Arkansas Business

The University of Arkansas for Medical Sciences Medical Center lost $28 million in fiscal 2009 and was, its chancellor said, on track to lose $36 million in fiscal 2010.

Instead, its loss for the year that ended June 30 was cut to $3.34 million, and Chancellor Daniel Rahn said UAMS' hospital, University Medical Center, had reported net income of $1 million to $4 million a month since March.

UAMS credits the hospital's improved financial health partly to Navigant Consulting Inc. of Chicago, which was hired in February.

UAMS has made some hard choices, like leaving positions open and ending a popular but costly work schedule for nurses. But some of the changes seem simple and obvious: Millions of dollars in savings have been found by finding better prices on medical supplies, and millions in new revenue have been produced through stricter compliance with insurance requirements on patient pre-certification and procedure coding.

Twenty to 30 Navigant employees are expected to stay on the campus and work with UAMS for another nine months on the improvement plan. UAMS has paid the consultants $1.68 million through Sept. 10, and Chief Financial Officer Melony Goodhand said the consultants would be paid a total of $7.5 million.

Since July 2009, 386 positions have been eliminated from the hospital, without layoffs, which reduced expenses by about $2 million a month, Goodhand said. UAMS has 9,413 employees, of which 3,141 work at the hospital. 

UAMS expects to see a savings on expenses of $47.7 million for its current fiscal year, which began July 1. It's unclear, though, what that expense savings will mean for its operating margin, which showed an operating loss of $43.1 million for the year that ended in mid-2009.

"We are in the middle of recasting our budget to reflect the recent improvements in both revenue and expenses," UAMS spokeswoman Leslie Taylor wrote in an e-mail to Arkansas Business. "We did the hospital budget back in March before the improvements were identified."

The financial picture of the overall UAMS campus also improved for the fiscal year that ended in June. It showed an operating income of $20 million, thanks in part to an investment income of $15.9 million, according to Taylor. For fiscal 2009, which began just before the stock market crash of 2008, the investment losses were $14.6 million.

Still, Rahn, who succeeded I. Dodd Wilson as chancellor in November, told Arkansas Business that UAMS had more improvements to make.

"Many of the things that we have implemented were really in the works when I hit the door," Rahn said. "This is a team effort and there's always room for improved efficiency, so it's a never-ending process."

He said he would like to build UAMS' cash reserve. As of August, the reserve held $155 million, up from $110 million in November.

"We also need to build our reserves in order to anticipate ... changes in the whole [health care] system over the next several years," Rahn said.

Also, UAMS will be part of the statewide trauma system, which is expected to be operational next year. Last week, UAMS was the first hospital in the state to receive a Level I designation from the Arkansas Department of Health for providing the highest level of trauma care.

UAMS Growth

Part of UAMS' financial trouble can be blamed on its growth and the sluggish economy. At the end of 2008, as the country fell into its worst recession since the 1930s, UAMS was wrapping up major expansions and new construction.

While other university hospitals around the country were freezing their payrolls and shelving capital projects, UAMS was in a growth mode. It had added 300 employees to operate its new 10-story, 540,000-SF, $200 million hospital in January 2009 and its six-story, $32 million Psychiatric Research Institute, which opened in December 2008. The hospital featured the latest medical technology, larger all-private patient rooms and neonatal intensive care units.

For fiscal year 2007, which began in mid-2006, UAMS spent $600.5 million on compensation and benefits. Two years later, those costs alone had risen to $707.1 million.

UAMS' former chancellor, Wilson, had lobbied for a new hospital for years, saying the one it had was too old and small.

When "we moved into the new hospital, it was a dramatic change," Rahn said. "There was lots of concern directed toward assuring that there was an adequate number of staff. The change in operations associated with moving into the new hospital coincided with general experiences we've all had with the economy."

He said those two forces "conspired to get us into negative territory more dramatically than was anticipated."

At the end of June 2009, the UAMS Medical Center had patient revenue of $1.2 billion and a loss of $28 million.

 

More Losses

In an attempt to trim expenses, UAMS in October stopped replacing employees who left, said Richard Pierson, UAMS vice chancellor for clinical programs and executive director of UAMS Medical Center.  

