Article

Healthy Balance

By Hannah Wallace October 31, 2008

As a volunteer candy striper at a hospital in her hometown of Detroit, 14-year-old Gwen MacKenzie made beds, sorted linens, carried water to patients—and began planning her future.

“I knew the minute I started that I wanted to be a nurse,” MacKenzie says.

 MacKenzie still plays a crucial role in healthcare, only now she watches over half a million people living in Southwest Florida as the president and chief executive officer of the Sarasota Memorial Health Care System.

The tall, fit, 54-year-old MacKenzie, who wears a white lab coat when making her hospital rounds and is known for her cropped copper-colored hair, stylish outfits and decisive manner, has taken on a gargantuan task—keeping the publicly funded Sarasota Memorial solvent as utility and insurance costs go up, more people go without health insurance, Medicare dollars dwindle and lower property taxes decrease public funding. Her plans may not always please taxpayers, medical staff and other health care providers, but she’s made big strides in her three-year tenure and her name is recognized far outside the hospital.

MacKenzie has two nursing degrees—a bachelor’s from the University of Michigan and a master’s from the University of California, Los Angeles (UCLA). In Detroit, she specialized in nursing cancer patients in the last stages of their treatment and their life.

Then, in 1982, she was ordered to take a temporary assignment as an administrator.

“I was a nurse practitioner, and the director of nursing asked me if I would cover for one of the administrative nurses who was in a master’s program,” MacKenzie says. “I said no. I really loved what I did. I was taking care of the worst cancer patients. This was when there weren’t as many curative drugs for cancer. And back then we were doing these massive operations, with radiation and chemotherapy—really horrendous treatments—and I felt like I was making a contribution because these patients were really in need. I had no interest in administration, none whatsoever.”

But soon after she took the new job, she came to this realization: “I am not going to cure cancer. But if I can make it better for the scientists, help the nurses provide better care, bring something to the equation that would allow for new resources, then maybe that is my contribution,” she says.

When MacKenzie saw that she needed to address the financial side of medicine, she went back to the University of Michigan to earn a master’s in health services administration. She did that while working full time as a trouble-shooting manager who knew how to fix problems, get people to work together and even cut costs and improve performance. In time, she was named executive vice president and chief operating officer of the Detroit Medical Center, a huge academic health system that includes nine hospitals, two nursing centers and more than 100 outpatient centers.

Then a headhunter called her about the Sarasota opening.

“I told him I wasn’t interested,” she says. “He said that SMH was a public institution and had an elected board. Immediately this vision of the Detroit City Council flashed into my head, and I said, ‘I am really not interested. This is a double no, underscored.’”

Then she took another look.

“I came to Sarasota and found that this is not just a hospital. I asked if I could visit some of the nursing units because you look for teamwork,” MacKenzie says. “You look for people who like to work here. You look for the qualifications of the doctors. You look for patient satisfaction. And what I saw was a public hospital that served the poor and served Longboat Key and did it with grace and dignity and had terrific technology and terrific doctors. You could feel people wanted to be here and wanted to deliver great patient care.”

She took the job in 2005, becoming the president and CEO of the Sarasota Memorial Health Care System, a sprawling not-for-profit, taxpayer-funded organization governed by a nine-member elected hospital board. SMH has about 4,000 employees, a medical staff of 750 physicians and more than 1,000 volunteers. Its 806-bed acute care hospital is located in central Sarasota at 1700 S. Tamiami Trail, but its network of services extends to more than a dozen other locations. It is the only hospital in Southwest Florida that consistently ranks among America’s Best Hospitals by U.S. News & World Report. It is also the only hospital in the region recognized among “America’s Safest Hospitals” by Forbes.com.

When MacKenzie arrived, the system was losing millions of dollars as patient revenues failed to pay for the cost of providing care, according to Sarasota Memorial’s hospital board chairwoman Donna Barcomb. “We were really struggling to reach a neutral operating margin, and we needed someone who could implement a program that looked at controlling costs,” Barcomb says.

The board, in considering MacKenzie for the CEO job, saw her as a “very polished speaker, very articulate, able to fill the community leader position that is inherent with the job,” Barcomb says. But even more important, she says, MacKenzie had a track record for successful cost-cutting and financial management.

