Hospital consultant costs top $3 million

Published 9:00 pm Wednesday, April 13, 2005

EDMONDS – The cost of consultants that taxpayer-supported Stevens Hospital hired to help stop a string of financial losses will hit an estimated $3.7 million by June, the end of the consultants’ first year of work.

The estimate on first-year costs for the consulting team was provided in response to a request by The Herald.

The hospital is using Wellspring Partners Ltd., a Chicago-based consulting firm that specializes in helping medical groups with financial turnarounds. The firm was hired last May to advise Stevens on cost-cutting.

The decision to bring in outside consultants followed years of financial losses for the hospital, which hit $4.7 million in 2000.

The $3.7 million first-year consulting fee “sounds like a big number,” acknowledged Matt Harrison, chief turnaround officer for the consultants. But people should look at the results, he added.

Overall savings from changes recommended by the consultants are expected to reach almost $3.4 million by June, Harrison said.

The cumulative effect of better business practices over the three-year turnaround period is projected to be $23 million.

The hospital was charged $1.4 million for the first six months of the consultant’s work. Current projections are that the hospital will be billed $2.3 million for the second six months.

Fred Langer, board president, said the money has been well spent.

“It hasn’t surprised me (the fees) have gone up,” Langer said. As work progressed and the consultants learned more about hospital operations, “they found more work to do.”

Within the first few months, consultants identified more than 400 areas where the hospital could improve its financial performance, Langer said.

“This wasn’t just a patch job,” said Bob Meador, the newest member of the five-member, publicly elected hospital board.

However, Meador added that he would like to know more about the hospital’s contract with the consulting firm and the escalation of costs.

Five to 11 consultants are assigned to the hospital. Projects, and their costs, are tackled in six-month increments, Harrison said. Fees are based on the number of days it takes to accomplish a project.

Although fees are higher for the second six months, “the benefits are higher as well,” Harrison said.

For instance, renegotiating contracts with on-call or agency nursing companies that provide fill-in nurses is expected to save $235,000 a year, Harrison said.

Other examples of changes the consultants have made are:

* Reducing by half the 3,400 forms used at the hospital and its businesses, which will save $226,000 a year.

* Consolidating office space and allowing employees to move out of rental space in a building near the hospital campus, which will save $435,000 a year.

* Renegotiating contract services for printers and copiers, which will save $190,000 a year.

“The proof is in the pudding,” said Marcy Shimada, administrator of Edmonds Family Medicine Clinic.

“I hope the understanding by the community is not, ‘Did we end up with a bargain on consulting services?’ but can we have a strong hospital … that we’re not going to have to go bail out with taxes,” she said.

Stevens Hospital, its medical clinics and other businesses incurred net losses of $2.45 million in 2003.

Finances have been a major focus of the hospital since Dr. John Todd took over as chief executive. He replaced former top executive Steve McCary, who was fired by the board in January 2004.

During McCary’s 14-year tenure, the hospital had six years of losses. McCary’s severance package calls for him to be paid $1.18 million over seven years and $921,049 in deferred retirement compensation.

This year, the hospital is operating on a $134.1 million budget. South Snohomish County property owners pay nearly $4 million a year in taxes to support the hospital.

Recently revised figures show the hospital’s estimated loss for last year, $1.38 million, was smaller than expected, said Gary Wangsmo, the hospital’s chief financial officer. This year, the hospital hopes to break even.

“I really think the hospital is on the mend,” Langer said.

Reporter Sharon Salyer: 425-339-3486 or salyer@ heraldnet.com.