Lessons for Leaders of Distressed Hospitals
By Anthony Sudduth, CEO, Southwest Health System
Last year, Southwest Health System (SHS), in Cortez, Colorado, found itself in the midst of a significant financial crisis. The hospital had violated bond covenants associated with a $32 million building project, failing to meet the 80 days cash-on-hand requirement for four consecutive quarters. This violation triggered technical default, which could have led to bankruptcy and closure. Instead, SHS acted swiftly and decisively, becoming not a cautionary tale but a comeback story and an inspiration.
The SHS turnaround is a bright spot amid a grim picture across the nation. Healthcare industry distress, as measured in the Polsinelli-TrBK Distress Indices Report, has risen 305% since 2010. However, hospital distress does not mean closure is imminent. SHS’s turnaround is a prime example.
Tips from a Successful Turnaround
- A turnaround may still be possible even if the situation is dire. However, dire circumstances may call for drastic measures. SHS’s board of directors removed the executive team in one fell swoop, for example.
- Quick and decisive action is required to right a sinking ship. Merely containing crises was not enough. SHS contracted with CHC to conduct a comprehensive operational assessment, benchmarking the hospital’s performance against peer hospitals to help identify opportunities for immediate and long-term improvement.
- Capable and sensitive leadership is critical for a successful turnaround. When replacing its executive team, SHS looked specifically to fill knowledge gaps for the specialized needs of the hospital. New hires brought expertise in finance and experience working in a small rural community. In addition, the new CEO brought change management and communication skills.
- Open communication with the staff, board, physicians and community is critical for success—even when the news is bad. If, for example, staff reduction is inevitable, hospital leaders should convey the necessity of the layoffs to sustain the hospital, keeping quality care delivery in mind.
- Careful consideration helps consolidate staffing cuts into one round of layoffs. Multiple rounds generate anxiety among staff, and productivity can plummet as a result. A single round is also easier on leaders who deliver the news and lose sleep over the decision.
- Thoroughly look for all opportunities to streamline operations and cut costs. The operational assessment CHC conducted identified opportunities for improved efficiencies and cost savings, but that was just the beginning. Next came a productivity analysis; cost report assessment; position-driven workforce reduction; and conversion to CHC Supply Trust, a GPO program that specializes in granting Tier 1 pricing to smaller community hospitals.
- An efficient operation can bring about better clinical care and patient experience. Moving back from the brink and onto solid ground puts a hospital in a better position to carry out its mission. Following the turnaround process, patient satisfaction scores reached a six-year high at SHS. The hospital also carried out a medical staff development plan and hired three providers earlier this year who matched needs specific to the community.