A practicing physician and turnaround artist

by Glenn Ritt

White medical gowns hang neatly in his office. But they are not merely props for the new CEO of Cape Cod Healthcare. Richard F. Salluzzo is a doctor who intends to practice emergency medicine even as he leads a dramatic strategic plan to reverse the system’s precipitous financial slide.


He is asking a lot of his staff, and one way to “walk the talk,” he says, is to practice alongside them. It is more than symbolic, Salluzzo insists. It’s a way to learn from both patients and practitioners.


The education is coming fast and furiously, as Salluzzo takes over a once profitable and confident system that is the Cape’s largest employer. But in less than two years, it has slipped from being marginally profitable to suffering a $28 million operating shortfall in the 2008 fiscal year.


That poor performance contributed to a downgrade of the system’s bond rating by Standard & Poors. The Standard & Poors rating coupled with the current credit crunch represents one more challenge for Salluzzo. In the short term, it probably means $1 million more in interest expenses. In the long term, it could impact plans for needed capital projects.


Salluzzo could hardly organize his new desk before facing some of the toughest decisions ever at Cape Cod Healthcare, which includes Cape Cod Hospital, Falmouth Hospital, the Visiting Nurse Association and a growing number of smaller facilities from Harwich to Bourne. He immediately eliminated 170 positions as part of a comprehensive plan to cut costs and enhance revenues.


Some financial woes might have been avoided by different calls in the past, but some are systematic of a health care system in crisis nationwide, Salluzzo said, noting that six out of every 10 hospitals across the country are operating in the red from operations.


The causes are multiple: inadequate government reimbursements – especially for Medicare patients, which represent a disproportionate number on Cape Cod; rising medical technology costs; competition for doctors; and the loss of profitable services to private physician groups.


“The financial performance here is worse than I anticipated when I came,” said Salluzzo during a quiet conversation in his second-floor Gleason House office overlooking the hospital in Hyannis.


Salluzzo arrived on the Cape well prepared to tackle the financial challenge, having turned around the 12-hospital Wellmont Health System in Tennessee from a four-year cumulative operating loss of $40 million to a $45 million cumulative gain by the time he left.


There, he also launched a physician-led, safety-centered organization and founded the Safest Hospital Alliance, an initiative to combat the growing problem of medical errors in hospitals.


Salluzzo is picking up here on Cape Cod where he left off in Tennessee, emphasizing physician involvement and safety as ways that not only enhance quality care, but also improve the bottom line. And none too soon.


Beyond the financial surprises, Salluzzo was equally taken aback by a lack of trust between physicians and management – a situation he believes contributed to the migration of doctors to their own lucrative surgical and medical centers ranging from radiology to surgery.


It’s now three months into the 2009 fiscal year, which began in October, and Salluzzo is cautiously optimistic. During the first month, the system realized a $300,000 operating profit – and it would have been larger but losses attributed to FY08 had to be booked in 2009.


For the new fiscal year, Salluzzo is forecasting a $5 million operating profit, which would represent a dramatic $33 million turnaround from FY08 to FY09. That projection already has realized one benefit – S&P has upgraded its forecast of Cape Cod Healthcare from negative to stable.


The improvement began with the staff reductions – which represents about a $13 million annual savings. As difficult as this was, Salluzzo explained that the resultant staffing now is the same as in 2003, when patient volume actually was higher than today.


Concerning the layoffs, “It was reasonable and necessary, but very hard,” he said.


He is looking at many other cost-savings, including self-insuring the system’s employees. Currently, Cape Cod Healthcare spends about $14,000 per staff for health insurance, about $4,000 more than the national average.


In addition, he has identified as much as $7 million in savings simply by improving the accuracy of coding activities throughout the system.


“If you don’t code all of your activities, you get less money in reimbursements” from state and federal sources, he explained. And if you don’t code rapidly, you suffer from slower cash flow.


In the past, a patient may have been admitted suffering pneumonia, but also had hypertension and heart disease. However, the patient was “coded” only for the pneumonia – and thus did not qualify for all the available reimbursements.


“If you don’t code for everything, you get less money,” said Salluzzo.


