Maple Grove Hospital
Second only to nurses claiming they will strike solely to save patients’ lives, the most repeated talking point in the Twin Cities these days is: Hospitals are besieged institutions that are at the mercy of a poor economy and uncertain healthcare reform laws.
Well … not exactly.
True, hospitals face a great deal of financial pressure that is outside their control. A weak economy means patients who can pay are deferring treatment while patients who cannot pay are crowding emergency rooms. Throw in lower Medicare payments, and hospitals have a good deal to worry about.
But the hospitals are hardly blameless. Just a few years ago when the economy was healthy, hospitals borrowed hundreds of millions of dollars at cheap interest rates to fund ambitious capital projects. They also enjoyed healthy returns from investment portfolios that made big bets on stocks and real estate.
Beginning in 2008 when the country slid into the worst recession since the 1930s, however, hospitals watched credit dry up and wracked up huge losses on Wall Street. The result: Although local hospitals managed to boost revenue, it wasn’t nearly enough to cover faster-growing expenses, including debt payments and employee compensation.
The hospitals estimate the Minnesota Nurses Association’s (MNA) demand for set staffing ratios will cost them $300 million more. “Hospitals are faced with difficult decisions,” said Matt Weekly, a former hospital chief financial officer who heads the healthcare practice at tax and consulting firm Plante & Moran.
Through GuideStar, MedCity News analyzed the 2008 financial documents of four of the six Twin Cities hospital chains that are trying to negotiate a new three-year contract with the MNA — Allina Health System, Children’s Hospitals and Clinics of Minnesota, North Memorial Health Care and Park Nicollet Clinic. (University of Minnesota/Fairview Hospital and HealthEast had incomplete or missing information.)
While the hospitals varied in performance, two major factors emerged from the financial documents: expenses far outpaced revenue, and once-lucrative investment income has dried up completely.
For example, Allina, the most financially secure of the bunch, reported revenue from services grew a healthy 10 percent to $2.28 billion in 2008.
However, the hospital’s investment portfolio lost $76 million compared to a gain of $27.2 million in the previous year. As a result, Allina reported a total revenue gain of just 4.5 percent to $2.26 billion, while expenses jumped 7 percent.
Children’s Hospital saw an even more drastic change. The hospital said revenue from services increased 8 percent to $540 million in 2008. But Children’s lost $52 million from its investment portfolio, knocking its total revenue to just $516.3 million, down 6 percent from 2007.
Meanwhile, expenses rose 8.4 percent, due mostly to salaries and benefits. Compensation now accounts for 63 percent of the hospital’s total revenue. Anything above 55 percent to 60 percent is “unsustainable,” said Jeff Nelson, a Minneapolis-based partner of Tatum LLC, which supplies interim CFOs to struggling hospitals.
The loss of investment income has especially hurt hospitals, depriving them of much-needed revenue to pay the bills. In addition to Allina and Children’s, Park Nicollet and North Memorial also reported portfolio losses of about $8 million.
While hospitals are hardly unique in losing money on Wall Street, they may be less able to deal with the consequences than other organizations, Nelson said. “Sometimes you’re right, sometimes you’re wrong” in investing, Nelson said.
Nevertheless, hospitals still need to find ways to replace the revenue. “There’s only so much you can cut [in expenses],” Nelson said. “If hospitals don’t manage their cash well, they can’t pay their suppliers, staff and debt.”
Paying off debt can be especially problematic for cash-strapped hospitals that are facing lower patient volumes and reduced Medicare payments. “Anyone who thinks hospitals are cash cows doesn’t understand the complexities of the system,” Nelson said.
Like most companies, hospitals took advantage of plentiful, cheap credit a few years ago to pay for major expansion projects. Now, many hospitals struggle to make interest payments on time.
Last year, Park Nicollet, which had borrowed heavily to finance its aggressive expansion plans, eliminated 7 percent of its workforce to preserve cash. It also closed an occupational health clinic near Minneapolis-St. Paul International Airport and a clinic in Hopkins.
“It’s a huge issue,” said Plante & Moran’s Weekly. “Many hospitals don’t understand debt service. Just 1 percent [interest] on a $50 million bond can make or break a hospital. [Debt payments] can eat up a hospital’s profit margin in a hurry.”
Not all hospital systems are having trouble paying on their debt. In 2007, Allina issued $125 million in bonds (on top of $325 million already borrowed) to help pay for a new hospital in Owatonna in a partnership with the Mayo Clinic, expansion of the emergency department at United Hospital in St. Paul and the expansion of a clinic in Northfield.
Last November, Fitch Ratings boosted Allina’s credit rating to A+ from A. “The upgrade reflects Allina’s improving operating profitability, the strategic benefits from Allina’s growing integrated delivery model, its leading market position, solid balance sheet indicators and light debt burden,” the Fitch report said.
