Back in the black Featured

8:00pm EDT April 25, 2007
When Norm Mitry was named president and CEO of Heritage Valley Health System in 2000, the financial situation at the organization had just about hit bottom.

Not unlike many hospital organizations in the late 1990s, Heritage Valley Health System faced a financial squeeze created by shrinking payments from government payers as well as from commercial insurers. In 2000, the system’s two hospitals lost a combined $8 million on $214 million net patient revenue.

“The Balanced Budget Act of 1997 caused hospitals to lose significant reimbursements over a five-year period,” says Mitry. “We went from an organization that was always in the black to an organization that was in the red, and we had to bail ourselves out.”

Beyond dealing with the external financial pressures, Heritage Valley and Mitry faced the chore of tying up some loose ends left from the merger in 1996 of Sewickley Valley Hospital and the Medical Center at Beaver, the two hospitals that formed what is now the region’s third-largest health system.

“When we put the merger together in 1996, we made the same mistakes that a lot of people make,” says Mitry. “We said, ‘We’re going to merge, we’re going to love each other, it will be just fine.’ It just doesn’t work that way.”

The MBA solution
To lift Heritage Health out of its fiscal mess and knit the organization together, Mitry and his team did what might be expected. They came up with a mission and vision statement and five strategic imperatives to drive the system’s turnaround and rebirth: quality and customer satisfaction, human resources, information technology, market expansion and growth, and fiscal responsibility.

But to achieve the strategic imperatives and complete the integration of the system, Mitry and his team decided that it wasn’t enough that its middle managers and employees could parrot the vision and mission of the organization. The system would have to be prepared to carry them out through high performance by its 4,150 employees and a modern technology platform, both of which would cut costs and turn red ink to black on the bottom line.

“In most organizations, the average employee doesn’t catch onto the vision or the mission,” says Mitry. “They sometimes latch onto the values. We said we have to find a way to connect the employees with what we’re doing.”

An accountant by education and a veteran of the steel industry, Mitry recognized that hospitals usually promote outstanding clinical and other personnel into management positions, often without the proper preparation for running the business side of their departments.

“What we do in health care is we take a great nurse and promote them to nurse manager and they say, ‘I don’t know anything about managing people, I don’t know anything about finances or balancing budgets,’” says Mitry.

To improve the skills of its middle managers, Heritage Valley came up with a formal training program to give them business management skills. “We came up with something about four or five years ago we call the Heritage Valley MBA,” says Mitry.

Taught in three levels, the first course takes managers through issues like how to coach employees, how to handle human resources, how to read a P&L statement and how to do a budget. They learn basic computer skills like Word, PowerPoint and Excel.

“We explain things like the revenue base, the expense base, just teach them the business side of things and they become much more informed and skilled when it comes to managing their business,” Mitry says. “It helps them personally — frankly, they become more marketable — but it really helps them do their job much more efficiently.”

At the second stage, they learn how to do a market assessment and a cost-benefit analysis. At level three, they learn to put together a presentation about their business unit using the tools they learned in the first two levels. That practical business skill, says Mitry, translates into lower costs and more efficiently run departments.

“We’re teaching them how to be high quality and customer service oriented,’ Mitry says. “We’re teaching them how to manage their human resources, we’re teaching them how to manage their technology, to be more effective and efficient. We’re teaching them how to understand market expansion and growth with new services and we’re teaching them fiscal responsibility.

“Those five imperatives are the core of our system’s strategic plan, so we have the middle managers living and working our strategic plan every day. If they don’t know that, we can’t hold them accountable to manage their business,” says Mitry.

Training managers in business practices makes them more aware of how their departments fit into the larger picture.

“Everyone needs to manage their piece efficiently, and at the end of the day, the organization is successful from a quality perspective, customer service perspective and a financial perspective because everyone understands the pieces the whole way through.”

To help them manage their departments, managers receive regular performance reports.

“We make sure that the financial, quality and customer service reports are in the hands of the managers each and every month on the same day,” says Mitry. “You have a much more knowledgeable management team that can manage better that way.”

