Phoenix Children’s Hospital was on the brink of collapse in 2002, but today, the hospital has made an enormous financial turnaround and is once again talking about a bright future.
In 2003, the hospital posted an unaudited profit of $2 million — a dramatic shift from 2002, when the hospital lost $48 million.
In the months following the hospital’s opening on May 24, 2002, it was spending money faster than it could earn it. By December 2002, the hospital had only enough cash on hand to pay for 14 days of operation. Hospital leaders had to do something or risk losing the new, stand-alone children’s hospital that supporters had dreamed of for more than 20 years.
There were problems from the beginning.
Less than two months after the hospital opened, a drain pipe valve burst, flooding its operating room and closing it for six weeks.
Surgeries were canceled, and patient volume dropped. Meanwhile, the costs of running a heavily staffed hospital mounted.
"It was very difficult because here you’ve come off the most incredible high, moving into your dream home, and six weeks after you move in, your home is underwater," said Steve Schnall, vice president of the Phoenix Children’s Hospital Foundation.
But there were more serious problems than losses from the flood, which were covered by insurance.
Everything from plans for an almost paperless, computerized hospital to the structure of nursing staff showed that expectations of hospital planners were too high.
The problem, said president and CEO Robert Meyer, was that the hospital, which for years operated out of Good Samaritan Regional Medical Center, didn’t know how to start a hospital from scratch. Phoenix Children’s Hospital had simply purchased services from that hospital, now known as Banner Good Samaritan Medical Center.
After bringing in turnaround specialists, the hospital made changes to reduce costs. And computer systems were limited to allow manual entry of medical records. About 140 people were laid off, most of them managers and nurse travelers.
Today, the hospital continues to improve, increasing volumes in the operating room 70 percent in 2003, cutting its insurance payment denial rate from 16 percent to 1.5 percent, and implementing a blood and bone marrow transplant program.
The hospital is also planning a $10 million renovation of its 82-bed neonatal intensive care unit at Banner Good Samaritan.