SoutheastHEALTH CEO expects $1.2 million profit this year

Just three years ago, SoutheastHEALTH was spiraling.

The rollout of new billing technology turned disastrous. Millions of dollars were not being collected.

The hospital system, based in Cape Girardeau, would announce the exits of key executives, one right after another.

The hospital's bond rating was lowered.

There was a sense of panic in the community as people openly wondered whether the hospital would survive or be sold.

In 2014, the organization suffered a bottom-line loss of approximately $60 million.

Many difficult decisions ensued: Positions were eliminated, employee benefits were reduced, and many contracts were renegotiated.

Three years after the start of the trouble, SoutheastHEALTH has survived the storm.

The hospital has returned to profitability, and officials are excited about future prospects.

It's a new era for the hospital system.

Problems began in 2013, when SoutheastHEALTH deployed a poorly implemented new billing system that mishandled a large number of bills, and income dropped significantly.

Kenneth Bateman joined SoutheastHEALTH as president and CEO at the end of 2014, after a good portion of the rebuild had taken place.

"I came out here because I saw it was a great organization. Southeast has never had an issue with quality. They just had a horrific computer conversion," Bateman said. "And that was fixable."

But to fix the system, and the problems it created, changes were needed. In 2014, five key members of SoutheastHEALTH's senior management left their positions for retirement or other reasons.

CEO Wayne Smith, CFO Hugh King, chief medical officer Dr. Dennis Means, COO Sly Moore and executive vice president of planning and business development Jim Limbaugh all left the system.

John M. Thompson, a current member of the SoutheastHEALTH system board, was chairman of the board at the time of the executive-level exodus.

He said although some of the board changes may have been related indirectly to the billing issues, some members were leaving simply because it was time for them to do so.

Regardless of the reason, changes were made.

"In 2014, the board changed out all of the senior leadership, brought in Huron Consulting, and together, they worked on fixing the billing system for the second half of 2014," Bateman said.

With the help of Huron Healthcare, SoutheastHEALTH set out to fix the billing system that created the deficit.

It also launched the APEX initiative, which focused on making changes in six key areas: clinical documentation improvement, human resources, labor, nonlabor, physician solutions and revenue cycle.

"So by the end of 2014, the billing-system fix was pretty well completed. But at that time, because of the losses, we were also losing a lot of employees," Bateman said.

Some of the losses were due to layoffs, but others were a result of staff choosing to leave the system.

Thompson said there was a loss in confidence in the system at the time and a concern SoutheastHEALTH would merge with another health-care system.

"There never was a point where we had active conversations about any kind of a merger," Thompson said.

But the system's financial standing and increased turnover at the executive level affected the feeling of job security at the staff level.

The decisions were also economic.

"Most of that team had not had an adjustment in over two years in terms of regular hourly or annual salary compensation," Thompson said. "And that had to be done in order to go forward, simply as a business and economic decision," but some saw it as a sign of financial weakness.

When Bateman joined SoutheastHEALTH in December 2014, his focus was on finances.

With the billing issue corrected, SoutheastHEALTH's revenue had improved, but damage had been done.

By March of 2015, SoutheastHEALTH had a Fitch rating of B because of concern with the organization's operating performance through the end of fiscal year 2014.

Bateman aimed to bring SoutheastHEALTH into the black but did not want to do so through further layoffs, which was the initial strategy of the consultants SoutheastHEALTH brought in before he was hired.

"My initial conversation with employees was that we would not use layoffs to fix this situation, because the employees did not create the situation," Bateman said. "And we'd already seen a reduction in our labor force, so at that point, we were actually looking to hire people."

With the help of Huron Healthcare, SoutheastHEALTH lowered its payroll by $12 million in 2015 and lowered benefit costs by $2 million.

Instead of layoffs, Bateman looked for other ways to improve the financial standing of SoutheastHEALTH.

In addition to a focus on productivity with Huron, SoutheastHEALTH was able to reduce its supply costs "by a minimum of over $6 million over the next three years" by bidding out all its major vendors, Bateman said.

"We joined an organization called TPC out of Texas. [It] is a consortium of 11 hospital systems, and they represent 25 individual hospitals. So in the past, our purchasing power was limited to one hospital, one hospital system. Now we're buying with the purchasing power of 25 hospitals. So that's how we were able to significantly reduce our supply cost over the next several years," Bateman said.

In a year's time, SoutheastHEALTH hired 547 employees.

"A lot of them were to replace people who had left the organization, but that has brought our vacancy rate to 6 percent, which by hospital standards is pretty low," Bateman said.

Bateman and others had to evaluate other properties beyond the Cape Girardeau facility.

SoutheastHEALTH had three unprofitable rural hospitals.

"They lose about $6 million a year," Bateman said. Last month, Bateman announced the closure of the hospital in Reynolds County, Missouri, and its related clinics in Ellington and Van Buren, Missouri. Operations will cease effective today.

This decision stemmed from the discovery of a $6 million liability owed by Advanced Healthcare, the hospital's previous owners.

It was not a desperate move, officials said; rather, it was closed because of the specific economics of the single entity.

But the fact remained that the rural hospitals were losing money, so in addition to the closure, initiatives have been put in place to improve the financial standing of the two remaining rural hospitals.

"In Ripley County, (Missouri), we've asked the public to back us with a half-a-cent sales-tax initiative to support that hospital," Bateman said. "That sales tax goes before the public on April 5."

In Dexter, Missouri, SoutheastHEALTH intends to expand the emergency department and move the psychiatric program currently in Cape Girardeau to the new facility, which will help the facility become profitable, Bateman said.

Also, by moving the psychiatric department to Dexter, Bateman said, space will be available in the Cape Girardeau facility for a new cardiovascular pavilion.

"In 2014, we had a bottom-line loss of approximately $60 million. In 2015, we had an operating profit of about $489,000," Bateman said.

For 2016, he budgeted a $1.2 million profit but told the board finances were not his focus this year.

"I want us to be profitable, but I don't want to be focused on the bottom line. I want to invest in our future," Bateman said.

As for the system's Fitch rating, Bateman said SoutheastHEALTH's status is considered "evolving," and he expects an improved rating by the end of April.

"In 2014, we missed our covenant, so as a result, we needed a waiver from Regions Bank, and over the course of 2015, we tried negotiating a waiver with them, and we were never able to obtain it," Bateman said.

SoutheastHEALTH went back into the bond market to refinance Regions out.

"And we've been able to successfully do that," Bateman said.

"So Fitch has us in an evolving status because they want to give us an upgrade to our outlook. They want to give us an upgrade to our credit rating, but they need this refinancing behind us and our 2015 audit issued."

Bateman credits a culture of trust with the employees for the successful financial turnaround.

Through town-hall meetings and an employee communication council, everyone in the system receives the same message.

"Employees may not like the tough decisions, but if they understand why they were made, they can accept those decisions," Bateman said.

The health-care system will focus on strategic growth over the coming years.

Along with the many changes to the facilities already planned, SoutheastHEALTH also intends to launch a health-care plan intended to lower health-care costs for employers.

"We're not an insurance plan, so we can't offer it to individuals, but to employers who are self-insured, we can contract directly with them through this plan," Bateman said. This new initiative, he said, will help SoutheastHEALTH continue its tradition as a "high-quality, low-cost" facility.

"In 2015, my focus was on the finances of the organization," Bateman said. "Now that that's behind me, my focus is on program growth, improving quality patient satisfaction and continuing on the path of lowering our cost to this community."

bbrown@semissourian.com

(573) 388-3630

Pertinent address:

1701 Lacey St, Cape Girardeau, Mo.