Empire foresees recovery
Spokane hospital operator expects to be in the black this year after tough 2002January 17th, 2003
For Empire Health Services CEO Tom White, the best thing about 2003 is that its not 2002.
Last year, the nonprofit parent of Deaconess Medical Center and Valley Hospital & Medical Center suffered a net loss of about $18 million, eliminated its behavioral-medicine programs, and cut 117 employees, including a couple of top administrators. Because of its financial struggles, Empire put on hold plans for a new heart hospital after being unable to secure financing for the project. It has taken several additional cost-saving measures and has added technology thats expected to boost revenues and margins this year.
Now, its projecting that it will be back in the black in 2003.
Everybody here is confident that were on the back side of these difficulties, White says.
Furthermore, rumors that Empire Health is for sale are false, White says. Empires board looked at an array of options to solve the health-care providers financial woes, and one of those options involved selling the organization. That option, however, never was talked about at length and didnt receive any real consideration, White says.
Also, he says, Empire didnt face cash-flow problems last year.
The company did sell three commercial buildings in the final months of 2002, including the old Rockwood Clinic building along Eighth Avenue on Spokanes lower South Hill and two commercial buildings along Riverside Avenue downtown. White says, however, that while those transactions helped Empires bottom line, that wasnt the reason it moved forward with them when it did. Each of those buildings had been on the market for a number of years, and the transactions were a result of increased real estate activity in those parts of town, he says.
Empires financial woes, however, have hindered its ability to secure the financing it needs to complete its envisioned heart hospital, which is to be located in the Deaconess Health & Education Center, at 910 W. Fifth, just west of Deaconess Medical Center.
Empire needs to secure a line of credit or hospital-bond insurance before the Washington Health Care Facilities Authority will issue bonds for the project on Empires behalf. White says potential backers want Empire to restore stability to its bottom line before theyll commit to backing such a bond sale.
Empire expects to improve its financial condition during the next few months and restore confidence in its operations. By the end of the first quarter, Empire expects to be in good enough shape to secure either the line of credit or bond insurance needed to move forward with a bond issue of about $31 million, White says. Proceeds of the bonds would be used to complete the heart hospital and to pay off a $25 million line of credit which funded the improvements at Valley Hospital and at the Deaconess Health & Education Center.
The 53,000-square-foot expansion project at Valley Hospital is nearing completion. When it opens, the facility will include new technologies, including cardiac-catheterization laboratories. White says the expanded services will provide additional revenue streams with good profit margins.
Empire has taken additional steps during the past year that are expected to boost revenues in 2003, White says. It has added a few other pieces of equipmenta PET scanner for onethat will allow it to perform tests and procedures that it either couldnt do before or couldnt do as efficiently as it can now.
Also, Deaconess has expanded its obstetrics unit, which allows the hospital to accommodate more new and expecting mothers in its Womens & Childrens Center. In the past, White says, that unit has been full at times and has had to send expectant mothers elsewhere to have their babies delivered. That should happen less frequently now, if at all, he says.
In addition to increasing revenues, Empire has cut costs, White says.
Most recently, it started whats called a gain-sharing program with physicians who have privileges at its hospitals. The program provides physicians an incentive to help the hospital reduce costs in specific circumstances that dont relate directly to patient care.
For example, if doctors agree to use the same brands of implantable devicespacemakers, stents, etc.rather than requiring a hospital to buy multiple brands, a hospital can buy the devices in bulk at a savings, White says. Physicians then receive a portion of those savings.
Last year, Empire changed the company through which it buys nearly all of its hospital supplie, and that move has resulted in a savings of $135,000 a month, White says. He says the company with which it does business now, Warrendale, Pa.-based AmeriNet Central, provides more flexibility in purchasing than the company it did business with previously.
Empire doesnt expect to have to cut any additional services or positions, White says. Last year, the organization cut an outpatient alcohol and drug counseling service, a treatment program for problem gamblers, a school-based community assistance program, and an occupational medicine program. Its layoffs included Deaconess Chief Operating Officer Tom Zellers and Empire Vice President of Clinical Services Kay Lewis.
Were down to our fighting weight in the management ranks, White says.
Last years losses were the result of several factors, but one of the most significant changes involved decreased federal reimbursement rates for outpatient care. White says that alone took Valley Hospital from a profitable position to a $4 million loss immediately.
White says Empire also was hit with higher malpractice insurance rates, termination of revenue from the Washington state trauma fund, lower-than-usual patient counts, and a decline in value on some of its investments.
Empire remains concerned about reimbursement rates and fears that thousands of people will be taken off the states health-insurance rolls as the Legislature grapples with paring the projected $2.6 billion state deficit, White says. Such a move likely would increase the number of uninsured patients who come into Empires hospitals and would increase its costs.