June 2009

Responsible Stewardship Work Yields Positive Results

In January, CHI announced a multifaceted approach to responsible stewardship, designed to stabilize and strengthen the organization during the current economic downturn. This approach includes five major work streams that involve the entire system. CHI has made progress on each of the work streams.

Portfolio Review: CHI developed criteria to assess each MBO, focusing on long-term strategic positioning and sustainability in the local market. CHI identified several markets for additional review. In some cases, CHI will complete a discernment process with the MBO board and management team to assess the most appropriate course of action for the community, the MBO and CHI.

MBO Improvement Plan: MBOs are identifying improvement in services, processes, systems and resources. By the end of March, MBOs identified $110 million in expense and revenue improvements to be achieved by the end of FY2009. Systemwide, the employee count has been reduced about 1,800 (as of May 2009) through attrition, hiring freezes, elimination of open positions, reductions in overtime and layoffs.

Focused Market Review: Two systems within CHI - Saint Clare's Health System, Denville, NJ, and Centura Health of Colorado - identified total improvements of $25 million for FY2009.

National Office Review: National group leaders reduced FY2009 budgets for $32.9 million in savings through April. An external review of the national office identified an additional $25 million in savings for FY2009. During FY2010, CHI expects national office savings of more than $80 million, some through work that will be done at the MBOs.

Most of CHI's national groups have created action plans and performance measurement metrics. CHI also established a Cost Reduction Project Management Office to help group leaders implement action plans and track savings.

Focused Revenue Cycle and Supply Chain: CHI is reorganizing its revenue cycle, and the improvements are expected to add up to $21 million in FY2010. MBO staff members are receiving training in point-of-service cash collections, which will yield more than $10 million in collections and reduction of bad debt expense.

Supply chain has a goal of $65 million in expense reduction through FY2010. Savings will result from standardized prices (not products) for orthopedic and spine implants, increased equipment reprocessing, monitoring prices for drug eluting stents, consolidating to one medical/surgical product distributor and sole-source contracting in certain product categories.

CHI remains committed to achieving a 3% operating margin during FY2010 as the minimum level of performance needed to sustain CHI's ministry.