A lot of money can be saved in other quiet ways. He points to “rapid cycle process improvement,” for example. ‘Everything in a hospital is a process that if made more efficient can save time and money. For example, if a patient moves through the “system:” from arrival through a physician exam in 30 minutes instead of 45 minutes, and a bill is sent out in a timely manner, swifter payment and higher revenue will occur.


Costs savings alone won’t get the system out of the red. With that in mind, Salluzzo is leading efforts to increase revenues as much as $20 million over the next 10 months. Some of that will come from an increasingly sophisticated approach to philanthropy – always a critical and necessary component of a hospital system’s nonprofit model. But there are exciting ongoing initiatives and plans, including:

 


Some of these revenue-expanding activities will occur beyond Cape Cod Hospital – at the Fontaine Medical Center in Harwich; in Falmouth; at the Wilkins Ambulatory Medical Complex in Independence Park off Exit 6 of the Mid-Cape Highway. The first facility at the site will be a 50,000 square foot diagnostic and women’s center.


Even as Cape Cod Healthcare completes the Mugar Building expansion in Hyannis – which when complete will have added 120 beds – there is growing recognition that regional competition and demographic trends require greater decentralization.


Consider that private physicians have opened surgery centers across the peninsula, especially in the Upper Cape – where potential patients are much closer to the South Shore and Boston options for elective services.


“The Mugar Tower has been a wonderful and necessary addition,” said Salluzzo. Even with its first stage complete, 14 percent of all inpatient rooms still require double occupancy.


At the same time, Salluzzo already is preparing stakeholders for a longer-term question: Will it be more cost-effective to keep expanding the current Hyannis hospital; or at some point, will it be smarter to build entirely new facilities, either on the present grounds or elsewhere? For this reason, the system is in the process of creating a long term master facilities plan.


Salluzzo sees current needs at Cape Cod Hospital for an expanded emergency department, new operating rooms, and a new intensive care unit, for example. “If we learn that the number is higher to simply replace older facilities than to build brand-new ones, we must think about it. We must communicate with all the stakeholders concerning this issue. Falmouth Hospital needs a new Emergency Department and more medical surgical beds.”


One thing is certain, however. Running a health care system with a $600 million-plus budget requires a constant eye on smart, financially sound capital growth. “This is a very capital intensive business; and if you don’t keep up, you can very rapidly get behind the eight ball, in terms of technology and facilities” he said. That could result in more expenses down the line at even higher borrowing costs.


Underscoring this thinking is Salluzzo’s commitment to strategic planning. He identifies seven themes to the system’s evolving vision:

 


Salluzzo came to the Cape ready to make hard decisions fast, beginning with layoffs. He also has begun an immediate shift in the way Cape Cod Healthcare is managed. “We are looking at partnerships and shared governance with our physicians and staff,” as well as transparency in information sharing, he emphasized. That’s not only critical for safety, communication and quality care, but it also improves the bottom line.”


He has created management groups at Falmouth and Cape Cod hospitals that are led by physicians. Doctors are now involved in running the hospitals and participating in key health care issues at every level, he said.


Salluzzo and the Board also hosted a two-day retreat at Willowbend attended by 58 physicians to obtain their input on where the health care system should be going. In addition, the health system is creating a nursing shared governance model to create participative governance with our nursing professionals.


During this entire initiation period, Salluzzo somehow found time to get relicensed as an emergency room physician and hospitalist in Massachusetts, a state where he once practiced before moving elsewhere. He hopes to cover three or four shifts a month, side by side with a medical staff he considers among the best he has ever encountered.


“Frankly, an average community hospital does not have the caliber of physicians we have on Cape Cod,” he said. “They are excellent – and in many cases, world class.”


Salluzzo doesn’t criticize the past administration. But as a physician, he is more inclined to view the independent medical and surgical centers not as competition but as investment partners – that together can earn more total revenue, save more money and provide medical services competitive with Boston institutions.


For example, Salluzzo now is partnering with Shields MRI to provide PET scan and linear accelerator services.


“We have no real choice but to establish win/win strategies for both the physicians and the hospital,” he said. A formal partnership with a hospital, for example, can mean higher reimbursements for outpatient services that can be shared by both parties. In other cases, Cape Cod Healthcare and private centers can save by sharing the costs of everything from real estate and technology to insurance and marketing.


