To say that 2009 has been a challenging year for the Shriners Hospitals for Children-Spokane would be quite an understatement, given that the 85-year-old hospital was on a possible closure list for months before being given a reprieve in July by its nonprofit parent.

Yet, says administrator Gene Raynaud, that challenge came with a couple of gleaming layers of silver lining that have boosted donations at the hospital in the near term and could provide it with the financial crutch it might need to survive in the future.

The Shriners hospital here, which is part of a 22-hospital network based in Tampa, Fla., provides specialty pediatric care at no cost to patients. It occupies a 96,000-square-foot, 30-bed facility at 911 W. Fifth, just southwest of Deaconess Medical Center, and serves children in Washington, North Idaho, Montana, Alaska, and three western Canadian provinces. It's funded entirely by donations.

Early this year, the national Shriners organization announced that the Spokane hospital was among six that might close due to operating losses and a steep decline in the U.S. nonprofit's endowment fund.

When the news broke, says Raynaud, "people came out of the woodwork" to support the hospital, and a host of efforts, including one led by Greater Spokane Incorporated, were launched to keep the facility open. As a result, between March and July, direct cash donations to the Spokane hospital jumped more than 40 percent compared with the year-earlier period, and public awareness of the role Shriners plays in treating children skyrocketed, he says.

"One of the great things about the closure talk was the attention we got," Raynaud says.

Even after the national organization announced in July that it had decided not to close any Shriners hospitals, at least for now, "There has been a sustained interest in doing fundraisers for us," Raynaud says.

Meanwhile, he says, the crisis caused Shriners to look more critically at its operations, and "out of all that pain, some pretty big decisions were made."

The biggest, Raynaud says, was a decision that next year, Shriners plans to begin billing insurance companies for the care it provides. Currently, Shriners charges its patients nothing, and does so even if a patient has insurance or has other means to pay.

When the network begins to bill insurers, that general philosophy won't change, he says. It will ask the parents of its patients if they mind if it bills their insurer, and if they say it's OK, it will do so, but will pick up any co-pays and deductibles for the patients' families, ensuring that they continue to pay nothing out of pocket. When families don't have insurance or don't want Shriners to bill their insurer, the hospital will provide the care for free, just as it always has, Raynaud says.

Shriners sees the decision as a way to buttress its revenue picture without changing its fundamental mission, he says. The organization projects that it could net as much as $200 million a year in new revenue by billing insurers for some of the care it provides. The move also would allow the hospital to bill the U.S. government for Medicaid-eligible patients.

Raynaud says implementing the change will take as long as two years, and will include installation of sophisticated new software and sizable changes to back-office operations, mostly at the headquarters level. Four Shriners hospitals will test the new system next July, followed by a second round of four hospitals, including the Spokane facility, in October. The rest of the network's 20 U.S. hospitals and one each in Canada and Mexico will adopt the new system in a staggered approach ending sometime in 2011, he says.

The change, he says, will represent a huge cultural shift for the hospital network, which has never had a way to itemize the services it provides because its services were free, but says it's a necessary change given today's economic realities. "If we didn't have to, we probably wouldn't go down this road," Raynaud says.

The move won't change the hospital's mix of patients, he says. Already, the families of about 80 percent of the children who are treated at Shriners-Spokane have health insurance. Raynaud says there is a public misconception that Shriners primarily serves disadvantaged families. Rather, he says, people choose the hospital mostly for its specialty care.

In Spokane, Shriners specializes in treating children with spinal disorders and orthopedic conditions, and does some burn-scar reconstruction. It employs three orthopedic surgeons, as well as a pediatrician and three anesthesiologists, and works with about nine Spokane-area specialists on a contract basis. At any given time, two medical residents who are specializing in orthopedics also are assigned to the hospital.

About three years ago, the hospital began to emphasize its expertise in treating severe scoliosis, or curvature of the spine, something that it has become known for in the Northwest, Raynaud says. Such cases, in which a child's spine might be bent by as much as 90 degrees and is straightened surgically, can be extremely complex, sometimes taking nine hours of surgery, he says.

The hospital here has bolstered its efforts to publicize that expertise to doctors and other providers throughout the region, from whom it gets referrals, and is starting to see those marketing efforts pay off. So far this year, spine-surgery cases are up 40 percent at the hospital, says hospital spokeswoman Sally Mildren.

Mildren says the surgery is expensive to perform, with the hardware alone costing $8,000 to $20,000, and the hospital pays for transportation, and sometimes housing, for families of patients who live outside the area. The hospital has been conducting a fundraising campaign recently to help offset some of those costs, which amount to about $250,000 a year.

Cost cutting

Although allowed to remain open, the Spokane hospital was told by the hospital network to cut its budget.

In August, the hospital did its first staff reduction in its history, letting 10 employees go and reducing the hours of another 13, Raynaud says. It now has about 121 full-time-equivalent employees, down from about 145 FTEs three years ago. Some positions had been eliminated earlier through attrition.

The hospital's budget was cut by 9 percent this year, and it will remain at about $12.4 million in 2010, he says.

Raynaud says the hospital was able to make most of its cuts in ways that didn't affect the services it offers.

"We're offering 99 percent of what we did before," he says.

"We took our hits in non-critical areas," Raynaud says. "Our core is surgery, and our main goal was to protect that core."

He adds, "We are as lean as we think we can be, but we're adequately staffed" to support further growth in patient volumes.

Currently, the hospital performs about 70 surgeries and handles about 800 outpatient visits a month. Because much of the care it provides can be done on an outpatient basis, including many same-day surgeries, it usually has only eight to 15 patients admitted overnight at any given time, Raynaud says. The hospital treats patients from infant to 18 years of age.

He says that if the hospital were to be built today, it likely would have fewer overnight beds and more room to support surgery and recovery. Such changes now would be capital intensive, he says.

"We squeeze everything out of this hospital we can," Raynaud says of the staff's use of the facilities.

Roughly 60 percent of the hospital's patients live in the Spokane area and Eastern Washington, while another 20 percent come from North Idaho and 20 percent from Montana. Patient volumes from Alaska and Canada are tiny, Raynaud says. Shriners doesn't operate a hospital anywhere else in Washington, but does have one in Portland, Ore.

The hospital also, on occasion, sends teams of doctors to Nogales, Ariz., and Juarez, Mexico, to conduct clinics, and often then will schedule patients in those locales to be brought back to Spokane for surgery. It even has treated children here from as far away as Africa and Albania, Raynaud says.

As for the continued threat of possible closure, Raynaud says he's cautiously optimistic about the future. He believes that while there will continue to be cost pressures on the hospital network, he doesn't think potential hospital closures will come up again next year.

"That ought to be the last option," he says.

The Spokane Shriners hospital opened in 1924 as a mobile unit at what was then St. Luke's Hospital, and moved to a 40-bed facility on Summit Boulevard, northwest of downtown, in 1939. It moved to its current facility in 1991.