However, Fitch said Allina has a little less cash on hand — $814 million, or 115 days worth — than the rating agency would prefer. Given the volatility on Wall Street and the hospital’s expansion projects, Allina has been trying to convert more of its investment portfolio to assets that can be quickly converted to cash.
The larger issue is whether all of these expansion projects will pay off, Weekly said. Hospitals in recent years have been trying to one-up each other by building new facilities and purchasing new technologies, especially for cancer, orthopedic and cardiovascular treatments.
In April, Children’s Hospital opened a new cardiovascular center on its Minneapolis campus — an all-in-one facility that allows patients to remain on the same floor. The addition is part of the hospital’s $300 million project to renovate its buildings in Minneapolis and St. Paul.
The competition has gotten so heated that some hospital lobbies “look like the Ritz Carleton,” Weekly said. “You have to measure and monitor the investments you make. Am I making my numbers? Do I need to make adjustments? Do I have to shut the facility down, increase marketing or partner with someone else? What’s the return on investment?”
Hospitals are not always good at watching investments, Weekly said. For instance, Maple Grove Hospital, which opened last December, is off to a slow start. Only time will tell if the hospital, owned by North Memorial and Fairview, will pay off.
“Hospitals have got to run this as a business,” Weekly said.
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Good article. The “arms race” amongst local hospitals has, indeed, increased debt load and reserve requirements based upon bond covenants to the degree that they have less room for error. The critical question is whether a potential nurses’ strike will create even more dire conditions sufficient to set off another round of consolidations and closures such as what occurred in the 1990s.
In addition to increasing labor costs, a work stoppage will once again fuel the permanent movement of services to alternate settings where medically feasible, reduce post-strike census and service volume, bend referral patterns to St. Cloud and Rochester, etc.
If I were to speculate further, I would predict that Allina may use the pressure to close Unity Hospital. In addition, the “weak sisters” in the 14-hospital bargaining group are North Memorial which would likely fall into Fairview’s camp and Methodist (Park Nicollet) whose only suitor would be HealthPartners.
Of all these, the one that has made the biggest strategic blunders is Methodist Hospital. First, it got lashed together with a second-rate group practice (Park Nicollet) that has never had any financial discipline. Then, it has spent like a drunken sailor for the past ten years on more “shiny new things” for the Park Nicollet doctors — who are under the deluded impression that they “own the hospital” and need to have one of everything that everyone else in the Twin Cities has.
As interesting as the outcome of MNA’s failing contract negotiation strategy may be, the longer term implications for the hospital landscape in the Twin Cities is even more so . . . and it is also more significant.
Comment by Bo — June 28, 2010 @ 9:34 pm
I remember “the good old days” when hospitals were seen as a public trust and a public resource. Those were the days when news about hospitals appeared in the community section of the newspaper — not the business section. Somehow, we have lost sight of that.
Those were the days when two hospitals such as Miller and St. Luke’s in St. Paul came together to form United Hospitals and co-located with a new St. Paul Children’s Hospital. The level of collaboration and cooperation needed to chaieve that came from community leaders, donors, medical staffs and administration.
Also — in those days — tacit agreements between the hospitals in St. Paul also limited the “arms race”. St. Joe’s was the “cancer hospital”; United was the “cardiac hospital” and (by virtue of its co-location with Children’s) the “high-risk perinatal hospital”. The community benefitted from not having all hospitals trying to be all things to all patients.
Those “good old days” are gone forever.
Comment by Bo — June 29, 2010 @ 9:14 am
Bo, I have to sadly agree with you, “Those ‘good old days’ are gone forever.”
As a RN at a contrat hospital I take issue with you placing blame for failing negotiations soley on the MNA. It takes at least 2 to negotiate. I have never really been a “union person,” and I do respect the position of the hospitals. But how do we insure patient safety? Can we really entrust this entirely to the hospitals? If the nurses are to play some sort of role in this, how do we protect that? I know we are in hard and times, I and most of the nurses I know are willing to make financial sacrifices, but we still need to advocate for our patients. Sadly we will all pay the price for “the arms race.”
