We Can Rebuild It

Lola Butcher, for HealthLeaders Magazine , December 13, 2007
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Methodist University Hospital in Memphis, TN, touts its transplant institute as one of its primary areas of excellence. Its surgeons will perform about 250 kidney, liver and pancreas transplants this year, up from just 109 when the program moved to Methodist three years ago. The center is now wooing patients from other transplant programs in the Mid-South region, and it is beating Methodist's financial projections.

But if that summation makes transplanting a transplant center sound like a snap, you need to talk to Victor Perini.

"It has not been an easy thing," says Perini, the hospital's vice president of operations. "It's had to be very closely managed and monitored, and a continued collaboration with the medical staff at the University of Tennessee has been key to that success."

In fact, the collaboration with the University of Tennessee Health Science Center was the big-picture goal that led to Methodist Le Bonheur Healthcare's acquisition of the transplant center in the first place. Leaders of the Methodist system, with 1,600 beds in seven hospitals, made a strategic decision in 2001 to develop a closer partnership with the health science center, which includes schools of medicine, pharmacy, dentistry, allied health and others.

"If you look at the top 30 hospitals in the country, they are all research- and education-based, and they are all significantly affiliated with universities," says Gary Shorb, the system's president and chief executive officer. "So to me it was the right decision. But it is not one to enter into lightly, because it does make for some tougher leadership challenges."

Six years after its decision to closely align itself with the university, Methodist has successfully revitalized the transplant center. But the experience has proven that this type of unusual opportunity can only be realized if a health system has the ability to incur significant operating losses even as capital dollars are being poured into a new program, if the system's board is committed to the relationship, and if there is willingness to change high-profile medical leadership.

"You have to view [the academic partnership] as a long-term proposition for your health system, because the pay-off in terms of differentiation for the health system, the pay-off in terms of improvement in services and capability to the community, is not going to happen quarter to quarter," Shorb says. "It really is going to be a 5- or 10- or 15-year plan."

In the case at hand, Methodist's first challenge included the university's decision to close its UT-Bowld Hospital, which was suffering heavy financial losses and dwindling occupancy rates, if a buyer could not be found. Methodist, worried that UT faculty members might scatter if Bowld closed, began operating the university hospital in 2002.

When Perini was appointed to be CEO at Bowld in late 2003, the hospital was losing between $500,000 and $800,000 a month. The transplant program was Bowld's primary clinical asset, but some managed care plans had lost confidence in the program, so transplant volume had fallen dramatically.

The expenses of absorbing Bowld were higher than expected. "The losses during those first two years were about $2 million to $3 million per year more than we thought they would be," Shorb says. The health system's board of directors grappled with whether moving the transplant program to its 450-staffed-bed flagship facility could address the problems. "It was not absolutely clear that a transplant program could be self-sustaining and avoid the significant losses it was experiencing at Bowld," Perini says.

In 2004, Methodist closed Bowld and invested $10 million in construction and equipment to accommodate the transplant program at its main facility, now called Methodist University Hospital. In addition to the capital investment, Methodist relied on three other turnaround strategies to reverse the trajectory:

  • Marketing in medical leadership. A new program director was recruited with the goal of building up the referral base throughout the region. "We needed someone who was willing to work with the hospital to more aggressively market the program," Perini says.

  • Process changes to improve efficiency and throughput. Since moving to Methodist, the transplant program has reduced the time required to receive a referral, schedule and conduct an evaluation, decide whether a transplant is feasible, and place the patient on the waiting list to between two and three weeks--a 50 percent reduction.

  • Rebuilt payer relationships. Methodist hired a senior administrator of clinical business development who had experience running a successful transplant program. "He helped us win back some managed care contracts and turn the program into a well-oiled machine," Perini says.

    The business plan projected a profit for the program in its second year and payback of the capital investment within five years. So far, so good.

    "Our volumes are exceeding our business plan projections, and this is a service that differentiates us from the competition," Shorb says.

    Lola Butcher is a Springfield, MO-based freelance writer and a frequent contributor to HealthLeaders magazine.

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