Home Health Care

Home Health Care

By Sean Roth

Real Estate Editor

For Gwen MacKenzie, Sarasota Memorial Hospital is more than a mass of buildings on Tamiami Trail. It's a regional health care system. And its services are soon to be extended in more places throughout the Sarasota-Manatee region.

The new chief executive officer of Sarasota Memorial Hospital spoke with Review editors Matt Walsh and Sean Roth about her experiences as chief operating officer of the nine-hospital, $1.7 billion (revenues) Detroit Medical Center and what she sees as her tasks in Sarasota. In this week's installment of our two-part interview, MacKenzie discusses SMH's agenda short-term and long-term. It focuses on improved service and growth.

Why did you choose Sarasota Memorial Hospital?

When you drive up it's clean; it looks well maintained. You walk in the front door and people practically run to help you, no matter who you meet - and no one knew who I was. You saw the patient satisfaction scores. You saw all the accreditation and awards. You also saw all the problems: the patient safety incidents. You saw the financials so you knew there was a need to get to health. The elected board was very passionate, very serving.

So I said, "Well, this is interesting ..." But it was intriguing because it is a lot harder to maintain goodness or excellence than it is to get there sometimes. I knew that would be different. I knew some of the challenges facing the institution were difficult. The financials. The need to grow beyond a big bulky hospital.

I came back for second visit. It was a very careful process on the organization's end. It really had the candidates go through lots and lots of interviews. I did president searches in Detroit, so I knew pretty much how they went. But this was much more rigorous. A lot more people involved. That said that the organization valued people's opinions at the lowest possible level.

What sold it for you?

The people. I felt like this was a place that really wanted to be something, and nobody was satisfied with where they were necessarily. The patient satisfaction sold it too. The magnet status for nursing that is a great achievement. The U.S. News & World Report and seven specialties, all those things sold it.

I thought I was coming to a good place; you can see based on the statistics that it is a good place. You don't know until you get here what the real story is, but you can't win all those accomplishments and be second-class.

So how would you compare the state of SMH to what you left?

They are probably alike. I'll tell you what surprised me: the quality of the physicians. ... The resumes that I saw blew me away. I said to some of the physicians - which is a bad thing for a CEO to do - "What are you doing here?" I come from academic medical centers, so I am pretty accustomed to great (credentials), but these CVs were better than I was accustomed to.

So the quality and the stimulation that this gives you is tremendous. Now the disappointment is the community doesn't know that so that is where the opportunity is.

The other similarity I wasn't expecting was here you have a public hospital, but we do as much research as any university. The facilities are as state-of-the-art as any place you would find in Tampa, Miami or Orlando or any academic medical center anywhere.

Also the safety net mission of the organization is what I was accustomed to in Detroit. We had safety-net institutions, because six of our nine were in the city of Detroit. So that is this institution; it is research and excellence and safety net all at the same time. Really, the only thing that's missing is a university on the end of Sarasota Memorial Healthcare System. And we do have medical students now; we have an affiliation with Florida State (University), and they started in July. So I guess you could say we are now becoming academic as well.

Where is SMH in its life cycle?

I would say this organization is about to reinvigorate, reinvent itself. I would like to be the top 10 in the country in anything that can be measured. There are already a lot of places where we are already the top 10. I would say the achievements in U.S.News & World Report; the magnet nursing is one of a (top) 100 hospital. The clinical quality is in the top 3%. The fact that we have an electronic medical record - 3% of hospitals have that.

You can look at a couple places where we are not at the top: net revenue (per patient) we're horrible. That is really a combination of the safety net and the Medicare reimbursement. And labor productivity; we're not dead last, but we aren't where we need to be.

And really taking something that has thought of itself as a hospital system and now the next phase is really a healthcare system.

Is it fair to say the expansion of SMH is fairly high on your list?

Probably number one. (Next up we are) going to focus on outpatient. That is our expansion into the south. That is our expansion into the north. We are opening up a walk-in medical center on University Parkway (in University Park). It is really an urgent-care center, and it will have a diagnostic facility soon.

Then our south county-Laurel Road campus will be just about everything except hospital beds ultimately. It will probably have walk-in urgent care.

What we are trying to do - if it's not obvious - is to create places for patients to be treated where they live. We are trying to go where people live so there is a lot of growth and development in that area of the county and that's why we bought the Laurel Road property. We have property at Blackburn Point. We have primary care physicians and diagnostic facilities there, and they are at capacity.

Will we see a hospital at the Venice site?

Everyone is concerned about us building a hospital. That is not first on my mind right now. What is first on my mind is creating all the ambulatory access points for people to get care.

Ultimately, there are going to need to be more facilities, whether that will ever lead to us developing a hospital I couldn't tell you right now. We are not dismissing it, but we are not planning for it either.

How are you going to spread the SMH brand?

The brand is a good one. The marketing has been pretty negligible. I wouldn't say that we would be marketing just for competition purposes; although I do think not-for-profits need to be every bit as aggressive as for-profits. But what is really tragic is when someone says they have to go back to the Mayo Clinic or Cleveland Clinic to get a bypass operation. That is what I would like to avoid. I would like the community to know it doesn't have to leave the community for the best medical care.

What will SMH look like three to five years out?

A lot more ambulatory facilities. A more known reputation. Even more achievement and a very efficient organization. No wait time in the emergency room.

