To: Robert Ritter <email@example.com>
Sent: Tuesday, March 31, 2009 5:28:07 PM
Subject: Reasons for Option 2 on chosen hospitals
March 31, 2009
To: Robert Ritter, Potentate
Hi Ill. Sir Bob
I said that you would be receiving a number of updates as we process each of these. They will give you the reasons for some of the options etc. This one is for questions regarding those hospitals chosen.
Why the Hospitals under Option 2 were Chosen
The financial crisis facing the organization requires us to consider dramatic measures to meet a growing gap between operating revenues and expenses. Based on the assessment of headquarters staff and other professional input from across the system, it is apparent that no single action represents a viable solution to meet this ongoing problem. Option 2 calls for the cessation of hospital activities coupled with dramatic cost reductions in Headquarters, Research, and Employee Benefits. At the same time, a balance is struck by significantly increasing revenues generated through future philanthropic endeavor and implementation of third party pay. This balanced approach moves us down the path to financial stability. Failure to take appropriate action will mean the certain demise of Shriners Hospitals for Children in approximately 5-7 years. Meeting this challenge requires bold leadership.
In evaluating the hospitals, a number of objective criteria were identified to assess each facility. While operational efficiency is important to an organization, there are strategic factors that must take precedence.
The criteria used included a list of performance measures, hospital specific information and market-related factors. A 5-point Likert Scale was utilized, with 1 indicating a superior ranking to 5 indicating the lowest ranking. The measures chosen were:
1. Hospital Infrastructure: The condition of the physical plant and the requirement for future investment in capital infrastructure;
2. Physician Recruitment Potential: The ability to recruit physicians to a given hospital;
3. Academic Model Potential: The ability to achieve relevance given proximity and relationship to pediatric specialty teaching programs;
4. Average Daily Census: The average number of patients in beds during any 24-hour period throughout the year;
5. FTE Per Adjusted Patient Day: The number of Full Time Equivalent employees needed to staff the hospital, adjusted for outpatient activity and patient acuity;
6. Expenses Per Adjusted Patient Day: The cost to operate a hospital on any given day, adjusted for outpatient activity and patient acuity;
7. Geographic and Demographic Optimization: The impact of market geography coupled with the future population demographics of the region.
In addition to these seven criteria, staff looked at performance metrics used on a daily basis to further refine the analysis. These included but were not limited to performance on the system-wide dashboard and Key Volumes reports, budgetary performance, and suggestions from the Joint Boards. With regard to this last element, staff received guidance from the Joint Boards to exclude the facilities in Canada, Mexico and Honolulu due to their international reach. Also upon recommendation of the Joint Boards, staff excluded the Twin Cities facility from consideration at this time, due to ongoing talks with the University of Minnesota and Fairview Health System. It is the desire of the Joint Boards to allow these talks to progress to a point where a more reasonable assessment can be made of this future opportunity. Staff also received guidance from the Joint Boards on maintaining services to the various regions of the United States. The Joint Boards felt that a lack of presence in any portion of the country could adversely affect Shrine membership and potential donations to the organization.
Based on these criteria and subsequent guidance from the Joint Boards the following hospitals were chosen for cessation of services.
1. ERIE: This hospital has consistently struggled to maintain patient volumes since the departure of its previous medical staff almost two years ago. Furthermore, the hospital's patient population is heavily constituted with patients requiring minimal surgical intervention but long term rehabilitation.
· Location: The hospital is isolated from any Academic Medical Center which would provide subspecialties in Pediatrics or a pediatric intensive care unit.
· Medical Staff: Extensive recruiting efforts have been underway for open medical staff positions for the last three years. At present, part-time and retired medical staff supplement a 0.8 FTE physician.
· Financial Targets: The hospital does not meet established targets for staffing, expense per unit of service, and nursing hours per patient day. This is all due to an average daily census of less than 6 patients.
· Demographics and Geography: The pediatric population is trending in a downward direction. There are two large health care systems in Erie; none has a major pediatric specialty or subspecialty program. Erie is a post industrial city with limited growth potential.
· Opportunities for Transition: The current patient population can be accommodated in SHC-Philadelphia and Lexington.
2. SPOKANE: This five-story hospital has a history of not realizing a significant volume of inpatients. Its average daily census has never been over ten in the last four years. This is due to several factors. The first was an extended period of time with only two admitting physicians. The second is the changing medical/surgical practice of ambulatory care. Third, historically, Spokane has demonstrated a trend of minimal surgical interventions and more outpatient rehabilitation services.
