Shriners Hospitals for Children Pediatric Specialty Care

Douglas E. Maxwell,
President and CEO
dmaxwell@shrinenet.org

My Dear Fellow Representatives,
            The “Joint Boards” have just concluded a most successful Fall Board Meeting. Many progressive initiatives that I had mentioned in my second message are moving forward…
            But first, some wonderful news…on Wednesday November 4th, we began seeing “Burns” children again in our Galveston hospital. These were our first children there since Hurricane Ike came through Galveston on Sep 12th, of 2008. We once again have our “Burns Presence” in the South Central United States.
            I commend the Galveston Board of Governors and Staff for putting all the pieces back together so quickly and efficiently, after the decision to re-open the facility during the 135th Annual Meeting in San Antonio.

            I would also like to say a heart felt “Thank You” to our Houston Hospital Board of Governors and Staff for the graciousness and help they gave the Galveston employees, while they were doing our “Burns Mission” in our Houston Hospital, on a temporary basis.
            As we departed the 135th Annual Meeting in San Antonio four months ago …we left with a “New Vision”, a “Mandate”…to lower our expenses…increase our revenue…and keep a meaningful Shriners “Care Presence” in the current 22 locations around North America. 
            There was a request for some more details…so…this message is going to be a little longer… go get your favorite beverage… (go ahead, I’ll wait) …

Put your feet up…
And here we go…

On the Expense Side..
To put things in perspective…let's look at the last few years of
Total Operating Expenses to run Headquarters and… 22 “Full-Service” Hospitals:
Source information: KPMG audited financial statement of April 22nd, 2009 for 2008
2006:  $605.0 million
2007:  $666.3 million
2008:  $722.5 million
2009:  $764.9 million approved at 134th Annual Meeting in St. Louis July 2008
2010:  $674.3 million approved at 135th Annual meeting in San Antonio July 2009
The Total Hospital system cost… including headquarters… has gotten “Leaner” to the effect of $90.6 million less cost… or a 12% reduction. This is also approximately 600 fewer employees.
This is probably about as much as we can logically “lower system costs”… without affecting “Patient Care and Safety”…
The next path is to change the “patient care models”… for some of our locations.

On the Revenue side…
Normal Operating Revenues: (Does not include “realized or unrealized gains”) 
2006: $610 million
2007: $545 million
2008: $530 million
2009: $472 million
2010: $502 million
We have historically been able to count on about “$550 million” between donations, interest income, donations, etc…

The Results…

Revenue: $502 million vs Expenses: $674 million…or a “Book Deficit” of $172 million…this is not a… good business practice… for the long term.   

The first part of bringing this Revenues vs. Expenses “Equation”… into balance…
Without needing to use the “Realized Gains” of our “Endowment Fund’s”… Good Economic Years…as we have done for the last seven years, is toincrease the “annual income” of the Shriners Hospitals… through increased “donations”…and “3rd Party Pay”.

To that end…
The “Revenue Cycle (3rd Party Pay) Committee”, has accomplished a lot in four short months. They meet regularly. This committee is comprised of exceptional talent and wisdom in this area of expertise… both from our fraternal ranks, some of our hospital staff (Administrators and Chiefs of Staff), and our “Senior Staff” at HQ.

They have conducted extensive interviews with four major companies seeking a “Technical Advisor”. They have recommended… and the Joint Boards approved…the selection of Price Waterhouse Cooper, to be our consultant… moving us through the path to “Complete Implementation”… in the next 18 months.

Their plan is to have Shriners… “Billing” and “Receiving”… revenue… for the services we provided… by as early as the summer of 2010. The expectations by Price Waterhouse are that when “Full Implementation” is complete,
SHC could “Net”…approximately $185 million dollars…based on current patient levels.

On the Expense Side…
            To begin moving our financial house to being more “in balance”… we are moving to some new… “Care Presence” Models… which should hopefully save cost, of 20% to 50%...in any specific location,

The first hospital to take this new path is our Twin Cities (Minneapolis) Hospital…
The “Joint Boards have authorized this hospital to move all of its surgical procedures… “Out-Patient and In-Patient”… to the University of Minnesota’s “Children’s Hospital” on their Fairview medical campus…one mile from our current hospital.

Shriners Hospital will lease (on a long term basis), an entire floor “dedicated to Shriners’ children.”

This will have multiple benefits for us….
1) It will provide an immediate “back-up of emergency capability” in their PICU (Pediatric Intensive Care Unit)… (don’t you just love all the “acronyms” in a hospital)…if one of our children has a problem during surgery.
2) There will be additional opportunities for growth by affiliating with a larger health system and physician network that will extend Shriners connection to a larger multi-state area. It will also provide increased visibility to the public and growth opportunities… as the families come thru the hospital entrance and see our Shriners Hospitals presence.
3) “Economic Efficiency” by sharing “specialty resources” in this competitive market in Minneapolis… while also enhancing our commitments to education and research.
4) Our existing hospital, a beautiful setting overlooking the Mississippi River, will continue to serve as our “Front Door” to the children for purposes of “Clinics, Therapies, and Orthotics and Prosthetics”.
5) As we move to the “Children’s Hospital” for our surgeries… (for the area in our building that we won’t be occupying anymore)… we will begin seeking tenants to lease from us. This will be “A new source of Revenue”…to help offset the cost of this “Care Presence”.

