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Turnaround for Riverside County’s Financially Beleaguered Medical Center

Riverside County took drastic action in recent years to turn around its financially mired public hospital.

The county loaned the Riverside County Regional Medical Center $200 million, spent nearly $26 million on a contract with Huron Healthcare to turn the hospital toward profitability and this year, embarked on a rebranding effort. The hospital now is called Riverside University Health System Medical Center.

Hospital CEO Zareh Sarrafian, who took the reins a little over a year ago, has advocated for equipment and technology upgrades and a hospital expansion that he said are geared toward improving efficiency, quality of care and the hospital’s financial health.

Sarrafian said the hospital has the financial means to support new investments, which include a new $53 million electronic health record system that will enable improved records sharing and data mining. Also in the works are a new catheterization lab and the purchase of new medical equipment.

“We wouldn’t be making these investments if we didn’t think they were vital to our existence and the future and quality of care,” he said.

Another project on the horizon is a new medical office complex on undeveloped land neighboring the hospital. Through a public-private partnership, the hospital plans to build physician offices, an out-patient surgical center and a new mental health center.

Sarrafian, who previously worked for Kaiser Permanente and Loma Linda University Medical Center, said the investments are necessary to prevent the hospital from falling behind in its capital expenditures.

The hospital’s overall strategy is to play a role in unifying the Inland Empire’s somewhat fragmented marketplace, with the goal of “integrating vital parts of the continuum of care,” including mental health, he said. The hospital also has been working to establish a system of providers, he said.

Jennifer Bayer, vice president of external affairs at the Hospital Association of Southern California, said the hospital’s turnaround is a welcome change, but it’s still early in the process to make a final call.

“They have put a tremendous amount of investment into the facility,” she said. “They are certainly on the right track from what we are hearing.”

Quality of Care

Hospital administrators said part of their strategy has been renewed focus on quality of care.

They point to a sharp decline in sepsis mortality, catheter infections, surgical site infections and ventilator-associated pneumonia in the Neonatal Intensive Care Unit.

Gary Thompson, the hospital’s medical director for quality, said the attention to improved quality of care has resulted in cost savings due to decreased length of hospital stays. For example, the decline in sepsis mortality resulted in savings of more than $3 million and addressing diabetic hypoglycemic rates among patients resulted in more than $1 million saved per year, he said.

This month, the hospital received a “gold-plus” rating from the American Stroke Association and last September was selected as a national top performer on key quality measures by The Joint Commission, a not-for-profit hospital accrediting agency. The hospital also is pursuing becoming a Level 1 trauma center.

The focus on improved outcomes has been influenced by increased competition among medical providers following the rollout of the Affordable Care Act.

“How can you attract patients if you don’t have quality care?” Thompson said.

Sarrafian said the hospital’s role as a safety-net hospital means it needs to survive, even though it is no longer the only game in town. His aim has been to stabilize the hospital financially, while creating a delivery model that included coordination of care for the entire county.

Bayer said public hospitals across the state are giving attention toward how to attract patients and private insurers because they can no longer rely on a “shoo-in” Medi-Cal population. Medi-Cal is California’s Medicaid program. Patients in the vast region encompassed by Riverside County can now opt to go to a medical center closer to home, particularly if they live far from the hospital’s Moreno Valley campus.

“With Medi-Cal expansion and the ACA, many people have much more choice,” she said. “It has caused many county facilities to rethink the way they deliver care so they can compete.”

Due to health care reform, public hospitals are re-evaluating themselves from a competitive standpoint rather than a mandatory standpoint, Bayer said. And like RUHS Medical Center, they are considering new investments in technology, structural improvements and expansions, realigning general efficiencies and patient satisfaction, she said.

Some of the medical center’s improvements, such as those related to patient infection rates, are related to new Medicare standards that can reduce hospitals’ payments if they do not meet certain performance thresholds.

“You could lose 8% to 9% of your revenue based upon performance,” said Craig Garner, a health care lawyer and former hospital CEO. “It’s quite a challenge. They are trying to look at additional revenue streams to keep them afloat, and the question becomes, is that going to be enough?”

Building a New Image

With its rebranding, the hospital seems to be trying to tap into the prestige of other academically affiliated medical centers, such as Loma Linda, UCLA and UC-Irvine, Garner said.

The hospital’s rebranding and expansion plans also appear to be part of a strategy to attract private insurers and a wider patient base.

“People want to go to the best facilities,” Garner said. “It’s hard to compete with other academic institutions or conglomerates.”

Staying Afloat

Garner said the road ahead for public hospitals like RUHS Medical Center is not an easy one.

“They have to become very efficient. They have very little room for error,” he said. “If people are being encouraged to utilize less, and providers are being paid less and they already had slim profit margins, something has to give. That’s the burden of health care reform, to find a way to bridge that gap.”

The hospital appears to be on better financial footing. It reported a $54 million profit in fiscal year 2015, compared with a $62 million loss in 2014. And the $200 loan from the county in the form of a line of credit is no longer on the books as the hospital has a positive cash flow, according to a statement from the hospital’s spokesperson. Meanwhile, the hospital has 10 years to pay back its debt obligation to Huron Healthcare.

Sarrafian conceded that the ACA has required public hospitals to adapt in order to survive new competitive forces. He foresees more consolidation and said size is going to matter and some hospitals will need to become part of a larger network to survive.

“It’s been very difficult for many organizations to anticipate the ramifications,” he said. “Public hospitals have probably been the most adversely impacted.”

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