University of Maryland St. Joseph Medical Center plans to embark on a roughly $100 million renovation of its operating rooms — its first major capital project since a scandal involving one of its former doctors plunged the hospital into financial distress.
The Towson hospital is poised to post a profit in the fiscal year ending in June, and said it now can focus less on recovery and more on adding services and needed upgrades.
The University of Maryland Medical System bought the troubled hospital on Dec. 1, 2012, from Denver-based Catholic Health Initiatives for $206 million and vowed to turn it around.
Shortly after taking over, the new executive team came up with a five-year strategic plan to erase the hospital's financial deficit. A new operating room was identified as the biggest capital need at the time, said St. Joseph CEO Dr. Mohan Suntha.
While the hospital kept up with cutting-edge technology, such as robotic surgery, in the operating rooms, it often had to retrofit rooms that dated to when the facility opened more than 50 years ago.
"When you talk about the operating room of the future, the idea is to look at rooms that are designed for efficiency, for flow and accommodation of technology," Suntha said.
Plans for the operating rooms are still preliminary, but will take three to five years, said former state Sen. Francis X. Kelly, chairman of St. Joseph's board. Hospital officials will have to raise part of the money from private funds.
The hospital won't necessarily rebuild all 22 operating rooms because some will be larger than they are now, Suntha said. It also may need fewer rooms because more surgeries are done in an outpatient setting, he said.
The hospital is looking at other ways to enhance services once it shores up its financial margins. Erasing the deficit isn't enough to put the hospital on the most sound financial footing, Suntha said.
"When you think of the general margins any hospital needs to have for sustainable reinvestment, we are not there yet," Suntha said. "The goal is not to break even. The goal is to have a financially stable organization."
St. Joseph sought out new owners after its star cardiologist, Dr. Mark Midei, placed stents in the arteries of hundreds of patients who may not have needed them. The hospital notified about 600 patients in 2009 who might have had the unnecessary surgeries.
The fallout was fierce; the hospital lost numerous doctors and 6,000 patients between 2011 and 2013, though the liability for Midei's actions remained with Catholic Health after it sold the hospital to UMMS in 2012. As it was sold, St. Joseph failed an inspection by the Centers for Medicare & Medicaid Services, temporarily losing hundreds of thousands of dollars in Medicare reimbursement.
Despite its financial problems, the hospital was attractive to UMMS because its clientele were generally higher-income with very few Medicare or Medicaid recipients. It also had strong cardiac, orthopedic, and obstetrics and gynecology programs.
New leadership under UMMS has helped restore the hospital's reputation and fiscal stability as the financial picture improved each year. While St. Joseph had expected a $10 million loss this fiscal year, it has posted a profit for the past seven months and expects the trend to continue, hospital officials said. The hospital reported a $72 million deficit at the end of fiscal year 2013, a $34.5 million loss in 2014 and a $12 million loss in the most recent fiscal year.
"Now that things are turning around we can focus our efforts on the operating rooms and other needs," Kelly said.
One analyst said that the fiscal turnaround was extraordinary but that the hospital still has rebuilding to do, including increasing its cash flow — a point Suntha agrees with.
St. Joseph's has "gone from being on a ventilator in the ICU to being able to walk down the hallway without assistance," said Joshua Nemzoff, president of Nemzoff & Co, a New Hope, Pa.-based hospital acquisitions consulting firm. "They are doing a lot better but not doing well. They don't have enough cash flow."
"They are not in any danger of going under and becoming insolvent," Nemzoff added, "but they are not really doing that well."
The hospital was able to cut its deficit by operating more efficiently, Suntha said. It cut readmissions and repeat patients to the emergency room and aligned the hospital with urgent care centers. The hospital also benefited from its partnership with UMMS, including being able to buy supplies at lower cost because it belonged to a larger entity.
Suntha said is now time to operate even more independently.
"To provide ultimate value to our system, we have to be able to stand on our own," Suntha said.