I have some predictions as well. All staff, in the hospitals (that are left standing) will be cut back “to bare bones.” Not only do the lobbies of the hospitals look like a 5 star hotel but many patients have come to expect that knid of “service,” (Care.) In the end I believe Nurses will have more patients to care for, strike or no strike, and family will have to fill the void. Instead of leaving the room while the nurse or nursing assistant taking grandma to the bathroom, washing her up, feeding her, making her bed, getting her to use her IS, walking her in the hall, staying over night to make sure she doesn’t fall out of bed, etc. The famiy will be the ones doing those things for Grandma. For better or for worse. Sadly, after 15 years of nursing I am thinking I’d like to do something else, but I love this work, and in this economy what is my alternative. I just hope my back and legs can hold up. As I have told my husband, I feel like I am on a rollercoaster…holding my breath, closing my eyes and holding on tight. :)
Comment by Chell-RN — June 29, 2010 @ 9:54 am
Chell-RN,
I sympathize with you. Your union has put you in an untenable position. The difficulty as I see it is that MNA has been “captured” by the NNU which has an almost singular agenda to impose fixed, rigid staffing standards on hospitals nationally either through labor contracts or state mandates.
While this may appear to be a noble and worthy effort on the face of it, it is untenable, unworkable, unaffordable and will not produce the desired result. NNU has chosen to make its first mark in the Twin Cities and in a California contract (a state that has already created a state mandate that has shown no benefit to patient outcomes).
It’s impossible to know whether MNA actually buys into the NNU philosophy or whether it’s a ploy to solidify the membership and gain public support in order obtain wage, benefit and pension concessions. In any case, it has failed in terms of public support and is showing HUGE cracks in member solidarity that will only get wider if a strike actually ensues and lingers.
MNA has departed from the “interest-based bargaining” model that has led to gains in past contract renewals. Its hostility, passive-aggressive behavior and downright misleading of its members this year borders on criminal.
By its own actions, MNA is damaging the working relationships, collaboration and performance of patient care teams within the individual hospitals in its pursuit of its own agenda. Outcomes and quality of service are the result of dedicated, professional nurses working effectively within their own hospitals across departments and disciplines and in concert with management . . . not through an adversarial labor union.
Comment by Bo — June 29, 2010 @ 10:13 am
To infer that the nurses are the ones with the agenda is only half the truth. The fact is they have been already working more effectively and at the cost saving level. There comes a point when some things are non-negiotable….like patient safety. What’s next? Asking the orthopedic surgeon to go fill in on peds because there is a need?
Comment by Bella — June 29, 2010 @ 3:15 pm
The nurses don’t have an agenda. The nurses are only incidental to the MNA’s and NNU’s agenda.
The hospitals, of course, have an agenda. It is to maintain flexibility in how they staff their institutions, to remain financially healthy so they can meet their missions and serve the community, to engage their own nursing staff in designing and delivering high-performing, multi-disciplinary health care teams that maintain and improve outcomes.
“Asking the orthopedic surgeon to fill in on peds?” . . . seriously, now. Do you really expect a response to such a silly and pointless question? Or do you expect me to believe that hospitals are proposing to mindlessly assign ortho nurses to peds units “because there is a need”? That is B as in B; S as in S, Bella.
Comment by Bo — June 29, 2010 @ 4:14 pm
Bo “Or do you expect me to believe that hospitals are proposing to mindlessly assign ortho nurses to peds units “because there is a need”
In some situations this is happening. An Ohio ED nurse was disciplined because she refused to float to the neonatal ICU. She was written up for insubordination. This nurse knew nothing of the very special needs of premature and newborn babies. She offered to go the ED and have an RN who used to work NICU go there instead. Examples of hospital “flexibility” causing danger to patients are many and the above is but one example.
Here are a few important questions:
Does the hospitals poor investment strategy absolve them of their duty to provide safe patient care?
Is not nursing care the primary commodity that they are selling?
Should capital investments, CEO bonuses, marketing expensive, spending on unproven technology take priority over patient care needs?
Why is no one considering the economic toll on the community when mothers, fathers, working people are killed or become permanently disabled?
If MN hospitals are concerned about reimbursement from CMS perhaps they should take the precautions necessary to minimize the “do not pay” or never events- all of which are inextricably tied to nursing care.
Can anyone provide a rational explanation as to why Minnesota hospitals will not publicly report their real (not budgeted) nurse to patient rato? If staffing is as good as they claim then they should not oppose this.
What about the loss of human dignity that occurs in short staffing situations?
Which of the quality measures that Minnesota hospitals are touting excellence in reflect human dignity? Perhaps MHA would like to report the number of people who die alone in their bed after asking a nurse to stay, the number of confused elderly that are phsically or chemically restrained because no one is available to keep them safe without same, or the average number of hours per patient day that patients lie in their own excrement?
The Minnesota hospitals have provided no information to substantiate their claim that implementing ratios would cost $250 million. Why is that number taken at face value?
Interestingly, California hospitals made the same argument against ratios – none of their dire predictions have come to pass. In fact, safe nurse staffing SAVES money.
200,000 patients are dying every year from preventable medical error. Errors that are preventable with safe nursing care. This number does not factor the number of patients who become permanently physically or neurologically impaired.
