Memorial: Indecision is costing market share

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Memorial Health System’s precipitous drop in patient volume is due to its uncertain future, the hospital’s officials say.

Patient volumes are down 13.4 percent from the first quarter 2011 projections, said CFO Mike Scialdone. Volumes are also lower than for the same time period last year.

Scialdone says it’s a direct result of uncertainty about whether the hospital will be purchased by a private company or become a nonprofit, a decision that will likely go before voters in November.

“Doctors don’t want to get married if they don’t know who you are or who you’re going to be,” he said.

“They worry that they’ll be in bed with HCA or Tenet – and they don’t like those for-profit systems.”Those hospital systems worry doctors, Scialdone said, because they focus on shareholders and profits – instead of on providing high-quality care.

And that isn’t the case with Memorial’s main competitor, Penrose St. Francis Health Services.”With Penrose, they know who they are – they are Catholic Health Initiatives. They’re able to tell people exactly who they are now, and who they’re going to be tomorrow,” he said. “And they’re very good at doing that. It’s shifted the market share.”

Penrose is slowly gaining share from Memorial. Last year, it gained 2 percent of the market from the municipal hospital, and Penrose CEO Margaret Sabin has signaled her intent to move the market to 50-50.

Currently, Memorial has about 57 percent of the market to Penrose’s 41 percent. The remaining 2 percent go to hospitals in Denver.

Penrose’s outpatient volume grew 6 percent in 2010. Its inpatient rates were up 3 percent.

Memorial’s future is up in the air while the new city council learns about the municipal health care system, and about the work of the Citizens’ Commission, created to give recommendations about the hospital’s future.

The commission recommended that council turn it into an independent nonprofit, a decision hospital administrators support. Voters have the final say, however. The council must decide by August whether to put it on November’s ballot.

Scialdone made his remarks at the Colorado Springs City Council meeting earlier this week, as he and CEO Larry McEvoy were discussing the system’s financials and history with the newly elected council.

Overall, Memorial is still “stable and healthy,” he said. The system has more cash on hand than projected and is doing well.

But patient volumes equal revenue, and that’s coming in 9.3 percent lower than anticipated for the quarter. Memorial earned a little more than $135.3 million the first quarter, down from the budgeted $149.2 million.

Volume was down slightly for all of 2010, as well, according to the system’s financial information.

“Even though we’re below targets, we’re still profitable, still financially viable,” Scialdone said.

“The thing about Memorial that’s different from most hospitals – 100 percent of the net income goes back into the system.

“However, the net income margin – about 4.8 percent – means the hospital is stable, but unable to invest in the latest equipment in the fast-paced world of health care technology. Two years back, we were at 6 percent, which is where we need to be,” he said. “But we’ve built a very stable platform. ”

The emergency department remains the busiest in the state, providing a much-needed boost to the bottom line, he said. The system is on target to see more than 130,000 patients this year in the ER. The hospital budgeted for 33,991 ER patients in the first quarter, and has seen 34,078.

The other big budget number – one that interested council members – is the amount of charity care and bad debt. Despite higher emergency room visits, the bad debt and charity care has remained stable, even during the recession, Scialdone said.

In the first quarter of the year, bad debt and charity care equaled about 3.9 percent of the overall budget. Annually, the two cost the system about $100 million, Scialdone said.

Striking a new tone

Both Scialdone and his boss, CEO Larry McEvoy, struck a more conciliatory tone with the newly elected City Council members. During a council meeting this week, both said they were available to provide more information whenever council needed it.

“There have been times I’ve been on the hot seat,” McEvoy told the council, “But we’ve created stability and we want to have a real dialog with the council. We’re here to answer any questions – phone calls or e-mails.”

Currently, the system is occupied with the details of a possible switch in ownership and governance. Among other things, it must reconcile the amount of money it needs to pay the Public Employees Retirement Association – about $142 million – in order to leave the system.

Memorial is working on its own actuarial figures to counteract the PERA figure.As council moves toward a decision whether to put the issue on the ballot, McEvoy assured him that Memorial would play whatever role they deemed necessary.”We want to hear from you what you want from us,” he said.

“When you want us to stand up; when you need us to sit back. We don’t want to give the impression that this is some kind of food fight. We want the voters to decide, and we want to make sure they have all the information they need to decide.”