What outside health-care forces are going to be creating further changes in the way SMH operates in the coming year?

Always reimbursement. Then there are the things that we are all concerned about as a community: transportation, housing, labor shortages. There are some things that are not competitive. The first thing I would say is that no one is competing for the uninsured volume. These are things we all need to be working together on with our colleague institutions. This is going to affect all of us, and if we don't attract professionals and nonprofessionals to the area, it is going to hurt the care at all of our institutions. So there are a lot of places were we come together.

How do you address the hospital's bad debt-charity care issue (It was $43 million in 2004)?

We are addressing it through revenue cycling. It has had an immediate impact. We went from cash collections of $33 million to almost $37 million last month.

On the front-end, it's capturing accurate insurance information at the point of service. It's collecting co-pays and deductibles upfront. We try to make the connection that we are delivering a service so you should ask for payment. There is a mentality; "Well we can't ask poor people for money." You have to differentiate people, who can't afford the care and people who can afford the care, but we just don't ask for payment. Even people, who can't afford to pay the bill can make modest payments of $5 or $10 a month.

On the back-end we are working on accounts receivables. On the insurance side of things, this means appealing every denial. It is the easiest thing in the world for the insurance companies to say they won't cover something. We appeal every single one of those.

We are also starting to institute staffing to volume.

How are you leaning on the taxation side of the equation (currently around 0.6 mills)?

We are recommending 1 mill this year. That is about the cost of the uninsured programs. As a public hospital, I feel we first need to have our house in order before we look to taxes.

A year from now what do you hope to report?

I am hoping to report we are as efficient as can be. That patient satisfaction is very high, and we have short wait times. And that we have the best reputation in the country.

Sarasota memorial hospital's reputation: a secret?

After meeting with many of Sarasota Memorial Hospital's staff members and physicians, CEO Gwen MacKenzie found one of their top concerns is the belief that the residents of Sarasota County hardly know about the high level of health care that is delivered at SMH.

"There is a lot of disappointment among the physicians and all the employees at how little the community knows about reputation. A lot of disappointment," MacKenzie says.

But asked how the hospital can spend more money on marketing and advertising when it is facing operating losses, MacKenzie says: "Well, what I have asked the physicians and the employees is 'Where do you get your care?'

"Overwhelming, they say they get it here. Well, who do you tell how good a place this is? That's word of mouth. The third thing before you get to paid advertising is where are the areas where people are going to talk about the care the most. It is in surgery and the ER. Those are the two initiatives that we are focused on over the summer: improving the wait time in the ER and the throughput in the OR for the surgeons, patients and everybody. Now none of that costs anything so far.

"Then you get to advertising about the U.S.News & World Report (rankings) and some of the other stuff just so the community knows it doesn't have to go somewhere else.

"We had a patient in the OR last week. The person was from somewhere else. She had a G.I. problem, and she said, 'Eww, this is a community hospital; it's public. I don't know if I want to stay here.' The staff nurse told the patient that we were in the U.S.News & World Report Top 50, and the person immediately relaxed. She immediately went, 'Oh OK.'"

SARASOTA MEMORIAL AT A GLANCE

Income statement

Operating revenues 2004 2003

Net patient service revenue $376,057,154 $352,354,439$

Other revenue 13,234,531 13,471,420

Total operating revenues 389,291,685 365,825,859

Operating expenses 2004 2003

Salaries, wages, benefits 216,669,458 209,494,938

Supplies 87,065,589 85,106,327

Purchased services 55,628,353 68,045,236

Professional fees 4,825,155 4,641,024

Florida medical assistance assessment 4,263,559 4,990,655

Depreciation/amortization 34,889,127 33,430,074

Total operating expenses 403,341,241 405,708,254

Operating loss (14,049,556) (39,882,395)

Nonoperating realized items 2004 2003

Ad valorem tax 16,190,187 10,636,499

Interest expense (7,604,154) (5,934,955)

Investment income 13,198,831 17,618,726

Other nonoperating income (expense) 1,608,421 (1,103,384)

Total nonoperating realized items 23,393,285 21,216,886

Excess (deficit) of revenues over expenses

before nonoperating unrealized items 9,343,729 (18,665,509)

* net of provision for bad debts of $58,154,296 in 2004 and $40,698,992 in 2003

Profitability, liquidity, capital ratios

The following table outlines ratios monitored by the SMH Board of Directors as compared to Moody's "A" rated, not-for-profit health care organizations:

Profitability Ratios 2004 2003 2002 2003 MM*

Operating Cash Flow Margin 8.0% 1.0% 11.2% 9.5%

Operating margin (1.2)% (8.4)% 2.2% 2.2%

Excess margin 2.2% (4.7)% 7.3% 4.5%

Return on assets 1.1% (2.4)% 4.1% 3.9%

Liquidity Ratios 2004 2003 2002 2003 MM*

Days cash on hand 327 333 348 155

Net days in receivables 52 47 58 55

Capitalization Ratios 2004 2003 2002 2003 MM*

Debt service coverage ratio

(Board-Obligated Group) 3.5 1.2 4.6 4.1

Debt service coverage ratio (System) 3.3 1.1 4.5 4.1

Cash to debt 1.1 1.1 1.2 1.0

MM* = Moody's Median