Stevens Hospital faces tough choices about its future

EDMONDS — Stevens Hospital finds itself in a situation homeowners often face. A couple buys a starter home, but over the years, they realize there just isn’t enough room for them and their kids.

The choices aren’t easy: Find some patchwork solutions, do a big remodel or buy a new home and move.

Stevens Hospital’s five elected board members, now trying to chart the hospital’s future, are faced with similar choices.

A major upgrade of its emergency department is on top of the hospital’s list of prospective improvements. The hospital now treats about 42,000 patients a year — about twice the number the space was built for.

But with the cost of a new emergency department estimated at $20 million to $30 million, should that money instead be put toward construction of a new hospital, costing about 10 times as much?

Questions over the public hospital’s future and its finances were discussed by board members during a daylong retreat Thursday.

“The decisions this hospital has to make are critical,” board member Bob Meador said.

Even if board members come up with a plan, the question remains: Are property owners, now paying nearly $4 million a year in taxes to support the hospital, willing to open their pocketbooks even more to help pay for new buildings, equipment or programs?

The hospital’s taxing district includes 80,354 voters in the cities of Brier, Edmonds, Lynn­wood, Mountlake Terrace, Woodway and surrounding unincorporated areas.

“The key question is what does the community want and what is it willing to pay for?” said Michael Hammond, a partner in the consulting firm of Shattuck Hammond Partners.

The firm provided an analysis of the hospital’s options, national health care trends, and with help from hospital staff, information on the hospital’s finances.

“For any health care organization, one of the principal challenges is how does it acquire enough capital to invest in its future?” Hammond said.

Board President Deana Knutsen said there is no agreement yet among board members on the hospital’s future.

“I want to make that point very strongly,” she said. “I think people have thought we were already there. We aren’t already there.”

While well-run hospitals routinely plow money back into their businesses, a string of financial losses kept Stevens from paying for ongoing improvements. Officials said the hospital is now about $18 million behind.

Chief Executive Michael Carter said lack of money for improvements has turned employees into “the MacGyvers of health care,” finding resourceful but stop-gap solutions “and making them work.”

The lack of financial stability has also caused another problems. The hospital’s low levels of cash on hand have caused a downgrade in bond ratings, which would make borrowing for improvement projects, equipment or construction more costly.

Although the hospital has made a profit the last several years, it can’t just save enough money quickly enough to pay for needed improvements, officials said.

“We’re running out of time,” said board member Chuck Day. “We don’t have unending time to step up to the plate and make some decisions.”

The consultant’s report noted that many of the problems Stevens is facing are shared by hospitals nationally.

More than 2,000 hospitals in the U.S. are failing to generate enough money to fund operations. Another 750 hospitals don’t generate sufficient cash flow to reinvest in their businesses.

For all these reasons, hospital mergers and acquisitions grew in the 1990s, peaking in 1997. After slowing for six years, they again are on the rise.

“In many cases, the organizations that have limped along decided they needed a partner, that they can’t limp along indefinitely,” Hammond said.

“So the financial health of the organization is the driver?” Meador asked.

“Yes,” Hammond responded.

More than a decade ago, Stevens talked with Swedish Medical Center about a possible merger. Among the barriers then were what would happen to the hospital and other assets, which were paid for in part by taxpayers.

Nevertheless, board member Fred Langer on Thursday said that possible business partnerships or even mergers with other health-care organizations were part of the process of thinking about Stevens’ future, just as it should consider what services it should provide.

“It doesn’t matter whether we talk merger or not, under any circumstance we want to be as good as we can be,” he said.

Swedish Medical Center in Seattle already has partnerships with the hospital, providing radiation services at Stevens. The cardiologists, or heart specialists, working on Stevens’ hospital campus are Swedish employees.

When asked about the possibility of a merger or additional partnerships with Stevens, Swedish released a statement on Friday through its spokesman: “Swedish has had a long and valued working relationship with Stevens, particularly in the areas of cancer and cardiovascular care. … We are pleased to be on their short list of potential partners and are open to conversations with them about their future.”

Providence Everett Medical Center Chief Executive Dave Brooks said Friday that his organization has not had any discussions with Stevens.

Knutsen said board members should hear from the public before making any decisions on the hospital’s future. She also urged her fellow board member to carefully weigh its options.

“This is permanent,” she said of the changes the hospital is considering.

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