9 Ways Hospitals Can Still Make Money

As the recession continues to beat up on the industry, we asked a number of hospital executives where they expect to still make a profit in 2010. Here are nine ways they suggest.

1. Attract paying patients
Hospitals that want to be profitable need more private-pay patients, but some institutions don't have many private-pay patients willing to come to the hospital, so a hospital's first goal needs to be attracting these people back. "We have chased all of our paying patients away by our very inefficient systems," says Michael Young, CEO of financially ailing Grady Healthcare System in Atlanta. "The only people who would put up with it are people who have no other choice."

Mr. Young, who took the helm at Grady in July 2008, is trying to make its flagship, 953-bed Grady Memorial Hospital, a reasonable option for paying patients again. Toward that aim, he is reducing waiting times in the ED, introducing new equipment and expanding services that the hospital does well, such as acute surgery and care for stroke and HIV patients.

However, even Medicaid payments can be workable, if care is managed well and the hospital is paid a relatively good rate, says Catherine Jacobson, CFO and treasurer at 671-bed Rush University Medical Center in Chicago. She says hospitals are getting help to this regard from the federal stimulus bill. The massive bill provides funds for states' share with Medicaid payments, but only if that state improves payment policies. Now Illinois, which has been a very slow payer, is reimbursing hospitals within 30 days, Ms. Jacobs says.

2. Become consumer-friendly
Hospitals have come to realize that improving market share for private-pay patients means becoming more consumer-friendly, says Kevin C. Nolan, a managing director at Navigant Consulting, based in Washington, D.C. But one aspect of consumerism often overlooked is quoting the prices of services. Even as people are thrown out of work and have to closely watch their dollars, many hospitals still aren't able to field questions about what patients will have to pay, he says.

"Someone who calls up and asks for a price is likely to get passed around a lot," Mr. Nolan says, "and chances are they'll end up with someone who says, 'It depends.' " In fact, he says, it is quite easy now to find an exact price for a specific patient, but "no one in the billing department is trained to quote prices."

"If you went to buy a car and they couldn't tell you the price," Mr. Nolan says, "you'd be going to the next dealership. That's what's happening with hospitals now."     

3. Improve service lines
Plenty of hospitals are still searching, without success, for profits through service lines in higher-paying areas such as cancer, cardiac, neurosurgery and orthopedics, Mr. Nolan says. "These hospitals have to do a better job managing their service lines, then they can make money," he says. "Mostly what hospitals have done with service lines is to market them."

He says hospitals that are successful with service lines are making fundamental changes, such as reorganizing them into areas of care, which could mean bringing cardiologists and cardiac surgeons together or matching orthopedic surgeons with physiatrists for patients with back pain. Imaging and labs can be brought together with clinical care for a kind of one-stop shopping. For example, Rush University Medical Center recently opened a $75 million orthopedic building that brings together services that were scattered across its campus into 220,000 square feet of space.

Ms. Jacobson, the Rush CFO, says making sure orthopedic patients are happy is essential because the specialty, as a mostly elective service, allows for consumer choice. "Elective procedures are particularly conducive to comparison shopping because the patients have the time to look around," she says. In some cases, she adds, elective procedures are losing volume because people affected by the recession are deferring services, but that has not happened at Rush.

Service lines like orthopedics can be a profitable if the process is well managed, said Sid Ramsey, vice president for business development at Iowa Health, a Des Moines-based system with three hospitals and many clinics. "If you can be more efficient and manage turnaround times in the OR, it can work," he said. "We are working very hard at improving turnaround times and now it's beginning to pay off."

4. Develop niche services
Competing hospitals may cancel each other out by vying for the same finite number of patients in major service lines, observes Ms. Jacobson, who, in addition to being CFO at Rush, is national chair for the Healthcare Financial Management Association. As an HFMA leader, she is acquainted with smaller hospitals that have focused on niche services that may not be as lucrative as the traditional service lines but still can bring profits through higher volume.

As examples of these niche services, Ms. Jacobson points to high-volume areas such as pediatrics and women's health. "It's generally accepted that women make the most choices in healthcare, so focusing on women can mean gaining a foothold in other areas," she says. For instance, a hospital can focus on women's heart services or women's cancer services. She says women's services should be patterned to the community. If the population is younger, the hospital might emphasize obstetrics; if it is older, it might emphasize cancer and heart services.

5. Focus on outpatient services
Many hospitals can still make money on outpatient services such as clinics, ASCs and imaging centers. "For most community hospitals today, it's not unusual to see them make all of their profits on the outpatient business," Mr. Nolan says.

Tom Timcho, CEO of 373-bed Jefferson Regional Medical Center in Pittsburgh, says despite high unemployment in the area, he still expects to make a profit in outpatient services, specifically in a hospital-owned ASC and two imaging centers.