If you would like to see a “Birds Eye View” of this hospital… or any of our other locations…or even your house if you would like…
      Go to http://www.bing.com/maps/   and put in the hospital address of:
2025 East River Parkway
Minneapolis, MN, 55414

Our next new model approved by the Joint Boards, is the Erie Hospital.
I would personally like to thank the Erie Board of Governors
And all the great Shriners, of that part of the country,
who support the “Erie Hospital”,
For being the “First to Step Up and Suggest”… that they become the first “Ambulatory Model” in our system.

The plan is for them to retain the 1st floor of the two story facility, to perform “Day Surgeries”, have clinics, and provide therapies…

And to lease the 2nd floor to our “Affiliated Partner”…”Hamot Medical Center”… for the purpose of a “Pediatric Specialty Practice”.
Again… this will provide an “additional revenue source” to help offset the cost of our Children’s Care in Northwestern Pennsylvania.

“In-Patient services” for our Shriner children… will be accomplished at Hamot Hospitalor other locations in the region.

The next 3 hospitals …to use a manufacturing term… are “Works in Process”.
Spokane Hospital is going to be our first hospital to have Price Waterhouse Cooper… do a “Gap Analysis”.

This is a… “cost analysis”… of…
“what is the difference between…the “cost of operations” to the SHC system…of”…
a) continuing to operate the facility as a “Full Service” hospital… with the “revenue generated” by billing for the many “Spinal Operations” performed there…which are high in the re-imbursement area…

This “Revenue creation”… would offset some of the “cost of care” at that location…lowering the net cost to SHC…
or
b) making the hospital an “Out Patient” facility…by moving the “Surgeries” and “In-Patient Care”, over to an “Affiliated Hospital” in town… where a PICU is on site… for these complicated spine surgeries our physicians perform.
This model would have “lower cost of doing business for the hospital”… but also receive… less “Revenue Re-imbursement” …
because many of the “revenue producing” procedures… would be done in a facility… not operated by Shriners.

This “Cost Difference” analysis is to be completed by early 2010.
Shreveport Hospital is continuing discussions with our affiliated partner… LSU Medical School…about a potential integration of the LSU Medical School into our building.
Springfield Hospital is also continuing to have discussions with Bay State Medical Center about an integration of Bay State’s “services”… into our building.

Proposed ideas are to have SHC Springfield… remain a hospital… but only be open 5 days a week. There is also a proposal to do the complex surgeries at Bay State Medical.
We are continuing to look for other… “Potential Lease Opportunities”… to other “medically related affiliates or entities”… for the purpose of “Revenue Generation”… in all of our hospitals….
This is 25% (5 of 19) of the “Continental U.S.” Shriners Hospitals… that are on thepath… in just 4 months… of becoming “acceptable”… new “Care Presence Models”.

As of this moment…there are on going negotiations… going on with six other hospitals… to see if a “Modified Care Presence” …will work in those locations.
Unfortunately…due to confidentiality agreements…those need to stay “Vague” for the time being.

Other news of note:
The Galveston Hospital’s Board of Governors were able to bring their 2010 budget down 33% from their 2008 budget (their last full budget), and in addition have lowered their employee needs to continue the mission from 323 employees to under 200 employees. Well done.

There has also been a “Joint Study” committee formed in Houston and Galveston, with 3 members from each Board of Governors, for the purpose of creating regionalization between the these two hospitals… which are located only 45 miles from each other.

The thoughts are to have only one individual performing the same function on both Medical Campuses…such as the Administrator, the Human Relations director, the Public Relations Director, the Facility Director, etc.  The study will see how much can be successfully accomplished. We look to having this report back by Jan 2010.

I am continuing to hear about the “Financial Strains” on many of our Shrine Temples' transportation funds…from the Maritimes in Canada, to the Pacific Northwest, to the Southwest US, to Texas.

To that end, I have asked our staff in Tampa to help us explore how we can establish some form of a “follow-up visits Clinic” in these far off locations…. from our hospitals. As these are being pursued, I will keep you informed. Perhaps our future will have a number of these around North America.
One last thing…on Nov 12th, a small group of the Montreal Board members and Shriners HQ Staff… were allowed to see the two proposed McGill (MUHC) Hospital models… planned for the de-contaminated “Glen Yard Medical Campus” in Montreal. On Dec 3rd, one of these two plans will be selected by the Province of Quebec.

If the “Preferred Plan”… for “Shriners participation on the campus” is selected… it will finally allow us to move forward with what has been in discussions since the 2005 Baltimore Annual Meeting. Our current Montreal Hospital was built back in 1927, and is landlocked with no area able to be modified for modern efficiencies.

The “Preferred” model would allow us to be “Integrated with the Montreal Children’s Hospital” on the campus… in a most efficient way… just as was accomplished in Philadelphia with Temple Children’s Hospital. We should be able to have many “shared services” in all aspects of the building… with reciprocal cost reduction. Keep your fingers crossed!!!

That’s about it for this message…I hope I was able to give you some insight into what your “Strategic Planning” and “Specific Planning” committees… have been doing since San Antonio, without breaching any confidences.

Patricia and I wish you and your family a very….Happy Thanksgiving

Yours in the Faith,
Doug Maxwell