· Location: Though located in the shadow of Sacred Heart Medical Center (which has a new Children's Hospital) and directly across the street from Deaconess Hospital, the patient population has not grown correspondingly.
· Medical Staff: There are three full-time pediatric orthopedic surgeons. There are a sufficient number of physicians, but not enough patients despite organized attempts to increase referrals.
· Financial Targets: The hospital does not meet established targets for staffing, expense per unit of service, and nursing hours per patient day due to a very low inpatient daily census.
· Demographic and Geography: Although the pediatric population is growing in the Pacific Northwest that growth is not being experienced in Eastern Washington. The topography and the climate in winter are constraints to the transport of patients by Shriners and the convenience of access by families outside a fifty mile radius.
· Opportunities for Transition: Available capacity at Salt Lake City and, at the conclusion of the building project, in Portland will easily accommodate Spokane's current patient population.
3. Springfield: This hospital has been unable, for some years, to establish an inpatient service that will generate a sustained average daily census of greater than ten. Were it not for its treatment of patients from Cyprus and Puerto Rico, its inpatient population would be in the very low single digits.
· Marketing: Despite a significant marketing campaign to raise awareness of the hospital and generate surgical referrals, little change in surgical volume has occurred.
· Location: This is a post-industrial region with little or no future growth potential. The pediatric population is declining.
· Medical Staff: The medical staff has three full time pediatric orthopedic surgeons who have been there for a long time. Recruiting replacements would be very difficult due to the lack of a significant academic affiliation. There are a sufficient number of physicians, but not enough patients despite organized attempts to increase referrals.
· Financial Targets: The hospital does not meet the established target for staffing. Expense per unit of service is on target due to a large volume of outpatient encounters.
· Demographics and Geography: The pediatric population of western New England is trending down. The hospital is 35 minutes north of Connecticut Children's Hospital and 90 minutes from Boston Children's, both having significant pediatric orthopedic service.
4. Greenville: This hospital, much like the others, has a long history of a low average daily census. The hospital has a relatively small patient base, given its lack of outreach activity.
· Location: The hospital is located in the Piedmont area of Western South Carolina, which has a small pediatric population that is relatively static.
· Medical Staff: There are four pediatric orthopedic surgeons, but not enough patients despite organized attempts to increase referrals.
· Financial Targets: The hospital has not met its staffing target and expenses are high relative to case mix. Nursing hours per patient day are continuously above standard. All this is explainable by the low average daily census.
· Demographic and Geography: The growth in population is oriented to retirement age adults.
· Opportunities for Transition: The Lexington and Tampa hospitals, as well as other providers in Virginia, North Carolina, and Georgia could easily absorb the current patient population.
5. Shreveport: It should be noted that this hospital is efficiently run with just two full time pediatric orthopedic surgeons. However, there are a number of important strategic factors that affected the recommendation.
· Medical Staff: The two physicians are aging. Recruitment of medical professionals has a history of being difficult due to unwillingness to relocate to the area, and the weak academic standing of the hospital's affiliated medical school and medical center.
· Financial Targets: This hospital meets all standards of cost effectiveness.
· Demographic and Geography: The region is experiencing a pattern of declining birth rates over the last ten-years. Further, when the transition of the Panamanian patients to the Tampa Hospital is complete, inpatient census is likely to decrease.
· Opportunities for Transition: Patients served by this hospital can be accommodated in the SHC-St. Louis and Houston Hospitals.
In summary, we have excess physical capacity in our hospital system. Already faced with deficit spending, we have limited opportunity to effect a major reconfiguration of the system. Our approach, therefore, was to concentrate opportunities within existing markets.
The hospitals described above all reside in small to medium sized metropolitan centers as defined by the US Census Bureau and the Department of Labor. Our current business model is outdated, based upon decisions dating back to 1922. Location is a critical element to the long-term success of a highly specialized pediatric hospital system and practice.
Centers of population density offer:
· major hubs of transportation,
· a larger pool of potential patients,
· the ability to generate higher referral volumes,
· proximity to full service pediatric facilities, with access to critical care, pediatric subspecialties, and advanced diagnostic imaging resources, and
· greater potential for affiliation with academic medical institutions.
Option 2 retains the unique character of Shriners Hospitals for Children, while demonstrating our stated commitment to financial stewardship.
