Spring 2012 Financial Update
What Every MHS Employee Should Know
John M. Fraser
President & CEO
Methodist Health System
Throughout Methodist Health System, we are making tremendous progress. However, we have much more work ahead.
Keys to our continued success include:
- Living the Meaning of Care with even greater cost efficiency.
- Valuing and rewarding our employees, making market-based pay a priority.
- Embracing a performance-based health care business model for higher quality and lower cost.
As you know, the U.S. Supreme Court will rule on the constitutionality of health care reform legislation in June. Regardless of the Court’s decision, and no matter who pays the bills for health care, market dynamics will march on in the same overall direction: away from the old volume-driven, fee-for-service business model. How we provide care, our care settings, affiliations, reimbursement — all of these things are changing — not only for Methodist, but for the entire health care industry.
The health care organizations that endure will be those that can deliver the best evidence-based and most cost-efficient care through innovation, strategic partnerships and collaboration. This means not only treating people when they are ill but working even harder to keep them well, while making hospital stays shorter, safer and less frequent. Payments to providers will be smaller and tied closely to the results of care across the care continuum, making it more important than ever to maximize quality, productivity and cost efficiency.
We have taken these economic and political forces into account in our strategic planning process, mapping out a course to improve performance, stay financially viable and continue delivering outstanding care and services. Teamwork, smart growth and greater cost efficiency throughout Methodist Health System are essential to our success.
In simplest terms this means that throughout MHS, like a family household, we must live within our means while our paycheck (reimbursement) shrinks and expenses rise. We have to work, save and spend smarter than ever to balance our budget and pay our mortgage, maintenance, insurance and other operating expenses. This means generating and sustaining cost savings measured in tens of millions of dollars.
Highlights of our progress include:
- Overall Gain/Loss
We continue to be challenged with increasing volatility and changes in the health care environment. For first quarter 2012, we are breaking even, but trailing budget by $2.7 million. To summarize last year’s progress, MHS was $1.7 million in the red at the end of 2010; by the end of 2011, we were $1.7 million in the black. This overall $3.4 million improvement is quite an accomplishment, especially given sizable cost increases in select areas. The key to improving our financial position is our success in offsetting these increases with significant cost reductions.
Our 2011 operating earnings before interest, depreciation and amortization, known as EBIDA, improved by $8 million over 2010 through the hard work of all affiliates. These improvements included $4 million for Methodist Hospital’s two campuses combined, $1 million for Jennie Edmundson Hospital, $1 million for Nebraska Methodist College, and $2 million for our Corporate office and self-insurance trust combined. Methodist Physicians Clinic improved financial performance per physician by 5%.
- Volumes: Patients & Students
From 2010 to 2011, annual volumes for Methodist Hospital and Methodist Women’s Hospital grew in combined observation and admissions, patient days, surgeries and emergency department visits. Areas of volume growth for Jennie Edmundson Hospital included inpatient admissions, patient days and surgeries, with a 2.5% increase in equivalent discharges. Methodist Physicians Clinic experienced a double-digit surge in patient visits in 2011.
Nebraska Methodist College – The Josie Harper Campus achieved its tenth consecutive year of record-setting enrollment in Fall 2011, with continued growth in undergraduate and Master’s degree enrollment and credit hours for Spring 2012.
- Smart Growth: NMH Surgical Expansion
Our next major capital project, the renovation and expansion of the surgical suites at Methodist Hospital’s 84th Street campus, is a strategic investment in one of our greatest clinical and financial strengths. Despite having Omaha’s oldest OR, Methodist Hospital leads in total surgeries, not only in the Metro area, but throughout Nebraska. We are building the surgery department of the future, and your support and flexibility throughout the construction process is greatly appreciated.
- Smart Growth: Medical Staff
We are continuing to expand our medical staff by recruiting outstanding providers for key primary care and specialty areas, covering everything from allergies to vascular surgery. Since the beginning of 2011, we have added or signed more than three dozen providers.
- Accountable Care Alliance (ACA)
The Accountable Care Alliance between Methodist and The Nebraska Medical Center, one of the nation’s first such organizations to unite competing health systems, focuses on clinical areas with high volumes, high variations and high cost, building on a larger economy of scale to improve quality of care and cost efficiency while reducing 30-day hospital readmission rates. The ACA is one of many strategic partnerships that strengthen Methodist and the community we serve.
ACA successes include negotiation of better prices for high-cost surgical implants, standardization of surgical order sets for orthopedic total joint procedures, development of a readmission assessment at discharge, expansion of the nursing home pilot project putting advance practice nurses on rounds that reduce hospital readmissions, and patient-friendly education for congestive heart failure patients using “Teachback,” an evidence-based practice from the Institute for Health Care Improvement, across the continuum of care.
- Value Analysis Teams
In 2011, VAT teams cut non-salary expenses by $8 million through standardized, more cost-efficient purchasing, with nearly another $1 million in savings in the first quarter of 2012. We are implementing VAT savings Systemwide, not only for stents, syringes and other clinical supplies, but for all purchases. For example, we are granting Pepsi nearly exclusive rights in MHS cafeterias starting in mid-May. Why? Because we negotiated a contract that brings us tens of thousands of dollars a year in additional revenue. Coke and Dr. Pepper lovers will still be able to enjoy those brands. In addition to Pepsi products, our cafeteria fountains will dispense Dr. Pepper, and our coin-operated vending machines will carry Coke and Dr. Pepper.
- Sensible Savings Rewards Program
You do not have to be a VAT team member to identify savings and improve cost efficiency. More than 70 employees have earned rewards by submitting viable, non-labor cost savings suggestions to the Sensible Savings Rewards Program, including a recent recommendation to streamline electronic billing processes that will save over $12,000 a year in bank fees.
- Jobs, Pay & Benefits
Our philosophy has always been to work to protect jobs and offer market-competitive salaries and benefits to attract and retain a top-quality workforce. As you know, high cost pressures compelled us to freeze pay, cut service recognition and holiday spending, and modify retirement benefits (slight changes for current employees and greater retirement plan modifications for employees hired after May 1). Even so, pay raises have remained a priority, another of the driving forces that make continued cost savings essential throughout Methodist Health System.
I am pleased to announce raises for all employees. Raises will average 2%, with up to 3% increases for high-demand clinical positions based on limited movement in market ranges. Because cost efficient internal resource management does not allow us to implement raises for all 5,600 employees in a single pay period, raises will be provided in phases. Raises (effective April 29) will be included in May 18 paychecks for employees of Jennie Edmundson Hospital, Methodist Hospital and Methodist Women’s Hospital. Raises (effective May 13) will be included in June 1 paychecks for employees of Methodist Hospital Foundation, Methodist Physicians Clinic, MHS Corporate, Nebraska Methodist College – The Josie Harper Campus and Shared Service Systems. Your supervisor will have more information.
Pay raises for senior leaders have been purposefully delayed to put other employees first. At this time, pending Board approval, pay raises for senior leaders are targeted for July 1.
Thank you for everything you do to provide outstanding care and service. Thank you for your continued teamwork, innovation and thrift. There is a long road ahead, and we have only just begun.
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If you have cost savings suggestions, follow this link to submit your ideas to the MHS Sensible Savings Rewards Program.