"When outpatient services are on the main campus, it is not a good experience for the patient," Mr. Timcho says. Patients often have to pay to park, walk from the parking lot to the service area and then they may be bumped by a patient from the ED. "When that happens, it's the last time they visit us," he says. "They have plenty of other choices in Pittsburgh."

6. Make ED services more efficient
Hospitals get many of their best-paying patients through the ED, but the ED can lose money if it has to deal with high volumes of non-paying patients who use it for non-emergency services, a growing problem in this recession. For example, in the past 12 months, Grady Hospital has provided $60 million in additional free care, most of it coming through the ED, Mr. Young says. Out of 110,000 visits to the ED, he says 40,000 simply want primary care that could be provided in a clinic and many of them don't have the means to pay their bills.

To divert these primary care patients from the ED, Mr. Young opened three new community health "super centers," designed for primary care patients. He also hopes the new centers can attract more paying patients. Meanwhile, Mr. Young set out to make the ED more efficient by removing bottlenecks that slowed down patient flow. As a result, waiting times in the ED have been reduced from 12 hours to six hours.

The University of Chicago Hospital has tried a similar approach, announcing earlier this year that it would divert patients to two dozen health centers and two community hospitals. But local politicians and some physicians charged the 570-bed hospital with patient dumping, which the university has denied. Ms. Jacobson, viewing the brouhaha from several miles away at Rush, said she can see the rationale behind the University of Chicago's plan. "If done right, controlling utilization in the ED can be a good idea," she said.

Loma Linda University Medical Center has had success in reducing unnecessary use of its ED by convincing non-emergency patients to use a new urgent care center instead. Steve Mohr, vice president for finance at the 433-bed hospital, says the hospital has invested in placards and direct mail advertising to steer patients to the center. He says the facility saw a 300 percent increase in patient volume in the first year. The next step, Mr. Mohr says, might be to put up an electronic sign showing current waiting times for non-emergency patients at the ER and at the urgent care center. The difference, which can be several hours, could be quite convincing, he thinks.

7. Staff plenty of physicians, and keep them bus
Mr. Mohr says the profitability of a hospital – and especially of a service line – depends on successful physician recruitment of specialists and good relationships with referring physicians. "We are encouraging more orthopedic surgeons to use our orthopedics ORs," he says.

Orthopedic surgeons who already use Loma Linda's ORs are being asked to develop contacts with referring primary care physicians so that volume stays strong. "One way to boost referrals is to create relationships," Mr. Mohr says. For example, Loma Linda has strengthened ties with Beaver Medical Group, the largest multispecialty group in the area, partnering with Beaver on such projects as a new multispecialty ASC.

Mr. Young says Grady already has enough specialists in many areas and the chief problem is keeping them busy. "Since we have the trauma surgeons, we want to fill their time as much as possible," he says.

8. Purchase state-of-the-art equipment

Mr. Young says future profits lie in new equipment. When he arrived at Grady one and a half years ago, "our equipment was so bad you couldn't even use it," he says. "The cath lab was 15 years old." The restructuring of the hospital that brought him in established a $300 million fund, which he is using to purchase new equipment. For example, the hospital is installing an electronic medical record system.

Stephen F. Ronstrom, CEO of 344-bed Sacred Heart Hospital in Eau Claire, is another believer in new technology. "Technology can deliver higher market share and patient volume," he says. "If you make investments in technology, it pays off in volume." For example, urologists using the hospital's new da Vinci robot are more likely to perform initial surgery there as well. He adds that new technology, such as the hospital's Smart OR for brain surgery, lowers reoperation rates, which improve reimbursements. "Our costs per case are being properly controlled," he says.

9. Avoid readmissions
Ms. Jacobson, the Rush CFO and HFMA leader, says lowering readmissions is rapidly becoming critical to protecting hospital profits. For example, CMS' Hospital Compare Web site this year began to post each hospital's rates for Medicare heart and pneumonia patients readmitted within 30 days. And both Pres. Barack Obama's budget plan and the Senate health reform bill would cut Medicare payments for hospitals with high readmission rates starting in 2012.

"Hospitals will need to make sure that a bounce-back doesn’t happen," says Ms. Jacobson of readmissions. This means improving discharge planning, coordinating care with other providers who see the patients after discharge and focusing on issues like compliance with medications, she says. Rush has assembled a task force to examine what the hospital should be doing about readmissions.

Mr. Young at Grady is also considering what should be done to control readmissions. He says he is impressed with the success of "patient navigators," who are extensively used in oncology. The navigators help patients identify resources for financial assistance, medication needs, home health care, insurance questions and transportation.

Contact Leigh Page at leigh@beckersasc.com.


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