokena, Ill.-based Provena Health is one of improving underlying operating performance based on audited financials during my tenure. Those results showed achievement of nearly $300 million in performance improvements for the combined organization. As reported to the investors, Presence has a strong balance sheet of $940 million in cash to invest in initiatives to continue to improve patient care and serve the population.

The $186 million in 2015 reported losses were primarily due to a combination of necessary accounting corrections and discretionary management decisions. 

The accounting corrections were necessary to true-up revenue due to unprecedented reimbursement changes occurring in American healthcare, especially here in Illinois, and due to inadequate revenue cycle systems to manage the changes. The State of Illinois budget difficulties in 2015 hurt Presence Health disproportionately because Presence serves a high percentage of Medicaid patients. Medicaid provides insurance coverage for the poor and disabled and typically pays providers well below their costs.  Other health systems are helped by commercial insurance reimbursement. Presence does not benefit as much from commercial reimbursement, because large payers in Illinois have been unwilling to pay Presence fairly and equally to other health systems.  

In addition to reimbursement changes, all providers are experiencing escalating malpractice settlements in Illinois because of the lack of tort reform. The reimbursement and malpractice corrections accounted for approximately $93 million of the reported 2015 losses per a report shared by Presence leaders during a recent investor meeting.

Another $73 million in reported 2015 losses were discretionary management decisions. The most significant decision was to increase the accounts receivable and medical malpractice reserves to cover the volatile reimbursement climate and uncertain malpractice environment in Illinois. Industry experts have differing philosophies about how to set reserves and usually base these on many factors such as payer mix, organizational goals, reimbursement climate and others. The good news is if reserves are not necessary, then they can be released in the subsequent year and will only help Presence into the future. Other miscellaneous decisions, like writing off software that will no longer be needed, were also made. 

Unfortunately, recent news reports could mislead people to conclude that these issues were being ignored or overlooked by prior management. Merging and integrating two complex health systems requires juggling multiple priorities.

Each year management, along with the board, establishes strategic and operating priorities. In 2015, financial reporting and internal controls were determined to be a high priority, followed closely by billing and collections. Leadership elected to focus on improving the higher priority and proceeded to install an enterprise resource planning system to provide better management systems — a decision that was widely publicized. Installing a new ERP is very complex and potentially disruptive. Changing billing and collection processes simultaneously would have been damaging to the organization. 

Presence is an organization with excellent physicians, nurses, administrators and staff delivering high quality results in a very challenging climate. The caregivers in its facilities report patient mortality levels well below the national expected levels and have achieved top ratings and distinguished hospital and nursing home awards from the nation's leading accreditation organizations such as U.S. News & World Report, Leapfrog Group, Healthgrades, The Joint Commission and CMS.

Finally, Presence is a community treasure fulfilling a unique mission…to serve those in need, especially the most vulnerable.

All healthcare organizations today are under severe pressure to continue to improve operations. I have full confidence in the Presence Health management and staff and know they will accomplish positive results given the organization's track record of success in improvement initiatives.

Sincerely,

Sandra Bruce

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