If Memorial Health System were to fashion itself after any other hospital network in the nation, it would be Poudre Valley Health System.
Located in Fort Collins, Poudre Valley made the move from a public hospital to an independent nonprofit in 1994. At the time, the hospital had $100 million in revenue and 1,600 employees. Today, it employs 4,500 people with revenue of $1.2 billion.
Memorial CEO Larry McEvoy believes the future of Memorial could be just as sunny so long as it is allowed to follow a similar path. McEvoy repeatedly invoked Poudre’s name during his hour-long presentation earlier this month to the Memorial citizens’ commission.
His presentation was made as part of the commission’s months-long examination of the ownership options available for Memorial. The city is considering selling or spinning off the system to avoid the potential of taxpayer bailout. This week, the commission held its latest meeting on the issue. It is expected to make its recommendation to the city council Nov. 22.
Skeptics greeted McEvoy’s pitch by questioning the financial stability of nonprofit hospitals. But the Poudre Valley experience tells a decidedly different story.
“Poudre Valley more than doubled jobs in 15 years,” McEvoy told the commission. “We could do that, too. Health care is a huge industry, the largest in the country. Colorado Springs needs to take advantage of this jobs engine.”
McEvoy projected that Memorial’s economic impact could reach $440 million annually based on the salaries and secondary jobs it would create as a nonprofit. Memorial’s impact today: half that figure.
Thanks to its change in governance, Poudre Valley was able to develop a long-term strategic and financial plan that included extending its reach beyond Fort Collins and Larimer County.
“We wanted to meet the needs of a broader geographic area,”, Poudre Valley CEO Rulon Stacey said, explained to the commission in an earlier session. “If we didn’t, we would be swallowed.”
So, instead of being consumed by competition, the system expanded.
It now includes a new medical group, a new hospital, and a foundation with an outpatient campus. The changes it made allow the system to work outside Larimer County borders, as well as increase patient services.
Poudre Valley recorded 21,000 “patient days” in 2009, a big increase from the 13,000 in 1998. A patient day is the number of days a patient is in the hospital.
Expanding its service area was key to that growth.
“We drew patients from outside the immediate area to come to us,” Stacey told the commission. “We have a relationship with a hospital in Scottsbluff, Neb., that used to send patients to Denver, but now they come to us.”
Fort Collins is a smaller city than Colorado Springs, but Poudre’s $1.2 billion in revenue far outstrips Memorial’s $542 million. And while Poudre has been growing, Memorial has not.
“You will not be as effective if you stay ‘as is,’” Stacey said. “In the era of health care reform, you have to be in a position where you can do something because it is the right thing to do — the system can’t be subject to an election.”
He was referring to rules that subject Memorial’s plans to city council approval.
Stacey said other ownership approaches also have their advantages, to a point.
“The most efficient models are investor-owned,” he said. “There’s one person calling the shots, but you lose all control as a community and an organization. You get a big, up-front cash payment, but you have no idea of the future.”
At Poudre, and in the plan being promoted by Memorial, a nonprofit board would have control.
In its negotiations with the city, Poudre Valley had to make some concessions: the systems’ assets return to public control in 40 years, it can’t be sold without its board’s approval, and it can’t stop providing services that pay less, like maternal and infant care.
In addition, the city created the Northern Larimer County Health District, which receives $300,000 a year from the hospital, as well as a portion of property taxes.
“There’s nothing quite like it in the state of Colorado, and probably the nation,” said Richard Cox, a spokesman for the district. “The hospital can focus on its core business — creating more health care opportunities, and we can focus on local issues.”
The district also now provides some additional health services for low-income residents, including dental care through a clinic and a prescription drug benefit. It also collaborates with the hospital.
“We don’t have anything to do with day-to-day (hospital) operations,” Cox said. “But there are some long-term public health initiatives that we do work with them on.”
Today, 15 years after the switch, Poudre Valley is on more financially secure footing than ever.
Standard and Poor’s Rating Service recently upgraded the hospital’s bond rating from an A- to an A, noting “marked improvements to an already sound balance sheet.” The Sept. 1 upgrade was the second increase for Poudre Valley in two years.
Cox said the system’s ability to enter into partnerships with other parties helped it become more financially secure.
“With both the district and the hospital, we’re serving the people in Larimer County in a way that no one was before,” he said.
Memorial wants to copy the success of Poudre Valley, including entering into new deals that would extend its reach beyond the Springs, but knows its negotiations with the council will be fraught with political wrangling.
“We know what we come up with here won’t be exactly like what anyone else has done,” McEvoy said. “We want to make sure we can stay financially secure, create new partnerships and expand our reach before our competition does. We think this is the best way to do it.”