By Christopher Guadagnino, Ph.D.

Published July 2001

• React to this article in the Discussion Forum.

Barry A. Wolfman is senior vice-president for Pennsylvania operations of Tenet Health System.

PND: How has the financial situation of Tenet’s Philadelphia-area hospitals evolved since Tenet took them over?

BAW: We’ve presided over a real transformation here in Philadelphia. We’ve spent a lot of time implementing an approach to management that perhaps wasn’t in place prior to Tenet’s arrival. We have reinstituted management teams at each of our hospitals, including a Chief Financial Officer, Chief Executive Officer, Chief Nursing Officer, Chief Operating Officer and a Director of Business Development. So, we’ve reestablished a somewhat decentralized approach to rededicating each of our hospitals to their principal purpose, which is caring for patients. As a company, we really believe that you have to have great management teams in your hospitals that have a certain degree of independence and autonomy and can execute their business strategies. So when I look at what’s made us successful aside from the numbers, it’s really having good people. I know that’s a cliche, but I can’t emphasize it enough. If you take good people and build a culture around them that focuses on execution and on discipline, you get results.

We are seeing solid admission growth at our hospitals, approaching three percent in the past 12 months. We have been able to recruit a number of specialty physicians. We lost a lot of doctors through the Allegheny bankruptcy, but we’ve been able to reduce physician turnover from 34 percent to 26 percent. We’re seeing solid gains in outpatient volumes. As a company, we don’t report individual hospital financials—it all gets consolidated into Tenet’s financial statements—but I can say that each of our hospitals is making considerable progress. Our margins are somewhat below that of other areas in the country, but I think that’s somewhat indicative of Philadelphia. We are now at a point where the majority of our hospitals are profitable. We have been able to more effectively adjudicate our managed care contracts, so we’ve seen some pricing gains. We have had significant focus and discipline in reducing our costs on a adjusted patient day basis. I am still not entirely comfortable with where we are, but suffice it to say that we’re cautiously pleased and optimistic about the progress that we’ve made.

PND: What cut-backs or closures have you implemented to improve the bottom line?

BAW: Like all hospitals in Philadelphia, we have pared services. We have closed City Avenue Hospital. When we’ve closed services or cut back, the first thing we do is look at whether the service is readily available in the market. And if the answer is yes, the question then becomes whether we need to provide it. For example, we have closed down most of our home health agencies, but the service is readily available from other providers throughout Philadelphia. So, for us to exit that service, we haven’t affected patient care. At Warminster Hospital in Bucks County we have seen the volume decline in obstetrics for whatever reason, so the hospital’s governing board and management team decided to close down obstetrics and refocus the hospital in an area where it has a lot of admissions or potential. We put our capital into it and the hospital now has a cardiac cath lab open that didn’t exist in the community before. We also closed obstetrics at Elkins Park Hospital in Montgomery County, where there was a similar situation. We were seeing the volume decline. There was not necessarily support by many physicians. We acquired some minimally invasive surgery equipment and we’re trying to reposition the hospital and work with their physicians and their community on minimally invasive orthopedics and other types of surgery. So, while we’ve had to make some very difficult and painful decisions about service closures, we’ve retooled and refocused our hospitals in a way that makes sense for that community. It’s not like people aren’t able to deliver babies in either of those communities because there are hospitals close by that do offer the service and that’s primarily where the physicians were going anyway.

PND: What are your plans for your physician practices?

BAW: Before we got here Allegheny had about 250 physician practices in the area. When we took over, I believe we had about 175 physician practices. Today we have about 50. It’s not something we’ve been secretive about either nationally or locally, we just don’t feel comfortable being in the provision of and ownership of physician practices. We have worked very effectively with the majority of our practices to transition them to private practice in and around our campuses. We’ve given the doctors what I believe to be adequate notice. Is every doctor happy? No. But we’ve been respectful and fair. We’ve done a lot to transition those doctors by not just saying, "Okay, in 90 days you’re gone," but "Here’s a manual, let us help you get set up. Let us help you get the lease in your name. Let us help you find a billing company. Let us help you with whatever regulatory compliance issues you might have." Some of the other systems are going through similar efforts to divest physician practices, so we’re not alone in this. The majority of physicians have stayed at our hospitals and have reentered private practice, and I would say we’ve been pretty successful in that regard. We are planning to exit the physician ownership market in the next year or there about. We would like to be completely divested next year at this time.

PND: A for-profit hospital system tied to a non-profit medical school, which in turn is tied to a university, is an unusual arrangement. How have those relationships evolved over time?

