Five Best Practices for Turning Around a Distressed Hospital: Sierra Vista Hospital

Picture of Erika Sundrud, MA, LSSMBB, CPHQ
Erika Sundrud, MA, LSSMBB, CPHQ
Senior Vice President, Advisory Management

If you’re a hospital executive, undoubtedly you are familiar with how challenging it is to run a successful hospital.  

And these recent headlines illustrate the challenges:

  • Rising Expenses, Negative Margins Drove Poor Hospital Finances
  • Cleveland Clinic Losses Top $1.5B Amid Inflation Pressures
  • Not Sustainable: The State of 2022 Hospital Finances
  • Local US Hospitals Are Increasingly Facing an Impossible Choice: Merge with a Larger Hospital or Close 

The numbers are pretty distressing.  

Kaufman Hall’s Fall 2022 Update to the Current State of Hospital Finances found:  

  • Optimistic projections for 2022 show operating margins will be down 37 percent relative to pre-pandemic levels. Pessimistic projections point to a possible 133 percent decline in margins.  
  • Expenses are expected to grow through 2022, leading to an increase of nearly $135 billion over 2021 levels.  

As Octave’s CEO Dwayne Gunter wrote in a recent blog,  

“What’s driving negative margins – increasing expenses for labor, supply, purchased services, drugs and more plus decreasing inpatient volumes, utilization of revenue resources and reimbursement – is highly likely to persist in 2023. That means it will be just as difficult to manage an independent hospital in 2023.” 

That’s the context for the Sierra Vista Hospital turnaround.  

The ‘before’ story is bleak. 

In 2017, before Octave began working with the board of directors and leaders, Sierra Vista Hospital was facing sizeable financial, operational and leadership challenges: 

  • Declining inpatient volume, 
  • Five days cash on hand and cash exhausted in 90-120 days, 
  • Expense growth exceeded revenue growth by 244 percent, 
  • Negative annual EBITDA, 
  • $32 million in new debt and a new hospital building project under way with no ability to meet debt service payments, 
  • Debt covenant default and 
  • CEO and CFO termination. 

Now, Sierra Vista’s results show the FY22 operating loss improved to $500,000, following an FY21 operating loss of more than $1.6 million. Days cash on hand has increased from five in 2017 to 150+ in 2022. 

Equally important, the hospital is adding physicians and nurse practitioners and new service lines, creating a culture of safety and quality and readying itself for Joint Commission accreditation. The turnaround of Sierra Vista Hospital demonstrates the importance of improving financial performance but also quality, growth and workforce. 

The Sierra Vista turnaround also reinforces the appeal of having a partner like Octave to work alongside hospital leaders and the board of directors. In the words of the organization’s CEO, Frank Corcoran,  

Here are the five best practices used to turnaround Sierra Vista Hospital: 

  1. Financial turnaround 
  2. Smart growth 
  3. Culture of safety and quality 
  4. Optimize workforce 
  5. Sustainability and care transformation 
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