Memorial looking at ways to expand market share

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Memorial Health Systems has an opportunity to expand its market share through expanding to other parts of Colorado — even to Kansas.

The hospital system is beginning to reinvent itself as a regional center, and is building the infrastructure to compete, said Mike Scialdone, CFO for the system at Memorial’s monthly update to the city council.

After spending the last two years recouping form a devastating financial hit in 2008, Memorial is ready to begin spending on infrastructure and reorganization, he said.

“We’ve lost a great number of outpatient visits for imaging and radiology,” he said. “Insurance companies are sending more people to the freestanding centers, and not the hospital. We’re reorganizing the department — to be more competitive and more efficient.”

That’s just one way the hospital plans to compete in a complex health care environment. It needs to stop thinking of itself as a “hospital,” only, said CEO Larry McEvoy.

“We need to move away from thinking of ourselves as a bricks-and-mortar building and move toward thinking of ourselves as a network of physicians who are providing regional care.”

Currently, 87 percent of Memorial’s patients come from its primary area — El Paso County. There’s an opportunity to expand to the secondary and tertiary markets, which include counties on the eastern plains, western slope and even into Kansas.

The way to do that is to provide those communities with expertise they don’t already have, he said.

“Then, when they have a deep-water issue — like heart surgery or cancer — they’ll come to us,” he said. “We don’t want to do this in a predatory way, but we do want to be good neighbors.”

The move to focus regionally makes sense locally, McEvoy said.

“If we grow our business regionally, then it brings resources home to take care of people here,” he said. “It’s what hospitals are doing now.”

It’s a switch from past thinking about the health care industry, he said. Hospitals used to only think about the local market.

“But we don’t want to grow by hurting Penrose (St. Francis Health Services),” he said. “We view them as a partner. But we do want to grow, and this is the way to do it.”

It’s also an opportunity Penrose doesn’t have. It’s part of Centura Health, which already has hospitals in Canon City and Pueblo.

“They don’t have as much room to expand as we do,” Scialdone said. “It’s another reason this makes sense.”

Scialdone and McEvoy made their pitch to council as they also gave them number from 2010 and April 2011. Those numbers show declining inpatient volumes and fewer outpatient visits.

In 2010, the hospital saw an 8 percent decrease in admissions for inpatient admissions, and a 6.6 decrease in outpatient visits. The bright areas of the financial picture: emergency room visits were up 4.2 percent and the net income margin grew to 5.8 percent, showing a healthy hospital environment.

“Our days of cash on hand and our overall net income increased,” Scialdone said. “That was due to the health of our investments in 2010. The markets were strong, so we did well.”

Net revenues were down for the year, from the anticipated $574 million to $536 million, he said.

The monthly snapshot for April 2011 was a little brighter. Admissions were down 9.4 percent from what the hospital budgeted and 8.8 percent for the same month in 2010.

Outpatient visits for April were up 1.1 percent from budget and 4.2 percent from April 2010.

Overall, net patient revenue for the month was $180 million, down from the $198 million budgeted by 8.7 percent, but up from the same time last year by 1.9 percent. April 2010 saw net patient revenues of $177.5 million.

“These numbers show we can’t put off changes,” Scialdone said. “We have to invest now, and we have to invest in the right places. That’s what we’re doing in 2011 to prepare for the future.”

If the hospital hopes to expand to other markets outside Colorado Springs, it will have to be free of city control. As a municipally owned system, city law prohibits expansion beyond El Paso County.

“We really think this is where we need to be,” McEvoy said. “It’s the way to pull costs out of the system while increasing quality.”