BAW: They’ve matured, for one thing. Tenet serves on the board of the Philadelphia Health and Education Corporation, which encompasses the medical school. Half of the board are Tenet members and I serve as the vice chairman of that board. Drexel University is operating MCP Hahnemann Medical School in an entrepreneurial manner, independent of Tenet, with the same zeal that one would to turn around any enterprise. So, you’ve got a medical school that wants to adopt a far more entrepreneurial academic model—that’s one of their stated goals. You’ve got a company that certainly wants to be entrepreneurial and growth-oriented. The combination has worked quite well. The medical school has seen tremendous growth and is facing next year a break-even budget themselves, which is quite a turnaround. In the past year we’ve worked with them to recruit eight new departmental chairman. From the beginning, it was hoped that there would be a several-year transition period before Drexel would decide whether or not to absorb the medical school into Drexel University. They would like to do that by this time next year. From our standpoint, we will always have an academic affiliation agreement for teaching, research and a whole host of other disciplines with the medical school, whether it’s called Drexel Medical School or retains the MCP Hahnemann name.

PND: What sort of investment is Tenet making toward teaching and research?

BAW: Research and teaching are driven by doctors, not by hospitals. Where appropriate, we’ll make financial, facilities or equipment contributions based on the merits of each of the projects in front of us. We were one of five sites in the country selected for artificial heart research and clinical trials. We will be making a commitment along with the medical school to treat those patients. We don’t always get paid our cost for clinical trials, so we’ll absorb some of the financial responsibility. We are working wherever we can with the respective hospitals or the medical school to increase the capacity and profile of our research. Christopher Reeve is going to be our guest of honor at the medical school’s inaugural fund raising dinner for spinal cord research. We also provide the medical school funding for oversight and teaching of residents, who are our employees. We’ve kept the amount of that support constant since we’ve been here, and I don’t think it’s different from what Jefferson or Penn or Temple might provide their academic partners.

PND: What impact have rising malpractice premium costs had on Tenet’s hospitals in this region?

BAW: This year’s increase has been about 35 percent for us. It’s really quite devastating, because you can’t go to payers and Medicare and say, "Philadelphia has this huge malpractice problem and our costs are going up 30-35 percent, so we need you to reimburse us." That doesn’t happen. It’s another hurdle that we have to overcome.

PND: Do you anticipate that any services might have to be trimmed because of the malpractice cost increases?

BAW: No, not at all. It’s transparent to the patients. The reality is that we do business in Philadelphia, and for me it’s a cost that I have to absorb. If it got to the point where it was far more substantial than it is today, maybe that would change the landscape. But it’s having a very profound impact on the doctors that practice in this community. They’re demoralized. They’re angry. We are starting to hear more and more stories that physicians in this community don’t necessarily want to be here. When I hear from hospitals that some of their doctors are thinking about going to either New Jersey, Iowa or Vermont, that troubles me.

PND: What are you doing to try and improve the situation?

BAW: We’re working with HAP and PMS to get the CAT Fund privatized and do what we can legislatively. We’ve hosted a number of meetings with local and state representatives at our hospitals. We’re educating our physicians about what they can do, helping them craft their own letters or strategies for contacting their representatives. We have talked to people in Harrisburg and the Mayor’s office and let them know it’s an emerging issue for the city.

PND: Do you think that Tenet’s national, for-profit status has enabled it to implement turnaround methods that may not be possible for other hospital systems in the area?

BAW: Clearly, being part of a national company helps. There are 111 Tenet hospitals, so I have 111 remarkable CEOs around this country that I can draw upon as resources. I can say to the CEO at Hahnemann, "You have a similar problem to the person running USC. Why don’t you give him or her a call and talk about what they’ve done?" With our national stature we can network. In May we brought together all our CEOs. In April we brought together over 1,000 people to a health care service excellence conference. In July we’re bringing together all of the recruiters at our hospitals to talk about what you can do to improve recruiting and retention techniques.

Having access to capital, not through the bond market, also helps. I don’t consider myself all that different from my non-profit counterparts. We all have competitive instincts. We all have malpractice and blood cost increases to deal with. But we’re able to access capital differently than our competitors. In this community over the past two-plus years we’ve spent over $100 million in capital improvements at our hospitals. In the last year, while some of the other systems might have been retrenching, we have been reinvesting in our physical plants, strategically redeploying capital and replacing old equipment at our hospitals at a time when I think capital is scarce. I’ve been here a year-plus and I have tremendous respect for the other academic medical centers. They have great doctors. They have great missions. Great histories. As do we. We’ve learned a lot about this marketplace since November of 1998. We’ve given a lot to the community. We pay taxes. We feel very comfortable being able to say that we’re part of the landscape in Philadelphia. We couldn’t say that two years ago.