Balancing the Budget

There is no easy way to finance a health care system

By Adrienne Lawrence

Regardless of the county or area of the state, operating costs are high for Maryland hospitals, and administrators must manage budgets that require millions of dollars to keep the doors open. There is no single, perfect method for funding a hospital or health care system. In fact, the ways in which hospital administrators along the I-270 corridor determine how to fund expenses vary as wildly as their personalities. But one thing is certain—no one is cutting back on care or quality of service. In fact, it is just the opposite. “To manage an economy like ours, we make sure we have the right amount of people doing their jobs, providing great, compassionate patient care,” says Tom Kleinhanzl, president and CEO of Frederick Regional Health System. “Of our $350 million of [annual] expenses, nearly half is personnel costs.”

Three Ways to Save 

Around the time the economy crashed in 2007, three of the area’s large health care systems chose different methods to keep their budgets going: one joined a larger health care system, one went green and another stored funds in a savings account. Each plan helped the hospitals weather the financial storm and continue to serve the surrounding communities.

Joining Forces 

In 2006, Suburban Hospital’s board of directors went through an exercise to determine “what competencies we would really need to enhance in order to navigate significant changes in the healthcare delivery system of the future,” says Brian Gragnolati, executive vice president of the Johns Hopkins Health System and CEO and president of Suburban Hospital, a member of Johns Hopkins Medicine. Although Suburban was a successful community hospital, administrators knew that to remain viable, the Bethesda hospital needed to evolve into a more integrated health care delivery system. There was not much room for error, Gragnolati says, so the board had to make the most of available resources. “One option was to stay as we were,” he says. “The second was to try to put together our own health system with other partners and the third was to become part of a larger health system.” Taking the faltering economy into account, the board determined that the best course of action would be to join a larger health care system.

Becoming part of the Johns Hopkins Health System proved to be the best choice, benefiting not only Suburban Hospital but the Baltimore-based system as well. The Hopkins health system is much more than just Johns Hopkins University School of Medicine, the well-known research institute in Baltimore. This health system  also encompasses six hospitals, four health care and surgery centers and more than 30 outpatient sites. The $5 billion system unites Hopkins physicians and scientists at the medical school with the health professionals and facilities that make up the broad Hopkins health system. “Hopkins had evolved these over a couple of decades and was positioned well to begin to connect the Baltimore and Washington corridor,” Gragnolati says.

After joining the Hopkins system, Suburban Hospital began to provide care for the 300,000 people who are covered under the Johns Hopkins Health Care umbrella. One part of this population is serviced through Priority Partners, a managed care organization that provides low- and no-cost health care services to qualified families, adults and children in Maryland. Another is serviced through the Johns Hopkins U.S. Family Health Plan, which provides coverage to military retirees and their dependents, as well as the family members of Active Duty and deceased service members. The third part is serviced under health care coverage for Suburban staff and Hopkins employees.

The Power of Green

When Adventist HealthCare, a non-profit healthcare delivery organization based in Rockville and operating in Maryland and New Jersey, wanted to cut its expenses without affecting the quality of care, it created a bidding war between power companies to drop energy costs at its hospitals. In addition they sought to find ways to use more green energy. Unlike traditional auctions in which buyers bid the price up, Adventist HealthCare had energy suppliers bid the price down, says Bill Robertson, president and CEO for Adventist HealthCare. “We wanted the lowest price with the highest green content that we could get.”

The health care system, which includes Shady Grove Adventist Hospital and Adventist Rehabilitation Hospital in Rockville and Washington Adventist Hospital in Takoma Park, saved about $2.4 million by reducing energy costs and increasing the amount of green energy used, Robertson says. “According to the U.S. Department of Energy, we’re the largest health care purchaser of green energy in the United States.” Fifteen percent of Adventist’s power is supplied through green sources, such as wind, solar and other non-carbon-based fuel resources.

Robertson and his staff have also looked for ways to use less energy. “If we’re not using a machine, it doesn’t necessarily have to be on all night,” he says. Staff members adjust the temperature in a room depending on the time of day or night and whether the space is in use. For example, most of the operating rooms are not used all night, so a simple solution is to not heat or cool those rooms when they are vacant.

But it is not just power costs that Robertson wants to trim from the budget. He and other staff look for ways to improve processes without undercutting care. He surprisingly found inspiration at an auto manufacturer—Toyota. Following Toyota’s “lean technology” system, Robertson and his staff have begun to look at processes and ask if they can reduce costs by eliminating steps that do not add value  “We’re making it more and more a part of our organization,” Robertson says. “We have several projects in early phases going forward.”

Frederick Regional Health System

Frederick Regional Health System, which encompasses Frederick Memorial Hospital and outpatient centers throughout Frederick County, budgeted carefully and put away money in an account to use when the hospital needed to expand or provide new services. “We haven’t had to go out and borrow money in recent years,” Kleinhanzl says. The regional hospital, commonly known as FMH, has not borrowed money since 2006 and that loan was used to complete a $103 million expansion. “We may do that in the future if our capital needs are there. We have a lot of projects coming up that we still need to fund,” Kleinhanzl says.

Since 2006, FMH has funded new projects and supplied the annual budget with the hospital’s cash flow and philanthropy, he continues. “Those two things combined have helped us continue to invest in technological expansion and bricks-and-mortar growth to meet the needs of our growing community.”

The FMH staff have also submitted ideas on ways the hospital can save money. “Our employees have been terrific through all this, so we haven’t had to do any downsizing,” Kleinhanzl says. “Employees sent me great ideas about how to watch our expenses so that we could make sure we weathered the storm.” Members of the hospital staff also volunteered to take a pay cut. “They’d rather sit on their salary increases than see a colleague leave,” he says.

The hospital has also started, expanded and improved upon existing programs to save money, such as fully funding health care insurance plus wellness programs for employees. The wellness program has helped FMH lower health expenses. “We’ve jumped from about 30 percent of the employees participating to over 80 percent participating,” he says. “That’s a good thing.”

Another important factor in FMH’s budget is the generosity of Frederick residents. But, Kleinhanzl adds, the hospital does not depend exclusively on donations and in-kind gifts.

“We haven’t over-relied on philanthropy in recent years,” he says. “We’ve adjusted. You have to.”

One of the most important aspects to maintaining the budget is keeping an eye on patient flow, Kleinhanzl says. “Whether we’re having a good economy or bad economy, our patient volumes go up and down. We’re always adjusting and tweaking expenses and revenue.”

Adrienne Lawrence is a freelance writer and editor based in Frederick.