Executive fix-it team works to rebuild an Empire

Everyone wondered how Empire Health Services could do it.

Yet, there it was, a $500,000 donation to the Hurricane Katrina relief effort. For a hospital system chronically short on cash, and one that pays its employees less than regional peers, aiding the survivors of the storm served notice that Deaconess Medical Center, and Valley Hospital and Medical Center, has returned as an important financial player.

“A lot of people in the medical community heard that announcement and shook their heads and said ‘How can you do that?’” said Chris Marr, chairman of Empire Health Services’ board of directors. “But you know, this is the kind of thing that shows commitment to mission.

“Despite that fact we have alligators at our door, this is what we’re about — life and the wellness of people. It was that simple.”

The hospitals were in trouble last year. Losses reached a disastrous $35 million; newly unionized nurses and technologists wanted a raise to make up for past wage cuts; and an exodus of talented employees threatened to erode confidence among doctors and patients.

The circumstances were so dire that Empire’s board of directors — community leaders who Marr said are dedicated to maintaining a non-religious, not-for-profit hospital system in Spokane — contemplated a sale, a merger, even a partial shutdown of hospitals.

Instead, they decided to dig in.

The board turned to Tatum Partners, a crisis management firm, and found Jeff Nelson to reorganize Empire.

So far, it seems to have worked.

Nelson set a new direction for Empire, hired an all-new management team, and reported recently that the hospital system was on pace to end 2005 on the plus side.

He talks about a hospital where patient care can be “better, faster and cheaper.”

“It’s possible,” Nelson said. “Our customers are patients and doctors and this is what they expect.”

In an interview, Nelson avoided the word hospitals and instead referred to Empire as “the company.” He is eager to leave the reorganization label behind as Empire completes its $35 million turnaround.

Part of that included a markedly better cash position that enabled Nelson to present the board with the bold plan to donate $500,000 — basically one day’s revenue to the organization. Though Empire’s bondholders — a consortium of banks — didn’t flinch, employees were surprised by the announcement.

“There were mixed feelings,” said Deborah Martin, a registered nurse at Valley Hospital. “It was definitely a noble idea, but it came right after negotiations where it was like trying to squeeze blood from a turnip.”

Besides the $500,000, Empire also will match up to another $100,000 given to the Red Cross by staff, patients and visitors. The hospital is working to send a medical relief team and supplies to the region.

Nelson has had to make some tough decisions, perhaps none more so than closing the pediatric unit at Deaconess and referring children and their parents to Sacred Heart Children’s Hospital.

The move doesn’t sit well with many employees.

Though she applauds many of Nelson’s decisions, registered nurse Patti Parra called the closure of pediatric care a disservice.

“People were upset about that,” she said.

Registered nurse Sue Leon agreed. “That was incredibly upsetting and sad,” she said. “Most of us wish it could reopen.”

Though Deaconess closed its pediatric unit, the hospital continues to operate an intensive care nursery as part of it busy mother-baby unit.

Marr called the moves the new reality at Deaconess.

“For a good number of years, (Empire’s) strategy was to out-Sacred Heart Sacred Heart,” he said. “They are the 800-pound gorilla, and we, on the other hand, don’t have the size or the resources to be everything to everybody.”

Nelson also closed the day care center at Deaconess. The two programs were targeted because they lost money and competing services were available through Sacred Heart.

Today, Nelson and Marr use the words innovative and nimble to describe the future of Empire.

Nelson is a disciple of Six Sigma, a business productivity program popularized by legendary General Electric Co. chairman Jack Welch. The management technique uses complicated project analysis to streamline every aspect of company, or in this case, hospital, activity.

Such a rigorous quality improvement program is how Nelson intends to remake Deaconess.

Around the hospitals, employees know about BHAG, pronounced “bee-hag” and short for “Big Hairy Audacious Goal.” Nelson said goal-setting is important, so he has asked employees to make Empire No. 1 in patient, employee and physician safety and satisfaction.

Part of the change included trimming the board from 16 members to 11. Three are doctors and there’s a focus on recruiting board members with experience as chief executives or financial officers.

Nelson has demanded more from the board, and, as Marr put it, “forced us to take ownership for decisions of the past.”

“It has created a very gut-level, honest relationship,” he said, adding that the board acts more quickly and decisively.

“This is about the future of this great service to the community,” Marr said, “so we ask people on the board to be all in, right now.”

The changes have encouraged Nelson to agree to extend his contract with Deaconess through December 2006.

Another new reality at Empire is organized labor. Following wage rollbacks and management turmoil, about 1,500 nurses, technologists and other employees joined the Service Employees International Union 1199NW, a large union representing more than 19,000 health care workers across the state.

The first contract the new SEIU locals reached with Empire included a wage package that assures a 9 percent pay increase by next August.

Pay for registered nurses at Deaconess and Valley had fallen about $5 an hour below what nurses earn at Sacred Heart. That wage disparity should ease as periodic raises push nursing pay higher.

Along with the pay increase, employees have a grievance procedure and now take part in committees that look at hospital issues ranging from staffing levels to benefit packages.

Nelson personally participated in the later settlement rounds, an unexpected appearance that earned respect among bargaining team members across the table.

Parra said morale has improved and that many employees are relieved Empire seems to be recovering.

“I was kind of impressed that he came to the table,” said Parra. “He spoke to us and said he was willing to work with the union and get some goals in place. Now we’ll see if everything works.”