Twin Cities hospitals staunching flow of red ink

After a painful year of cutting jobs, freezing pay and delaying new construction, Twin Cities hospitals turned their businesses around in 2009 and appear to be back in the black.

Year-end numbers aren't in yet, but metro hospitals seem to have cut their way back to financial health, even as their investment portfolios recovered from the Wall Street bloodbath of 2008.

Collectively, net income for hospitals swung to $327 million for the first three quarters of 2009, compared with a loss of $42 million during the same period in 2008, according to the Minnesota Hospital Association, which surveyed 22 metro hospitals.

"It has been a huge turnaround for us," said Pam Lindemoen, chief operating officer at North Memorial Health Care in Robbinsdale.

While the hospitals are not-for-profit, they still have to cover costs, finance capital improvements and compete for patients.

It helped that more people visited hospitals in 2009. Metro hospital admissions, after falling in 2008, rose slightly to 278,307 in the first three quarters of 2009, compared with 257,163 for the same period in 2008.

Choppy seas

Those that had borrowed heavily for expansion were hit with soaring interest rates as credit markets froze up. Health care also had its own problems, including cuts in Medicaid and a rising tide of unpaid medical bills from the uninsured and the underinsured -- those who have insurance but can't pay their deductibles and co-insurance.

After years of expansion, metro hospitals slashed 1,740 jobs in this recession, according to the hospital association. Statewide, hospitals cut a total of 2,430 jobs, or 2.2 percent of the hospital workforce.

To further cut costs, some groups consolidated facilities. Park Nicollet Health Services, for example, closed an occupational health clinic near Minneapolis-St. Paul airport, as well as a clinic in Hopkins.

Many also pulled the plug on expansions. Around the state, a half billion dollars' worth of capital projects were deferred since the recession started.

HealthEast, which owns four east metro hospitals, delayed a $68 million expansion of St. John's Hospital in Maplewood and another $100 million expansion of Woodwinds Health Campus in Woodbury. Fairview put off a $200 million outpatient building on the University of Minnesota campus.

All that purse-tightening helped.

Operating margins for metro hospitals improved to 5 percent in the first three quarters of 2009, compared with 2.2 percent for all of 2008. The rebound in hospitals' investment portfolios was even more stark: After collectively losing $408 million in portfolio value in 2008, when Wall Street crashed, they swung to a gain of $193.5 million in the first three quarters of 2009.

More nimble

Hospital executives said the realization that medicine is no longer recession-proof forced a major culture change in the industry.

"We hunkered down and we focused on the basics and did real blocking and tackling, the kind of stuff we'd let slide and slip over the years as we got more comfortable," said Bob Gill, chief financial officer for HealthEast.

If, in the past, managers could miss targets with impunity, every employee from heads of business units to nurses were now told that if things didn't change, "long-term, your job will be in jeopardy," Gill said.

HealthEast is the only big group that did not impose mass layoffs. However, about 30 employees lost jobs or were transferred due to performance issues, Gill said.

At North Memorial Health Care in Robbinsdale, which cut 10 percent of its workforce, officials say they got nimbler about redeploying resources. For example, as inpatient volumes dropped, North Memorial quickly moved employees to growth areas such as the emergency room and home health care.

North Memorial estimates it will post net income of $42 million in 2009, compared with a loss of $151 million in 2008.

Hospital executives said they saw demand rebound in the second half of 2009.

Despite the turnaround, hospitals see other clouds on the horizon.

The state's historic budget deficit could mean cuts in payments to hospitals by public programs such as Medicaid and MinnesotaCare.

Then there's the uncertainty over federal health legislation, which, if it passes, will likely expand insurance coverage but cut reimbursements.

"We're better off than we were a year ago," said Lawrence Massa, president of the Minnesota Hospital Association. "But there's still lots of reason for concern."

Chen May Yee 612-673-7434