Dozens of citizens expressed dismay and anger about the decline in the financial health of Southwest Memorial Hospital during an emotionally charged community forum Monday night at Cortez City Hall.
More than 130 people packed the hall to ask questions and hear from the Southwest Health System and Montezuma County Hospital District boards, the two entities responsible for overseeing the publicly owned facility.
Many in the crowd implored the SHS to reconsider renewing a contract with popular orthopedic surgeon Douglas Bagge. And at one point, the SHS board members stood up and apologized to the crowd for their lack of oversight that led to the hospital’s decline.
After realizing the hospital was in rapid decline in early 2018, top managers were fired, and a specialist recovery team, Community Hospital Corp., was brought in to conduct a forensic audit.
By June, it was discovered Southwest was drastically overstaffed for a community of this size, said new CEO Tony Sudduth, of CHC.
The hospital faced closure within months, he said, and a new management team laid off 40 full-time employees in August and implemented an array of corrective actions to revive the hospital. Full-time staff dropped from 423 to 383, representing a savings of $5 million.
High overhead costs attributed to staffing were severely outstripping revenues, dropping cash on hand from $12.7 million in 2015 to $2.5 million in March 2018. Bonding requirements that funded a new $32 million expansion requires at least 80 days cash on hand, equaling $13 million.
In April, the hospital was generating $144,000 per day, but expenses were $167,000 per day.
“Every day, $20,000 was going out the door. What that meant was the hospital was going to be totally out of cash in 111 days, and the doors would have been shut with no chance for recovery,” Sudduth said. “We had to make drastic changes to get back on track.”
Public weighs inMany residents wondered how the hospital boards could have missed the financial problems.
Financial ratios track hospital health, and “it is the responsibility of SHS to make sure ratios are at the required level,” said Marcy Cummins.
SHS board members Terry Cook, Tom Rice and Steve Fusco said they put too much trust in previous managers. “We did not get enough financial data, and you’re right, we should have known,” Fusco said. “We were told low Medicaid (reimbursements) was the problem, but were blindsided when that turned out not to be true. Now we will be less timid and not assume management has things under control. We blame ourselves for not being more watchful and assertive.”
A finance committee has been reinstated so board members are more involved, said MCHD board member Joseph Matthews. Both boards noted they are serve as volunteers and do not operate the hospital. They said additional board training is needed to become more informed on hospital and health care management and to better prepare future board members.
The decline in cash on hand was supposed to be counteracted by a millions of dollars in back payments supposedly owed by Medicaid, Cook said.
“We were sold a bill of goods that was not there,” Cook said. “We are sorry and embarrassed by it, and we are grateful to be on a slow crawl back.”
Some commenters said staff morale and workplace culture was as important as cutting costs and upgrading the facility.
“I’m proud of the new building. I voted for it, and we moved here because of a good hospital,” said retiree Jim Wetherill. “You need to be careful that it is not just the finances of the hospital that’s important, but the culture of the organization too.”
Layoffs hurt the community and families, said a woman whose relative was laid off after working there 24 years.
“How can you pay for a $32 million new building but lay off 40 people, then ask us to support you?” she said.
SHS board members said the layoffs were “agonizing and horrible” but were necessary to keep the hospital afloat.
Fusco said the upgrade was necessary for the aging hospital and outdated patient wing.
“When we analyzed how much it would cost to repair all the problems, it made financial sense to build a new patient wing,” he said. “At the time we made the decision, we were in a good financial position, and I still feel it was the right decision to improve the facilities.”
The new two-story medical office building also has long-term cost-saving measures, Fusco said, because it consolidated offices and medical services under one roof, instead of spreading them across town.
Officials said $32 million in bonds is a separate pot of money secured for the completed expansion. Payments are tied to a sales tax approved by voters in 2014 and to future hospital revenues. But lenders are alarmed that a key condition of the bond, 80 days cash on hand, is not being met, and they are closely monitoring the situation and negotiating a forbearance agreement.
Lenders will travel to Cortez to meet in executive session with SHS on Oct. 10 to discuss the financial turnaround.
SHS board members stood and apologized to the crowd for not averting the crisis.
“We are human and make mistakes,” Cook said. “It was a perfect storm of things going wrong. Tough decisions had to be made to prevent going bankrupt and keep the hospital we have serving the community.”
“Give us some time to get back on track,” said MCHD board member Matthews. “We know there are hurt feelings out there, but if we don’t get buy-in from the community, this won’t work.”
Board residents urged community members to get involved. They can run or be appointed to the MCHD board, and three positions on the SHS board are open.
Keep local talentSeveral commenters urged SHS to keep Dr. Doug Bagge on board, and the crowd responded with hearty applause. The longtime local orthopedist learned in August that his contract would be terminated in December. New orthopedic surgeons are being recruited, SHS said.
“Financially it is a bad move to let go the experienced people who are trusted and do not want to leave,” said Gary Stevens. “Negotiate to keep Dr. Bagge here. He has a large patient following.”
Sudduth said he was open to a discussion.
“Maybe we can reach an acceptable agreement,” he said. “Ultimately we are willing to talk with any physician with interest in working at this hospital.”
On the brighter side, Sudduth said the turnaround plan has brought the hospital closer to its 2015 position before the surge in hiring occurred. That year, it made a profit of $1.7 million, and in 2016 it made $2 million.
In 2017, the hospital lost $7.8 million.
Cost savings from layoffs, a new purchasing plan expected to save $1 million per year, improved billing procedures, and other measures have reduced expected losses in 2018 from $6.7 million to $3.5 million, Sudduth said.
“We have seen growth in revenue and lower expenses the last few months,” he said. “We are nowhere near where we need to be, but what we are doing is working, and we feel confident things have turned in the right direction.”