Room to Grow

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Spring 2004 was a heady time for St. Luke’s Episcopal Health System in Houston. Late in April, the system announced it had won a coveted affiliation with Baylor College of Medicine and that the organization’s flagship facility, St. Luke’s Hospital, would succeed Methodist Hospital as Baylor’s private adult affiliated teaching hospital. The announcement followed a bitter and very public fight between Baylor and its previous affiliate.

Although it represented a coup for St. Luke’s management, the new affiliation presented a multitude of potential operational problems. How would the 685-staffed-bed hospital—which, despite a planned expansion, was already near capacity—accommodate the almost immediate increased patient load that the affiliation would bring?

‘Virtual’ construction

David J. Fine was thrown into the middle of the conundrum. Fine took over as president and chief executive officer at St. Luke’s in June 2004. Plans had been made for a new $250 million patient tower that would increase the hospital’s capacity—but even today, demolition and construction is just starting on that building, which will likely open in three years. In the interim, as negotiations progressed on an outright merger between Baylor and St. Luke’s, Fine, his leadership team and the board desperately needed to find another way to accommodate the expected patient volume. “We had quite a shortage of acute-care beds,” Fine says.

Fine and Chief Financial Officer Howard Schramm decided to add a patient progression contract to their engagement with Stockamp & Associates, a Lake Oswego, Ore.-based consulting firm already assisting St. Luke’s with a revenue cycle tune-up. The two initiatives aimed to help staff move patients through the system more efficiently, thus freeing up more beds for the additional volume and adding to St. Luke’s bottom line. “We thought this would be a reasonable way to begin short-term improvements in advance of new construction,” Fine says.

At the time, St. Luke’s was running at about 83 percent utilization, so it knew the potential gains wouldn’t be massive. But a preliminary study showed even an increase to 90 percent utilization would provide the necessary bed space to accommodate Baylor’s referrals.

The 11-month engagement with Stockamp built on communication among caregivers and maintenance workers to help move patients through their stay more efficiently. Each tweak on how the diverse care groups interact saves minimal time, says Schramm, who adds that determining the benefit from patient-progression work is more difficult than tabulating the improvements from the revenue-cycle engagement.

“The revenue cycle side is much more tangible. I can see by our collection levels and other measurables that they’ve improved,” he says. What’s not quite as measurable is on the patient-progression side. “You gain a little time here and there. But by the time it’s all said and done you’ve gained significant time.”

The dirty work

The key gains were made on the units, Fine says, where key players, including nurse managers, social workers, case managers, bedside nurses and physicians—not to mention housekeeping staff—must work together to see that services work smoothly. Sometimes that means different groups must develop a better sense of cooperative care.

“We saw an opportunity in creating a daily unit meeting, where key members talk about every patient on that unit, which is 20 beds or so,” says Michael Puffe, a Stockamp consultant who spent 11 months at St. Luke’s on the patient-progression arm of the engagement. “Individually, people know things about those patients, but until you get these individuals together, you can’t share information.”

For example, at the unit level, the “bed hub” at St. Luke’s assigns where a patient is going within the hospital, whether he’s moving to a different unit or being discharged altogether. Staff on the bed hub monitor what beds are available, “kind of like an air-traffic control center,” says Puffe. “At St. Luke’s the bed hub was an afterthought.”

Nurses previously had bartered over who would accept a certain patient; a reorganization of responsibilities ensured that the bed hub created the right communication protocols. “It made the bed hub the quarterback that it should be, incorporating clinical resources to guide proper placement of patients,” Puffe says.

Meanwhile, at the patient intake end of the hospital, registration and insurance-related programs can also hold up the process, including time spent to collect patients’ demographic and financial information, going through the verification process and notifying the payor upon admission to gain an authorization.

“All that needs to be done in concert so that ultimately the account can be collected,” says Doug Robison, who led the revenue-cycle initiative. “If any missteps occur, they can deny or delay payment.”

Capacity and cash flow

Fine stresses that linking revenue cycle with the patient progression piece was essential because St. Luke’s wasn’t a turnaround story that needed relatively common-sense improvements yielding quick, big payoffs. Under normal circumstances, he says, the hospital might not have felt the need to re-engineer its processes.

“With the affiliation, there’s been more demand for the same number of beds,” he says. “So having an infrastructure that can shave a few hours here and few there off the average hospitalization has an important impact to us.”

Over the 11-month engagement, St. Luke’s recorded a 5.1 percent improvement in overall capacity, which translates to an $8.5 million increase in annual revenue opportunity, Schramm says. Further, the hospital will be able to admit about 1,420 additional patients per year, and the effort created 23 additional “virtual” beds. The hospital cut four hours off the average patient length of stay per bed, mostly attributed to a 38 percent improvement in discharge response time and transportation efficiency, a 76 percent improvement in bed turnaround time, and a 40 percent decrease in bed assignment time.

Those gains allowed St. Luke’s some breathing room for continued negotiations with Baylor, although those talks broke off in September 2006. Even though their merger talks will go no further—Baylor last fall announced plans to build its own academic medical center beginning in 2007—the problems solved from St. Luke’s internal focus will continue to pay off, Fine contends. And at least until Baylor’s new teaching hospital is built, St. Luke’s will still be Baylor’s primary affiliate.

Before the Baylor affiliation, St. Luke’s new patient tower was planned as a $250 million project, Fine says. After the affiliation, it was expanded to about $500 million. “We’re going to be back now to approximately the original number,” Fine says. “Part of the reason we can go back to the lower number is that patient progression has created new virtual beds,” helping to reduce the hospital’s need for capital and, thus, its borrowing needs.

“Like most major teaching institutions we have a near insatiable appetite for capital, so making that stretch farther even with marginal improvements in length of stay makes a huge difference,” Fine says. Both Schramm and Fine were reluctant to provide cost figures for the engagement, but the math seems to work for them. Fine says the consulting engagement “wasn’t cheap,” and Schramm agrees that the effort “drove multimillion-dollar fees.” But Schramm adds that the effort’s first-year results returned $4 for every $1 St. Luke’s spent and will yield a five-year cash benefit to the organization of about $100 million.

“That’s a lot of money,” Fine says.

Philip Betbeze is finance editor with HealthLeaders. He can be reached at




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