November 30, 2007

County Report

County launches major VMC financial improvement plan

By Supervisor Pete McHugh
Special to the Times

To avoid significant service level and staff reductions at Valley Medical Center (VMC), the county recently launched a financial improvement plan called VMC Transformation 2010. This enormous undertaking responds to the 40 percent increase in patient volume since the new hospital opened in 1997 and projected budget deficits over the next few years. VMC staff plans to develop and implement the necessary changes within three years to realize an ongoing financial benefit ranging from $60 million to $110 million.  In early November, the Board approved a $20 million multi-year contract with Deloitte Consulting LLP to assist county staff in this difficult task.   

The demand for VMC’s services continues to grow as other hospitals in the county have decided to no longer treat Medi-Cal patients while medical costs continue to outpace revenues. Since 1997, VMC’s annual hospital patient volume has increased from 144,000 to an estimated 200,000 and the visits to VMC’s clinics have nearly doubled to 700,000.  The county closes VMC’s budget deficit each year with a subsidy from the General Fund. From 2005 to this fiscal year, the subsidy has grown by 150 percent to $241.6 million and the latest forecast has the subsidy reach $488.8 million by 2012. 

VMC staff and Deloitte consultants have identified seventeen comprehensive areas of work for VMC Transformation 2010. Eleven of these areas or initiatives have connections with each other that form three natural groupings. These three groups involve the revenue cycle, hospital care delivery and ambulatory clinic services. The remaining six initiatives explore savings in the areas of the supply chain, management-to-staff ratios, non-clinical staff services, information technology and the laboratory. 

The revenue cycle group contains four initiatives that focus on maximizing revenues.  The improvement plan calls for using an outside firm to accelerate current bill collections to accumulate $23.5 million in cash. Simultaneously, consultants and staff will redesign the billing process, the recording of charges, and the managing of the initial denial of claims. The goals will be to reduce by 2011 the number of days a bill remains unpaid and the percentage of late charges to generate $16.25 million in additional ongoing revenue. 

According to the Deloitte consultants, VMC has the opportunity to create some additional capacity in its hospital care delivery system without increasing patient beds. The four initiatives in this group ask VMC staff to improve the use of its nursing resources and its hospital facilities, such as operating rooms and patient wards. With more efficient use of operating rooms and patient beds, VMC will be able to generate new revenues by marketing services to patients with medical insurance. By better aligning nurse staffing to patient volume and illness intensity and improving patient flow, staff anticipates an ongoing benefit of $20.5 million by FY 2011. 

In the next few years, VMC will activate the Valley Specialty (Clinic) Center and new health clinics in Gilroy, Sunnyvale and Milpitas. The three initiatives related to ambulatory clinics will develop new processes suited for these clinics to more efficiently use physician time and improve clinical support staff productivity. VMC staff expects that success in these areas will result in an ongoing benefit of over $15.5 million in three years. 

The Board of Supervisors remains committed to maintaining the high quality of health care provided at Valley Medical Center for all residents regardless of their ability to pay.  Unfortunately, federal and State reimbursements and local revenues have not kept pace with the cost to provide this high quality health care.  VMC Transformation 2010 represents a significant investment of one-time funds and staff resources to make VMC’s high quality of health care economically sustainable.