7 Strategies for Successful Turnarounds: Lessons Learned from Phoenix Children's Hospital

When Phoenix (Ariz.) Children's Hospital noticed a decrease in revenue in 2002, the board worked quickly to bring in financial experts to do a quick assessment of how extensive the damages were. While the management team that existed at the time projected losses in excess of $40 million by the end of its first year of transition, the hospital would stand to lose $46 million in 2002. The efforts of the turnaround, which started in 2003, led the hospital to achieve income from operations of just under $4 million by the end of 2003.

Here are seven crucial steps the hospital's leaders took to turnaround the bankrupt hospital.

Expand and further develop your hospital

1. Program development. One of the first steps Phoenix Children's leadership took in its turnaround efforts was to invest in programs and recruit necessary physicians to support growth. This strategic approach positioned the hospital for strong physician support and retention during an incredibly financially unstable time. Program development also gave the floundering organization a more competitive and marketable edge, which Phoenix Children's Chief Strategy Officer Shane Brophy says was key in the recruitment of new physicians.

"The focus was on the recruitment of subspecialists and development of programs, including programs that are now referred to as Centers of Excellence, such as the Center for Cancer and Blood Disorders," he says. " It's about building a team for the future because at that time, there was significant population growth, especially in pediatrics as the Phoenix-metro areas was one of the largest growing pediatric population market segments in the country, and there would be significant community needs for quality pediatric services."

Start benchmarking

2. Benchmark staffing hours. Staffing costs are one of the highest overhead costs for most hospitals. Continuously benchmarking staffing hours internally and against other providers encourages your hospital to implement new processes or protocols to improve efficiency by appropriately flexing staff to volumes and reducing staffing costs without compromising the quality of care provided. In 2002, hours of nursing care per day was hovering around 30 hours, an alarmingly high rate considering the average benchmark is approximately 8 hours, Mr. Meyer says.

"Basically, the staffing model in 2002 was bankrupting our hospital, so it was important to start taking control of nursing hours," he says. "We achieved this by utilizing a time and attendance system so we had real-time data entry on the daily basis of hours worked by nursing unit. Reducing nursing hours also required educating nursing directors on how to calculate nursing hours per patient day."

3. Benchmark revenue. Every hospital should benchmark revenue to ensure the organization is operating within established standards. By knowing exactly how your healthcare organization measures up in relation to yearly revenue, hospital leaders then need to take the appropriate steps to improve contracting, operational and financial processes, such as revenue cycle management.

"The organization benchmarked revenues and expenses, and we found that Phoenix Children's charges were far below market comparables," Mr. Brophy says. "In fact, at the time they were among the lowest in the market place."

Consequently, the hospital analyzed revenue opportunities and negotiated appropriate, market-based changes.

Target your hospital's revenue cycle process

4. Exercise diligence on the front-end of revenue cycle management. Correctly and fully collecting all necessary patient information and authorizations is the first step toward building a more efficient revenue cycle. Mr. Meyer says Phoenix Children's staff members were sometimes admitting patients without authorizing their insurance coverage, leaving the hospital even more vulnerable to claims denials.

"Many of the staff members who were working on the front-end of the revenue cycle process were not properly trained and perhaps did not have an understanding of the implications to revenue or collections," he says.

5. Implement and utilize a patient accounting system. The accelerated emergence of health IT solutions and applications allows hospitals to implement electronic systems and tools that will allow for improved revenue cycle management. Hospitals should install patient accounting systems and utilize them in such a way that minimizes delays on claims and reduces claims denials. Mr. Meyer says Phoenix Children's patient accounting system had to be re-worked in order to achieve greater revenue cycle efficiency.

"Many systems will allow a hospital and make fields requires so that patients can't be registered without filling in very specific information," he says. "Patient accounting systems also allow users to prioritize claims by various indicators, such as the value of a claim, age of a claim and even how much time has passed since the claim was last touched. We took a systematic approach to appropriately prioritize and process claims."

Involve key departments or leaders

6. Listen to the physicians. Mr. Meyer says physician involvement and engagement was critical to the successful turnaround of Phoenix Children's. Transparency and open communication allows the hospital's leaders and board to understand what physician concerns are. This strategy is crucial in developing more long-term and successful relationships with physicians, leading to greater physician retention and patient volumes.

"We created a committee of concerned physicians and met with that group on a weekly basis to talk about the initiatives we were going to implement from a turnaround perspective," Mr. Meyer says. "Physician engagement through these monthly processes actually contributed to our financial health and growth over time. All throughout 2003, we continued to see new records in volume."

7. Get the board involved. Although physician involvement is extremely important in the turnaround phases of a bankrupt or financial struggling hospital, the success of turnarounds is only possible if the governing board is also directly involved. Mr. Brophy says the hospital's board started to take a more hands-on approach than traditionally was practiced and demonstrated great flexibility to adapt to the changing needs of the organization, which further helped the turnaround.

"The governing board adapted to the needs of the organization with a new and urgent focus on being champions for the healthcare organization's financial stability," he says. "Although the focus was on financial stability, the board was becoming more involved in the strategy and long-term vision of the hospital as well. Having their support was a key part of the turnaround strategy."

Learn more about Phoenix Children's Hospital.

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