This is more than a labor dispute it is a monumental public health crisis and cutting costs on nursing care is at the center of that crisis.
Comment by Michelle Mahon — June 29, 2010 @ 4:48 pm
Minnesota (and that is what we are talking about here) has had a voluntary system of reporting adverse events in hospitals and surgi-centers for about the last decade. Guess what — the incidence of adverse events is extremely low and has been declining every year. The Minnesota Health Department is the hub of this data collection and the point of coordination for multi-disciplinary teams that have designed and deployed several successful improvement efforts for a variety of event types. These teams are data-driven. They use the reporting as a starting point, do root-cause analysis and proceed through PDCA cycles. Guess what — the MNA is a participant in many of these teams. Guess what — that’s the same MNA that is claiming such “dire current and future” patient outcomes due to staffing levels in hospitals! No. The whole “patient safety” meme in the MNA’s strike strategy is a ruse for it’s master’s (NNU) agenda and a crass manipulation of the dues-paying members it’s supposed to be representing. The center of the argument is not some trumped-up healthcare crisis in the Twin Cities, Please spare me the “sky is falling” routine.
Comment by Bo — June 29, 2010 @ 5:06 pm
I forgot to mention that the root-cause analysis of all these adverse events concluded that RN staffing was the cause in three percent of all cases.
Comment by Bo — June 29, 2010 @ 5:09 pm
Key word VOLUNTARY. How many incidents were not reported – no one will ever know. If hospitals get to pick and choose which events they report it is no one wonder that staffing was not found to be a root cause.
As and example: Voluntary reporting works so well (insert sarcasm) that The Joint Commission has reviewed (and received) less than 1,000 reportable events for the ENTIRE nation. Clearly the number is much greater.
Comment by Michelle Mahon — June 29, 2010 @ 5:25 pm
Addition to the above: TJC received less than 1,000 voluntary reports of adverse events for a period of 13 years for the entire nation. Hospitals would like to shroud themselves in a cloak of secrecy, while simultaneously expecting people to trust what they say.
Comment by Michelle Mahon — June 29, 2010 @ 6:03 pm
right from the MDH website: “The Adverse Health Events Reporting Law, passed during the 2003 legislative session and modified again in 2004,…requires [emphasis mine] that these facilities disclose when any of 28 serious reportable events occur and requires MDH to publish annual reports of the events by facility, along with an analysis of the events, the corrections implemented by facilities and any recommendations for improvement.”
Try key words: “mdh patient safety”
Comment by Glynis — June 29, 2010 @ 8:48 pm
I relied on Bo’s statement that reporting was voluntary. But the most recent report states this “The workgroup’s discussion highlighted the difficulty of determining whether staffing
levels were adequate for safety at the time of an event: I would hardly say that staffing has been ruled out as a root cause of any adverse event. Rather, the complex nature of the role of RNs in preventing adverse events is difficult to quantify in statistics. I think that the fact that staffing is a significant contributing factor to many adverse events is one that is well documented in the literature.
If the hospitals are not reporting their staffing ratios how can one be sure that staffing is not a contributing factor?
Comment by Michelle Mahon — June 29, 2010 @ 10:48 pm
I just cannot bring myself to feel any pity for ANY “business” who’s executives make what they do, get the pay increases they get, get the bonuses they get, and then cry poor mouth when it comes to the patients, who, by the way, are the reason these places exist at all!
Comment by Bonnie Martin — July 1, 2010 @ 11:26 pm
Park Nicollet has sunk so low it does not follow through on promised benefits for its employees. When one retires or resigns – Park Nicolle will not pay out the employee’s accrued PTO. I have worked in healthcare since 1973 ( in Wisconsin and Minnesota) and each time I moved on to a different job my employer compensated me for unused vacation or PTO. Until I worked for Park Nicollet. Beware those of you who are considering accepting a position with Park Nic. Never thought I would see the day in USA that a company would treat its employees in this unfair manner. Very sad! David Weissner received his full package of benefits as he left the organization after years of mismanagement.
Comment by Cindy Lulloff — August 23, 2010 @ 8:36 pm
Wish Bo would come back and comment now that the contract is settled and see how wrong you were. You do not belong to MNA, you do not belong to NNU, you only know what you read, your conclusions that MNA has an agenda and the members are in the way is ludicrous. You may think you have it all figured out but in the end, it’s just your opinion and that turned out to be incorrect. No one is safe my friend and I will take MY union which works for me, with me as much as I work for them then no union at all. Lastly, don’t believe MNA in hospitals have compromised working relationships. It was how MNA nurses were treated by the hospital corporations that has compromised working relationships.
Comment by MNA RN — August 31, 2010 @ 9:49 pm
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