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Case Study

The Situation

When Southwest Health System (SHS), in Cortez, Colorado, contacted Community Hospital Corporation (CHC) early in 2018, the hospital had violated various bond covenants associated with its $30 million expansion and renovation project. In fact, the organization had failed to meet the 80 days-cash-on-hand requirements for four consecutive quarters. This violation triggered technical default, which could have led to hospital bankruptcy and closure.

Lenders concerned with the financial situation communicated with the board directly and required an outside consulting firm to evaluate the situation and develop a plan of action.

Unfortunately, the financial crisis SHS experienced is not uncommon. Community hospitals across the country face serious financial distress. In fact, 190 rural hospitals have closed since January 2005 (147 closures since 2010; see North Carolina Rural Health Research Program).

The Plan that Worked

Several factors led to SHS’ performance turnaround. The first was immediate action by SHS board members after receiving the serious news in 2018. First, they removed the administrative team. Next, they engaged CHC Consulting to develop a plan to turn around the hospital.

CHC first conducted a comprehensive operational assessment, which involved a deep dive into financial and operational processes. The comprehensive assessment included the development of departmental action plans and the implementation of recommendations for cost reduction and revenue enhancement. SHS performance was benchmarked against other similar hospitals across the country. Areas needing improvement included:

  • High turnover in executive leadership
  • High staffing ratios compared with similar-sized hospitals
  • Underpayment for reimbursable services per cost report analysis

The Results

Once the operational assessment was finalized, the SHS board signed a multi-year management contract with CHC Consulting. Recommendations that helped improve the hospital:

  • SHS had a $3.7 million performance improvement in 2018 after staff reductions brought benefit packages to competitive levels, and contract labor was reduced.
  • The cost report reconciliation indicated the hospital had been underpaid for reimbursable services by more than $419,000.
  • Switching to CHC Supply Trust identified $2 million in savings on supplies while creating opportunities for supply chain optimization.
  • A Medical Staff Development Plan helped improve physician relations and attract new physicians.
  • By the end of 2021, cash-on-hand exceeded the required 80 days, up from 15 days in 2018 when the hospital realized its critical state.
  • Annual patient clinic visits increased to 54,836 as of December 2021, up from 43,798 in December 2020.
  • Patient satisfaction scores reached a six-year high.

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