Loudoun Healthcare Inc. said this week that it is beginning to identify significant cuts in its operating costs--ranging from renegotiating vendor and managed care contracts to entering into joint ventures on some of its ailing services--to make up a $20 million deficit.
Loudoun Healthcare officials calculate that they must save $12 million a year for the foreseeable future to keep Loudoun Hospital Center independent. At a news conference Monday, they said they have identified about $5.3 million that can be cut from Loudoun Healthcare's estimated annual operating budget of about $106 million.
The cuts include $2.4 million in consulting fees for advertising and marketing, $1.1 million in contract and vendor services, $65,500 in legal fees and $704,500 from departments cutting back the use of cell phones, beepers, catering services--even coffee.
Loudoun Healthcare executives reiterated the board's desire to avoid selling the hospital despite interest from outside organizations such as Inova Health Systems, Virginia's largest health care provider. Inova has agreed to provide Loudoun Healthcare with a six-month, $5 million loan and has suggested assuming a role in running walk-in clinics.
"There are no strings attached to the loan from Inova. It's a gesture our board appreciates," said Woodrow W. Turner, Loudoun Healthcare's lawyer. "It's certainly not anything other than us repaying it to them in six months." To do that, he said, "we're asking everyone to make it on a bare-bones budget,"
On Monday, Turner released a two-inch-thick package of the hospital's tax-exempt forms for the last three fiscal years and an independent audit for fiscal 1998.
Loudoun Healthcare got into financial trouble when the hospital moved to the $58 million hospital at Landsdowne in 1997 and tried to maintain the old campus at Cornwall Street in Leesburg. Operating the old campus cost $1 million a year, and its 39 percent occupancy rate last year was far below the 80 percent level that industry analysts say would be needed to break even.
The Cornwall campus has lost $3.3 million since fiscal 1996, according to hospital records.
That loss was compounded by the $2.7 million Loudoun Healthcare spent to acquire eight physician practices over the last four years in an effort to secure their patients' business. According to the financial statements, Loudoun Health Services, the subsidiary that operates Loudoun Healthcare's physician practices and stand-alone medical facilities, has lost $17 million since fiscal 1996.
Although Loudoun Hospital Center has brought in $28 million since fiscal 1996, officials said, it was not enough to offset the $67 million debt to build the Landsdowne facility and the cost of physician integration. In addition, sharp reductions in managed-care reimbursements are driving hospital expenses up, officials said.
The result has been huge and unpredicted losses, they said.
"They knew there would be losses there, but they didn't expect them to be as much," Turner said. "Hindsight is 20-20."
The audit for fiscal 1998 showed that Loudoun Healthcare lost $9 million--some of which auditors attributed to a backlog of unbilled patient accounts in the long-term care center. Loudoun Healthcare officials said the problems have been solved with automation.
According to the financial records, the eight top officers and directors of Loudoun Hospital Center were paid a total of nearly $1.5 million, plus $165,000 in benefits, in fiscal 1998. That same year, the hospital paid three financial and consulting firms $827,000, plus $1 million to a Columbia agency to market and advertise the new campus. Turner and his Leesburg law firm were paid almost $1.2 million over the last three fiscal years.
Besides cutting down on their use of consultants, Loudoun Healthcare officials said that three of the top eight officers have resigned: G.T. Dunlop Ecker, chief executive and president; Cheree Cleghorn, vice president of corporate affairs; and Timothy Coad, vice president of business health. There are no plans to replace Cleghorn and Coad, hospital officials said.
Meanwhile, the board of directors is interviewing five candidates for the top position, either as president or as a temporary turnaround officer. Ecker, who resigned July 8, made $333,366 a year, plus $37,861 in benefits.
Officials hope to generate an additional $5 million in revenue as Loudoun Healthcare renegotiates contracts with four to five of its 30 managed care companies in the coming months. Loudoun Health Services also plans to trim $4.8 million from its operating costs.
As part of the effort, the hospital is notifying outpatients and psychiatrists that its Counseling Center at the Cornwall campus will close Oct. 1. "It's not making any money," said hospital spokeswoman Linda Roberts. "Given our turnaround situation, it made sense to do this."
Another step will be to consolidate at least two of its 38 physician offices.
During the next several weeks, the hospital-owned practices of Linda E. Coleman and Judith L. Greco of Ashburn Primary Care Associates in Countryside will move to the internal medicine practice of Mancini, Korkowski & Kim in Sterling. Another practice will be consolidated, but James A. Lapsley, executive director of Loudoun Health Services, declined to give details. Lapsley was present at Monday's news conference.
Cuts will also hit doctors' compensation contracts with the hospital, as it tries to recover the higher-than-anticipated expenses--including billing and collections. Contracts will be based on a physicians' revenues and expenses instead of productivity.
"Are they excited about a new compensation formula? Probably not," Lapsley said. "Are they anxious about it? Yes. Are they going through it? Yes, they have to."