Technology tools
Mitry says if Heritage Valley has distinguished itself in one area from other health care organizations, it is in the category of technology.

“The one that’s really different from any other organization — they all have quality and customer satisfaction, and they’ll all have human resources and some sort of growth and fiscal goals, but they won’t have technology,” says Mitry.

Mitry and his team convinced the system’s board to invest heavily in technology, particularly in information systems.

“What our board embraced was that information technology would be the enabler of everything we needed to do to differentiate us from other providers,” says Mitry.

His experience working with information systems dating back to his time in the steel industry led him to believe that an information system that tied the hospital, its patients and its physicians together would produce a more efficient process that would cut costs.

Heritage made a commitment in 1998 to develop an electronic medical record that would reside in a single location, giving physicians access to patients’ entire medical history from remote locations. The information had been collected for the project, but the electronic medical record had not been implemented. An expert at information systems, Mitry was convinced that a more robust system could reduce costs by shortening hospital stays and making the system more efficient overall. He convinced the board to approve a $43 million investment to upgrade its patient information system to include an electronic medical record and customer-friendly features like smart cards and self-service registration kiosks.

“When I left the steel business in 1986, I can tell you that the information systems were more advanced than what we have in health care today, from a process perspective,” says Mitry. “When you go to a basic industry, they have IT systems that fit what they’re doing. In health care, we do so many different things that we buy a software package for this, we buy a software package for that, so we end up with what I call are multiple versions of the truth. So we needed to come up with a single version of the truth, thus the electronic medical record.”

Now, instead of files at two different locations in paper form, patient records can be accessed from computer terminals or by physicians on a personal digital assistant.

“If you were a patient and I were your doctor, I can order a prescription on the PDA and send it to the pharmacy of your choice. If you’re an inpatient, and I do rounds on you and I order some lab work, when that lab work is done (the PDA) will buzz and I can see your results. I can call back and say the patient’s fine or I can order something else. It helps to make the physicians and the nursing staff more efficient.”

Market expansion
Heritage Valley identified market expansion and growth as a strategic imperative but judged that developing large programs attempting to compete with Pittsburgh hospitals wouldn’t be a practical approach. Instead, the system decided to extend into geographies where it could offer niche services and capture patients it could attract to the health system.

“We grow into the backyards of our neighbors but we don’t poke them in the eye,” says Mitry. “We’ll grow into Ellwood City, we’ll grow into East Liverpool but won’t become real competitive. We’ll look at that service area and we’ll determine what services are needed there.”

One of the services Heritage Valley identified was a women’s health initiative, for instance, staffed completely by women health professionals. The two satellite centers draw female patients to the hospital, a key demographic because in addition to the specialized services they require, women often make or have strong influence over the health care decisions for their families.

Heritage Valley’s efforts to revitalize the system have been successful, returning it firmly back in the black.

“It’s been a remarkable financial turnaround for the system,” says Mitry. “In 2000, 2001, we were no different than most organizations. We had significant losses, but for the last two years, we’ve been very much on the profitable side.”

In fiscal 2006, the system posted net patient service revenue of $343 million, with income from operations of $6.1 million, up from $3.6 million in 2005.

While he emphasizes the importance of acting decisively in turnarounds, Mitry warns against moving too quickly, even when the situation looks dire. “Plan your work and work your plan is one of our expressions around here,” Mitry says.

Too often, in the rush to get results, planning takes a backseat.

“Often, when you get into a turnaround situation, you forget about the planning, and that’s the worst thing you can do,” says Mitry. “I wouldn’t make any changes for at least three months. I would inventory the landscape and figure out what you have.”

When a new CEO asked him recently for advice as he took over a troubled company, Mitry doled out a similar recommendation.

“A friend of mine just took over an organization that was in trouble, and my advice to him was you’re not going to fix it in year one,” Mitry says. “Chances are, in year one it might go a little further south. Don’t be discouraged because you’re getting your team in place, you’re learning the lay of the land you’re walking into. So the first year, you might crater a little more. Set yourself a realistic view of how things are.”

HOW TO REACH: Heritage Valley Health System, www.heritagevalley.org