Profit Potential: How Stamford Hospital Has Hit Positive Margins for 8 Consecutive Years

Many hospitals, especially smaller community hospitals, may describe the current economic environment as one rife with uncertainty and variable operating margins, but for Stamford (Conn.) Hospital, the past eight years have been nothing but positive.

From fiscal year 2004 to FY 2011, the 305-bed non-profit hospital has recorded a positive operating margin. In the most recent financial year, Stamford posted a 6 percent margin on $466.7 million in operating revenue.

Kevin Gage, CFO of Stamford since May 2009, says there are six main reasons his hospital has been able to sustain its successful financials.

1. Pension plans.
In order to keep a healthy financial balance sheet, hospitals really only have two options: Bring in extra revenue, or control costs. Mr. Gage says Stamford has focused on both the revenue and cost side. One such focus pertained to the hospital's defined benefit pension plans.

Roughly nine years ago, most hospital employees had DB pension plans, but since then, the number of active Stamford employees with DB plans decreased to about 30 percent. Mr. Gage says Stamford eliminated the DB option for new employees and gave current employees the choice to stay in their DB option or move into a defined contribution plan. For younger employees, it made more sense to try the DC plans, which could allow for greater long-term benefit but take risk away from the hospital.

"With defined benefit, you're at risk relative to what happens in the financial markets and with the change in interest rates," Mr. Gage says. "Defined contribution is more predictable. In the end, you save money with defined contribution because you have less volatility and have better predictability of what your costs will be."

2. Outpatient services. In 2011, outpatient visits at Stamford jumped 9 percent, from 353,851 in 2010 to 385,621 in 2011. Comparatively, inpatient admissions decreased from 15,248 in 2010 to 14,967 in 2011.

Roughly two-thirds of Stamford's revenues are attributed to outpatient services. Mr. Gage says any successful hospital must have a concrete ambulatory surgery strategy if they hope to see a positive margin. "Being in a position to grow our outpatient services has been a plus for us because market forces are pushing admissions down," Mr. Gage says. "You're having improvements in surgical techniques and treatments, which is allowing for more of an outpatient platform."

Stamford's Tully Health Center is the foundation of all outpatient activity for the hospital, as the 225,000-square-foot, hospital-owned center provides several same-day procedures, including general surgery, gynecological surgery, ENT and orthopedics in addition to housing physician offices and radiology services. Mr. Gage says hospital-owned ASCs are becoming standard, and at the very least, hospitals may want to consider joint ventures with other ASCs to bolster revenues.

3. Health information technology. Focusing on cutting-edge health IT has been a top priority for Stamford. Electronic medical record implementation has been a priority for both hospital financial and health IT departments across the country, and Mr. Gage says Stamford's early adoption of an EMR strategy along with bedside medication verification, computerized physician order entry and other uses of technology has allowed Stamford to improve patient care as well as operational efficiency.

Currently, the hospital is a Stage 6 EMR Adoption hospital, as rated by HIMSS (Stage 7 is the pinnacle of EMR adoption). Mr. Gage says moving to the more efficient and automated clinical documentation systems requires capital up front but will benefit the hospital in the long run, especially as different programs within healthcare reform rely on full health IT implementation.

4. Physician employment. Stamford currently employs more than 100 physicians, ranging from surgeons to hospitalists to primary care physicians. Mr. Gage says physician employment is more than just a fad — it's become necessary to stream revenue between both physicians and hospitals as the healthcare system shifts toward the outpatient and primary care settings.

"This allows physicians to do what they do well, which is take care of patients, but it also allows us to standardize processes from a back office perspective," Mr. Gage says.

This also applies with physician clinics, which Stamford used to run directly. Now, Stamford partners with federally qualified health centers in running clinics to better coordinate primary care and split some of the financial responsibilities.

5. Payor mix. Not every hospital has the ideal payor mix in which patients with commercial insurance dominate the market. However, hospitals that do, like Stamford, have to capitalize on those opportunities, especially when it comes to contract negotiations. "Our commercial payor mix is above 60 percent," Mr. Gage says. "That has obviously been in our favor. Although we had well over $70 million in charity and uncompensated care this past year, the high insured population to offset that has been a real plus."

6. Benchmarking. Mr. Gage says hospitals cannot allow themselves to slip into a mode of systemic complacency or indifference. Benchmarking statistics, such as bed occupancy and productivity, must be monitored both internally to make sure the hospital is on an upward trend as well as externally against similarly sized hospitals. "We benchmark ourselves constantly," Mr. Gage says. "We strive to be in the top quartile [in our metrics], and we do that by leveraging our technology."

Related Articles on Hospital Finance:

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How Should Hospitals Work Around Medicaid Payment Cuts This Year?

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