In November, when Rahn became chancellor, one of his first moves was to freeze wages for about 3,300 employees and rescind raises given on employment anniversaries earlier in the fiscal year.

"I was hopeful that we would see results dramatically," Rahn said.

But the wage freeze and the continued shedding of positions weren't enough to balance the budget. Between July and December 2009, the hospital lost nearly $18 million.

Rahn said UAMS couldn't wait longer to see if its cost-cutting measures would work. UAMS then called in outside help to manage the hospital more efficiently.

In February, Rahn went to the Legislature's Joint Budget Committee for permission to hire Navigant at a cost of about $800,000.

Rahn said it was not uncommon for hospitals to hire consultants to help improve their finances.

For instance, the University of Alabama at Birmingham Hospital hired Navigant in 2009 to review its performance. After it put into practice all the suggestions Navigant made, including eliminating positions and scheduling changes, the medical campus is saving about $15 million to $18 million annually, according to an e-mail to Arkansas Business from Dale Turnbough, a spokesperson for UAB.

 

Changes

After studying the hospital, Navigant said it found ways that would "provide greater than $40 million to the bottom line," according to Navigant's five-page report to UAMS. The five-page report is the only written report given to the hospital, according to spokeswoman Taylor.

"The reason is because we went straight from Phase 1 into work groups which are made up of UAMS faculty and staff with assistance from Navigant," she said in an e-mail to Arkansas Business.

A Navigant spokeswoman didn't return a call or e-mail to comment if a five-page report was common.

Still, UAMS had to go back to the legislative committee to get additional approval to spend more money on the firm, which it did in April, Taylor said.

The moves with Navigant and UAMS seem to be paying off. The hospital posted net income of $2.2 million in March and $2.9 million in April.

Navigant assisted UAMS in improving its billing procedures, Goodhand said.

UAMS now makes sure it gets pre-authorization from its patients' insurance carriers before performing any non-emergency procedures, she said.

"If we don't do that in advance, then sometimes we don't get paid," Goodhand said.

Navigant also helped ensure the medical procedures are properly coded so UAMS receives payment from the insurance company as quickly as possible. Navigant also pitched in to help reduce a billing backlog from $33 million to $16.6 million, Goodhand said.

"The backlog doesn't mean that we weren't going to bill and get that money," Pierson said. "This is just cleaning up so bills are moving through faster."

Goodhand said Navigant also was able to help UAMS renegotiate its contracts with medical suppliers. She said Navigant had contacts across the country and knew how to get the best prices on supplies.

As a result, UAMS is projected to save $10.2 million to $15 million on its supply chain for the fiscal year that ends in June, Goodhand said. She said UAMS had already seen a savings of $2.5 million so far for the current fiscal year.

UAMS has continued to eliminate positions, which is something Navigant hasn't helped with, said the CFO Goodhand.

"We don't pay them any fee for helping us reduce [positions]," she said. UAMS didn't want to give Navigant an incentive for doing that, she said.

Even though no layoffs occurred, some employees were transferred to other open positions within the hospital, Pierson said. Still, the labor cost savings is projected at $21 million, Goodhand said.

Another change that's in the works is how nurses are scheduled, Pierson said. For years, during a dire nursing shortage, UAMS allowed some of its nurses to work two 12-hour weekend shifts for the same pay as a 40-hour weekday shift, Pierson said. Starting Jan. 1, that practice ends. Nurses will have a blended schedule, working weekdays and some weekends.

That change is expected to save the hospital about $3 million, Pierson said.

Rahn said the blended schedule was "most common in this local market and nationally at academic health centers."

 

Other Improvements

Rahn said he would like for UAMS to have enough money to give the raises that have been frozen since 2009.

Rahn also said he would like to have extra money so UAMS could invest in technology and programs for its academic research. Even though UAMS has received funding for research, the grants don't always cover the costs, he said.

"So just to keep the whole ship afloat, we really need to generate an operating margin from the hospital," Rahn said.

He said the hospital's financial report card is better than it was a year ago, though.

"I'm very bullish on the future of this organization. It's important to the people of this state. It's important to the economy of the state, and there's a lot of great things going on," Rahn said. "It was a little bit of an unnerving time ... for a while, but we went through some of the financial stresses. But we're getting out of it."