Please Keep these reports so that you can review them on a regular basis and in fact, give us more ideas if you have them.
Yours in the faith,
Ralph W. Semb, President and Chief Executive Officer, Shriners Hospitals for Children
To all Representatives both Iowa and Colorado.
Regarding: March Joint Board Meeting.
Hi Ill. Sir Bob
I want to give you an update from the board meeting held in Tampa this past week. I must say that this was the most "Emotional" meeting that I have attended since being elected to the boards. Over the past few years in my State of the Hospital Report, I have made reference on many occasions that we were worried about our hospital budget growing much to fast. In 2005, you ordered the boards to bring the endowment fund up to 12 Billion Dollars by the year 2014. Well, it is now well into 2009 and we have gone in round figures from 8 billion to 5 billion dollars. We have said time and time again that we can't afford to run 22 hospitals as we have in the past. In fact, the Representatives have been approving a deficit budget since the year 2001. With the endowment fund decreasing, the cost of healthcare increasing, we are put into a situation that is not financial stable for Shriners Hospitals for Children for the long term.
The boards have wrestled with this situation and have really had a very hard and emotional week. I must say that Staff is equally concerned and the one thing that we all came to agree on was this: We all want to continue to care for Children. The question is if we do not address this situation, "For How Long". Given what we have for income, and even with the possibility that the Representatives will approve the request to begin the process of utilizing 3rd party pay, which will take up to 4 years to get the paper work completed, and that is with a vendor to do the collections for us, that is not enough of a fix to bring our income where it is equal to the expense.
For this reason, the boards will make available to you the voting Representatives, up to 4 budgets that you can adopt. Each of these will be explained over the next few months so that you have a clear understanding of the issues we face. I believe that everyone agrees that the system must change. But when it comes down to the details, few of us are willing to tolerate provisions that might harm them, to sacrifice some hospitals for the greater good. We need to look at the broad picture, instead of each stakeholder focused on his own area and then dig in for the battle. I have been reading a book by Senator Tom Daschle and the government is in the same situation as we are. No money.
I include with this email, the same document that is given to the Imperial Officers and Trustees as well as the hospitals so that we are all looking as the same paper. Again, I reiterate, we all want to continue to care for the children we have as well as those children that will need our help in the future. If we do nothing, adopt a budget that sees us continue to withdraw the funds from the endowment fund, in as few as 5 years, we could close 22 hospitals, and in effect, have a small fraternity with no philanthropy to represent. A summary of the options are to look at some alternatives that all include 3rd party pay. Getting all the necessary things in place at all hospitals, should the Representatives agree to taking insurance, will take almost 4 years to initiate. Why you may ask, because with 20 hospitals in 20 states dealing with different health care facilities and providers in each state as well as the many different providers with each family, all require contracts and that in itself will take a long time to execute. You will see in the document below the hospitals that will be suggested to be closed. The alternative that the board recommends is one will be for a 5 year solution that will keep Shriners Hospitals for Children open for what we hope will be forever, but is does suspend the operations at 6 hospitals. The others would be a huge decrease in the present budget with huge cuts in future budgets that in affect will curtail the services we perform.
Here is the document that I spoke of. Please contact me if you have any questions. We are all exhausted in dealing with this situation, and we hope that you will all help in finding a cure that can keep Shriners Hospitals for Children taking care of children into the future. Those Children that are In the hospitals that are on the closure list, they will all be taken care of in our other hospitals. This information has been given to all the hospital Administrators, Chief of Staffs, Directors of Patient Care Services, and the Chair and Vice Chairman in a Teleconference on Thursday afternoon. I feel that it was necessary that they be informed first, as the media will be on this immediately after, and that they were. I also felt that each of you be informed and a copy of the talking point be given to each of the representatives, so that you can offer your thoughts and we may have the chance to answer them before we get to San Antonio. Remember, you will be given the opportunity to vote on a budget and we the Boards will do our best to make it work. This will be an effort to have each of you help in this dramatic and emotional situation we find the finances in.
SHRINERS HOSPITALS FOR CHILDREN
At the meeting of the Boards of Directors and Trustees on March 23-25, several actions were taken to address the future direction of Shriners Hospitals for Children (SHC). The deliberations by the members of the Boards focused on meeting the growing shortfall in cash flows necessary to operate the hospital system. This shortfall, at a minimum currently stands at $200 million.
