Financial turnaround keeps hospital in place

Raritan Bay plans to stay in Old Bridge with a more efficient operation

BY LAUREN CIRAULO Staff Writer

Raritan Bay Medical Center is no longer in pursuit of a buyer for its Old Bridge division, now that finances have improved at the main facility in Perth Amboy.

The hospital announced recently that it has officially ended negotiations with Robert Wood Johnson University Hospital, and both facilities have mutually decided to continue running independently of each other.

“The two institutions have worked in a collegial manner since the initial request for proposal for the sale of the Old Bridge hospital was initiated by Raritan Bay Medical Center in September 2008. After careful review, both organizations have agreed that they can best ensure access to high-quality services by the region’s patients and physicians by remaining independent,” according to a joint statement issued by Lynette King-Davis, vice president of marketing and business development for Raritan Bay, and Peter Haigney, director of public relations for Robert Wood Johnson.

Raritan Bay’s Old Bridge division, which opened its doors at Route 18 and Ferry Road in 1979, was initially put up for sale in September 2008 in order to keep the headquarters facility in Perth Amboy afloat.

At the time, 35 percent of inpatients at Perth Amboy were Medicaid and charity care, with the state paying only 60 percent of all costs for the patients, according to Raritan Bay Medical Center President and CEO Michael D’Agnes. He had said the 388-bed facility was losing more than $10 million a year due to the shortfall in reimbursement from the state. The sale of the Old Bridge facility was expected to replenish Perth Amboy funds that had been depleted in trying to keep the hospital running.

Five bidders submitted offers to take over the 113-bed facility, with Robert Wood Johnson emerging as front-runner.

If both of the health care institutions had followed through with the transaction, Robert Wood Johnson would have acquired both the Old Bridge facility and the Perth Amboy division. However, D’Agnes said that the two hospitals could not agree on both components of the deal.

“While we were able to arrive at a price for Old Bridge, we were not able to arrive at a service agreement with Perth Amboy,” he said. “Since we couldn’t get down both elements, we decided to go our separate ways.”

D’Agnes said Raritan Bay will move forward independently as a dual-facility hospital, but still remain a network hospital of Robert Wood Johnson.

A brighter financial outlook

However, settlement conflicts were not the only reason discussions ended between the two hospitals — D’Agnes said a financial turnaround at Raritan Bay Medical Center in 2009 also contributed.

“Our biggest immediate challenge was to stem the tide of losses we were experiencing. Not only were we able to stop the losses in 2009, but we performed better financially than our budgeted projections,” he said.

D’Agnes said that in 2007, Raritan Bay was operating at a loss of $17 million. In 2008, he reported a loss of $6 million, and by the end of 2009, the institution “really picked up steam” and earned a profit of $2 million. D’Agnes noted that the estimates are strictly based on an operational basis, and do not include extraneous expenses.

“Given our situation, we sought to monetize our best asset, which was the Old Bridge division. We identified Robert Wood Johnson as the best candidate and began negotiations, but paralleled that with a well-structured turnaround plan in which we reduced expenses and maximized revenue,” he said. “And those changes made a tremendous impact on our financial situation.”

D’Agnes said the institution reduced expenses in a variety of ways, including downsizing hospital staff through attrition, minimizing the pension contribution, trimming the use of supplies, and shortening the length of stay for Medicare patients by at least half a day each year.

“Reducing Medicare patient stays helped significantly,” he said. “If we have 8,000 Medicare patients per year, than we’ve saved 8,000 days worth of resources in the past two years, along with variable costs like medical supplies.”

D’Agnes said the hospital also concentrated on increasing revenue, especially within the scope of outpatient treatments in diagnostic imaging, cardiology and physical therapy.

“We increased the volume of these services that we already provided,” he said. “We were working both sides of the equation.”

D’Agnes emphasized that the cost-saving measures did not negatively impact the quality of patient care. Raritan Bay maintained its designation as a Magnet hospital, a state-designated stroke center and a five-star rating in the care of stroke patients by HealthGrades Inc., the national health care rating agency, he said.

“This effort is a result of all the employees and physicians at Raritan Bay. They’ve done more with less and weathered through some very uncertain times,” D’Agnes said. “What we’ve been able to accomplish through this is indicative of the staff. They make up the architecture of a successful facility.”

Currently, the hospital is not seeking out any new buyers.

“There are no other suitors on our radar, but we’re no longer in a position of weakness if discussions ever came up again. However, this did buy time to form a long-term outlook,” he said. “Our future plans are primarily growth related. We’re hoping to expand new services and continue to increase revenue.”

While D’Agnes said Raritan Bay’s chief priority is to continue to improve operations, he noted that several projects are in the works for 2010 and 2011. Both facilities are currently undergoing renovations for the addition of new private rooms, and improvements are being made to Perth Amboy’s emergency department. Old Bridge’s emergency department will improve as well — the ward will run more efficiently due to the addition of monitoring beds in other areas of the hospital.

“We’re looking at making one whole floor of monitoring beds. If we don’t have a sufficient number of monitoring beds, patients back up and there are delays in the emergency room,” D’Agnes said. “We don’t want to close the door of the emergency room, so we’re expanding the capabilities on one floor in Old Bridge. That way, we can move patients rapidly from the emergency room to that floor.”

In addition, a new women’s center that will include digital mammography, ultrasound, bone density and MRI, among other technologies, will provide diagnostic and treatment services for women at the Perth Amboy branch while the existing women’s center at the Old Bridge division will receive technological improvements.

The hospital also recently received a $3.1 million grant from PSE&G to install multiple energy-efficiency improvements at the Perth Amboy facility, including new cooling towers, lighting improvements, boiling burners, windows and a new roof. The improvements will enable the hospital to reduce energy use and thus save on energy expenses, estimated at more than $1 million over the next three years, D’Agnes said.

Hospital officials are also exploring funding sources for a new surgical suite at Old Bridge, as well as the revamping of pre- and post-operative accommodations at both divisions.

“We have an insufficient number of operating rooms and poor pre-operative and postoperative space — it’s not what we’d like to offer,” D’Agnes said. “We’re exploring funding opportunities, but that will be the first thing to look at when our borrowing capacity rises.”

Despite high hopes, D’Agnes said future plans hinge on a decision by Gov. Chris Christie regarding medical care cuts. Tentatively, the state is proposing $500 billion in Medicare reductions.

“We need to be nimble enough to deal with potential cuts,” D’Agnes said. “With this decision hanging in the balance, we’re still in a tenuous position. We need to proceed very carefully. I don’t want to over-promise and under-deliver.”

Christie will announce his budget cuts on March 16, but regardless of the state decision, D’Agnes said Raritan Bay will aim for continued growth in revenue while controlling expenses.