A Turnaround Story: Southwest Health System
When Southwest Health System (SHS), in Cortez, Colorado, contacted Community Hospital Corporation (CHC) early in 2018, the hospital had violated various bond covenants associated with its $30 million expansion and renovation project. In fact, the organization had failed to meet the 80 days-cash-on-hand requirements for four consecutive quarters. This violation triggered technical default, which could have led to hospital bankruptcy and closure.
Lenders concerned with the financial situation communicated with the board directly and required an outside consulting firm to evaluate the situation and develop a plan of action.
The hospital never missed a bond payment, and all requirements of the forbearance agreement were met far ahead of deadlines. Current Chief Financial Officer Rick Shrader acknowledged that federal CARES Act funding 2020 to 2021 helped SHS weather the pandemic.
Unfortunately, the financial crisis SHS experienced was not uncommon. Community hospitals across the country face serious financial distress. In fact, 181 rural hospitals have closed since January 2005 (138 closures since 2010; see North Carolina Rural Health Research Program).
The Plan that Worked
There are several reasons SHS was able to turn around performance quickly. The first is immediate action by SHS board members after receiving the serious news in 2018. First, they removed the administrative team. Next, they engaged CHC Consulting to develop a plan to turn around the hospital.
“During our first conversation, we immediately realized this was a facility in crisis,” said Craig Sims, CHC Senior Vice President of Hospital Operations. “With the change in leadership, rumors were swirling. Employees were wondering about their paychecks.”
CHC first conducted a comprehensive operational assessment, which involved a deep dive into financial and operational processes. The comprehensive assessment included the development of specific departmental action plans and the implementation of recommendations for cost reduction and revenue enhancement. SHS performance was benchmarked against other similar hospitals across the country to identify opportunities for immediate and longterm improvement. Several prospects were identified in the 237-page report, including:
- New leadership. CHC Consulting secured interim CEO and CFO executives for Southwest Health System in advance of recruitment for permanent executives for both roles. As of January 2022, the SHS leadership team includes:
- CEO Jeanie Gentry, who has served for more than two decades as a senior healthcare executive focused on operational excellence in rural communities.
- CFO Rick Shrader, initially recruited by CHC Consulting in 2018 as SHS Interim CFO. He has more than 25 years of experience in healthcare finance and compliance.
- CNO Lisa Gates, promoted to this role. Her nursing experience spans 22 years across clinical areas including the ICU, Surgical Services and Quality, Risk and Compliance.
- Travis Parker, Chief Human Resources Officer with oversight of Human Resources, employee training, safety, health, morale, and long-term staffing strategies.
- Chief Information Officer/Public Information Officer Charles (Chuck) Krupa, promoted to this role and on board at SHS since 2018.
- Staff productivity. Productivity analysis revealed higher staffing ratios and more expensive benefits as compared to other hospitals with similar size and volume, and positions had been added with no corresponding increase in net revenue.Employee loss through attrition and workforce reduction brought the organization back to national benchmarks. Leadership committed to re-hiring qualified staff and several were rehired as positions became available.
- Repairing physician, employee, community and hospital district relationships. CHC and hospital leaders held meetings with physicians and community forums to inform stakeholders about the situation and turnaround plan.
- Reducing supply costs. Conversion to CHC Supply Trust, a GPO specializing in preferred pricing, better products and ongoing support for smaller community hospitals, initiated supply chain savings and greater efficiencies for SHS.
- Evaluating the hospital’s cost report. A cost report unveiled underpayment for reimbursable services. The impact of a hospital’s cost report can be far-reaching, influencing not only its current but future reimbursement levels.
A few months after the operational assessment was finalized, the SHS board signed a five-year management contract with CHC Consulting. Several recommendations put into practice helped to improve the hospital’s bottom line:
- SHS had a $3.7 million performance improvement in 2018 after staff reductions brought benefit packages to competitive levels, and contract labor was reduced.
- The cost report reconciliation indicated the hospital had been underpaid for reimbursable services by more than $419,000.
- Patient satisfaction scores reached a six-year high.
- Switching to CHC Supply Trust identified $2 million in savings on supplies while creating opportunities for supply chain optimization.
- Since completion of a Medical Staff Development Plan, SHS hired three providers early in 2019. SHS added 7 additional providers in 2021 and 5 in 2020.
- By the end of 2021, cash-on-hand exceeded the required 80 days, up from 15 days in 2018 when the hospital realized its critical state.
- Annual patient clinic visits increased to 54,836 as of December 2021, up from 43,798 in December 2020.
As SHS leadership remains focused on continual improvements, important community stakeholders support the hospital’s long-term financial goals and mission to provide the highest quality healthcare to our community by bringing excellence, value and service together to promote, improve and restore health.
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