Financial viability is deemed dependent upon both revenue enhancements and cost reduction measures throughout the system. The success of each will require the cooperation of the Nobility, leadership and staff.
The revenue enhancement initiatives include:
- Continuing prudent management of the endowment
-Exploring third party pay
a. pursuit third party pay for eligible patients, 3-4 year implementation
-Increasing Philanthropic/Development efforts
a. increase number of development directors
b. create corporate giving partners
c. develop a planned giving and major gifts program
d. create a nationwide signature event
The cost reduction efforts include:
-Across the board reduction to the operating expense budget
a. immediate reductions of 5% to 7% in hospital's operating budget for 2009
This would not apply to hospitals affected by consolidations
b. Modify employee benefit offerings (i.e., suspend employer match to defined contribution plan, freeze defined benefit pension plan to existing participants, reconfigure investment strategy for pension plans, and consolidate to single HMO offering)
c. 8% reduction to Headquarters in 2009 operating budget
d. Consolidate into four major research centers in the U.S. (Northern California, Boston, Philadelphia and Portland; continuing the research in Canada)
e Actions for 2010: reduce nine hospitals by additional 3% operating expense and Headquarters by additional 5%, implement third party pay
-Assessing the inpatient versus outpatient models of care
a. identify hospitals to transition from inpatient hospitals to ambulatory centers providing day surgeries only
-Taking action to address excess capacity across the system
Reconfigure the hospital system:
a. Possible closure of 5 hospitals (Erie, Spokane, Springfield, Shreveport,
b. Uphold the suspension of the Galveston Hospital
c. Transition patients to other SHC hospitals
Year 2011 the financial stability is regained
2011- Resume modest growth
2012- Assume favorable results from third party pay; budget would grow by 3.2%
2013-continue on the path of previous year projection of $35M from third party pay continued implementation of third party pay has a financial projection of net revenue of approximately $70M
The Planning committee recommended a multi year plan offering a potential path to financial stability. As adopted by the Boards, the options outlined in this plan will be presented to the Imperial Council in July 2009 in San Antonio, Texas. As implemented, these options would allow Shriners to fulfill their philanthropic mission of Shriners Hospitals for Children.
Information will continue to be updated regularly through several means of communication.
So, below here is some good news as far as donations is concerned;
The International House of Pancakes (IHOP) raised $448,000 for Shriners Hospitals for Children during the month of February.
IHOP celebrated National Pancake Day by giving out a free stack of buttermilk pancakes to customers on Feb. 24 at more than 250 locations in 7 western states: Arkansas, Colorado, Louisiana, New Mexico, Oklahoma, Texas and Wyoming. In return, guests were encouraged to donate what they would have paid for their pancakes, or more, to Shriners Hospitals for Children.
Prior to the big day, IHOP introduced a four-week point-of-purchase fundraising campaign at the participating locations. When guests paid for their meals, they were given an option to add between $1 and $5 to their bill, with proceeds benefiting Shriners Hospitals for Children. This component of the campaign raised $176,000.
The health care system has been the beneficiary of National Pancake Day at select IHOP stores since 2006. Imperial Donor Relations Director Tom Smith as worked with IHOP for many years and we thank him for his help in making this year's event such a success.
Shriners Hospitals for Children — Houston kicked off the event locally on Feb. 19 with a Pancake Pandemonium Party for kids at the hospital. Houston City Council Member Wanda Adams visited and presented a City Proclamation to kick off National Pancake Day. In addition, Houston Texans player Eric Winston was a celebrity "pancake flipper" at an area IHOP on Feb. 24. Watch a video from the Houston event on our Web site at
Jet Foods/David Ragan
On March 1, our fundraising program with Jet Foods and David Ragan kicked-off.
From March 1 through April 30, 2009, customers at 53 Jet Food Stores in Georgia will be given the option to add a donation to Shriners Hospitals for Children to each purchase they make. A special mobile is provided for donors to write their name for display in the store.
For more details and a list of participating Jet Food stores, visit our Web site at http://www.shrinershq.org/Shrine/News/news01300901.aspx
I again ask you for your thoughts. This is a time in the history of our philanthropy that we all need to be businessmen with business minds to think of how we can make Shriners Hospitals for Children something that Donors will want to donate funds to, without seeing the Red in the balance sheets.
My best to your Lady Delores.
Ralph W. Semb, President and Chief Executive Officer, Shriners Hospitals for Children