Lessons Learned: How Scripps Health keeps making $100 million

Michelle Pointe, for HealthLeaders Media , August 3, 2009

HealthLeaders: How has your relationship with the investment community changed?

Rothberger: When I arrived, Scripps was not rated and had very little external communications. I had a lot of skeptics on Wall Street and out in the field questioning where we were with regard to financials. For eight years in a row we ended the fiscal year ahead of budget projections, and additionally we have shared with the investment community more information and in a more transparent way. I err on the side of sharing information and so does my boss. We are both out there with the good and the bad. We have built credibility with the investment community so that they know we are focused on operating earnings and that in order to achieve borrowing capacity we need to keep that up.

HealthLeaders: You have embarked on a large expansion plan. How is that going?

Rothberger: We're on course for a projected 10-year, $2 billion capital plan to expand our facilities to meet growing patient demand. We were going to go to market this year, but put it off because of the economy. I took out a line of credit to get us over the hump in case we got stuck, but we didn't and I did not have to draw on the line. However, we had to refinance all of the auction rate securities when that market went haywire in 2008. We had budgeted $260 million to spend in 2009 on building expansion, but we will only spend about $150 million. As the market comes back we will start to accelerate if it is affordable.

HealthLeaders: I know healthcare reform is a concern for most right now, but what are your biggest worries?

Rothberger: The challenge that we have now is federal and state reimbursement cuts. We are anticipating 2010 federal cuts of about $15 million and the state cuts are still unclear. The budget was just passed and it looks like Medicaid/Medi-Cal eligibility will be reduced. Although we have a contract for rates with the state of California that can't be changed, there could be fewer Medicaid patients coming through the system. Also, with the government threatening to cut back physician compensation through Medicare and now Medicaid, it will become harder and harder to get physicians to come to California, particularly because it is the single lowest paying state for Medicaid.

HealthLeaders: How will you absorb these cuts?

Rothberger: We have a number of areas that we had not addressed in the past that still have significant opportunity. The single biggest one right now is pharmacy. We have changed our group purchasing organization and are now insourcing pharmacy leadership. We are also in the process of automating medical records and we have a document scanning initiative for all of our paper records that will allow us to reduce costs. We have a list of things that if we execute well, should offset the $15 million of reductions from the federal government. But we can't do that year over year, and I am worried that things can change dramatically in Washington. We want to be successful and to be around for the community for a long time. The only way to do it is by sticking to our knitting and making sure we are an employer and provider of choice.

Michelle Ponte

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