This “collaboration” even applies to recruitment.


He plans to work with the physician groups so that recruitment is a collaborative effort between the physicians and the health care system. “We simply can’t afford to recruit in isolation.”


Underscoring this philosophy is the sheer challenge of anyone recruiting physicians to the Cape, especially with a growing demand for highly underserved specialties such as orthopedics, endocrinology, family practice and geriatrics – all particularly important to the region’s aging population.


For example, medical schools produce about 300 general orthopedists annually to serve 5,000 hospitals that all need them. This is true for cardiology, radiology and many other specialties, he points out.


On top of this, the average physician today is 52 years old, suggesting that the need for new and younger physicians will only intensify in coming years.


Dr. Salluzzo is undertaking a disciplined outreach program that will eventually take him to town-hall-like meetings in each of the Cape’s 15 towns in order to update the community on activities at CCHC and listen to their thoughts.


“I hear that the community wants more physicians, more primary-care doctors, access to more specialists. They see us as a sophisticated medical center and not a small community hospital,” he observed. He hopes to have as many as 50 such sessions over coming months, including with chambers of commerce and business groups.


Meeting the public wants and needs, Salluzzo noted, is getting more difficult – if not elusive – because of powerful forces affecting the nation’s entire health care system and economy.


“Only 20 percent to 30 percent of health care systems are doing well. Sixty to seventy percent are struggling. They are in low-growth, high-Medicare regions; and Cape Cod is one of them.”


In a place like Charlotte, North Carolina, only about 20 percent of patients are Medicare eligible; 80 percent are covered through managed care. On the Cape, however, that figure exceeds 50 percent. Yet Medicare patients receive far less reimbursement than those covered by an HMO. Making matters worse, hospital costs are rising some five percentage points higher than Medicare reimbursements.


“The current reimbursement system simply cannot survive,” said Salluzzo. “It’s a pretty serious situation.”


Overall, he sees a national health care system that is too costly and suffers too many duplicated services, with too much spin on marketing and too much competition for outpatient services, and not enough focus on preventative care. “We need a massive remodeling of health care.”


In Massachusetts, about 55 percent of all hospitals are now losing money, forcing many to merge or become part of larger systems.


He believes Cape Cod Healthcare can survive and even thrive independently – in part because it is such a dominant force in a unique, if not isolated, market; its staff is accomplished, with relatively little turnover; and there is unusually strong community and philanthropic support from a wealthy base. However, Salluzzo emphasized if all the stakeholders do not work together to assure the viability of CCHC, which is the largest employer, it may not be sustainable.


Even merged and partner-based systems increasingly are stressed; and he sees the broken health care system as contributing to the nation’s overall deep recession. For example, the Big Three automakers are in danger of bankruptcy at least in part because their employee health care costs are too high to compete with foreign manufacturers.


“If we separate the economy from health care, we are making a big mistake. I see polls where respondents identify the economy as problem No. 1 and health care as No. 2 or lower. But we cannot be competitive on a global basis if health care costs keep rising for companies.”


Salluzzo, of course, doesn’t have the liberty of waiting for a national solution. So it is a day-by-day, area-by-area battle.


It is building a stronger “extender model” – the use of nurse practitioners to support doctor practices with highly sophisticated medical skills.


It is mobilizing ever-more effective development and philanthropy strategies.


It is better business processes.


It is more aggressive recruitment of physicians.


It is better marketing and branding to attract more patients, especially those that might otherwise gravitate to Boston.


He points to Cape Cod Healthcare’s catheterization laboratory that supports diagnostic imaging equipment. It is ranked No. 1 among 766 labs nationwide. “Outcomes from cardiac surgery here are better than national and Boston numbers. “The public needs to know this. We have world-class programs at Cape Cod Healthcare.”


He not only wants to brand that fact; it’s among the main reasons Salluzzo came to the Cape to tackle the health care system’s biggest challenge ever at the toughest time in memory. ■


Published in Cape Business January/February 2009

Glenn Ritt Glenn Ritt is editor and co-publisher of Cape Business Publishing LLC. He is the former publisher of Cape Cod Community Newspapers and editor of The Bergen Record in New Jersey.
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