MacKenzie set a five-year goal to improve the SMH financial situation, and Barcomb says, “We are in the third year of her plan, and we already see huge changes. She did that by going department to department, teaching them how to use a checkbook system, in which they have so much money and they are forced to be disciplined. It is a culture change for the hospital, but employees ultimately see the benefits of controlling their costs.”

Barcomb says MacKenzie has a “collaborative style, not autocratic” and has been “extremely effective” in establishing department controls that ensure “we don’t spend money on new technology or outpatient clinics unless we can afford to do so.”

The SMH cost-cutting program has also included layoffs. In 2005, SMH laid off 60 people and cut 30 positions.

Those layoffs caused some controversy, but the numbers, provided by the SMH finance department, show the improvement under MacKenzie’s leadership. In fiscal 2005, SMH had operating revenue of $477 million and an operating loss of $6.5 million. In fiscal 2006, operating revenues were up to $516 million and there was no operating loss at all. Instead, there was operating income of $360,000. In fiscal 2007, the operating revenue hit $553 million and operating income rose to $22.4 million.  These positive numbers are reflected in an upgraded A+ rating by Fitch and an anticipated upgraded rating by Moody’s.

Although she has achieved those positive numbers partly by layoffs and job cuts, MacKenzie points to significant improvements in employee satisfaction/engagement during her tenure, as measured by Gallup. Another accomplishment has been the SMH success with Emergency Room procedures that have resulted in “no ER diversions in almost three years,” meaning no ambulances have been redirected from the SMH emergency room to other hospitals.

She also cites the “upgrade by both Fitch and Moody’s for our improved (financial) performance.”

Hospital board chair Barcomb says the board wants SMH to maintain its positive operating margin. And they want that done at a time when the board has voted to freeze the hospital tax rate for next year.

To offset the projected $10 million loss in tax revenue next year and an expected $23 million increase in expenses for utilities and other costs, MacKenzie announced a new round of layoffs in mid-August. This time 31 employees were laid off, and 100 vacant positions were cut.

But maintaining a positive operating margin is only one of the challenges that MacKenzie now faces. In addition, the number of uninsured patients is growing at a time when hospital reimbursements from Medicare and other programs are shrinking. SMH expects to write off $100 million in charity care and bad debts this year.

And she’s also stirred up turf wars. In an effort to increase revenues, SMH plans to open new outpatient services in Bradenton. But this is causing heartburn among Manatee County hospital officials who complain that SMH is invading their turf and stealing their patients. MacKenzie calls those complaints “untrue and unjustified” and notes that SMH is the only nonprofit hospital in Manatee, Sarasota or Charlotte counties. The new SMH Bradenton clinic is scheduled to open in January [see sidebar].

MacKenzie says that her biggest challenge, however, continues to be maintaining the “right balance” for effective growth at a time of limited tax dollars and a larger population of uninsured patients:

“You can’t cut your way to prosperity,” MacKenzie says. “You have to have balance. Getting the right balance makes the finance part easier, but you can’t start with finance. You have to grow effectively—by developing outpatient campuses [that can bring in additional revenues], by making sure we deliver the best patient services possible so that patients and physicians are happy, by making sure we are good to our people. As a public system, we can’t always give top raises but we can take other steps in the way of benefits, recognition and flexibility.”

MacKenzie says that losing 31 employees was “very painful because this is a family-oriented place and it is like losing a family member.” She hopes that “over a period of time we will be able to bring those people back.” But, in a recent letter to managers, she cautioned that there may be more reductions ahead. “I can’t promise that we won’t have to make further cuts in the future,” she says. “Much depends on the economy and if we make our budget goals by 2009.”

Critics, including a candidate running for the hospital board, pounced on news of the recent layoff plan and called on MacKenzie to defer the 7 percent raise she received in May when her contract was renewed. MacKenzie’s annual pay is now $574,500, plus $5,000 in deferred compensation.

Asked to respond to the critics about her salary increase, MacKenzie suggested that the question go to the hospital board. Chairman Barcomb says that MacKenzie’s 7 percent salary hike in May was “not really a raise, but a market adjustment.” She says MacKenzie was hired in 2005 at a salary that was below the 50th percentile for executives at comparable institutions. In renewing her contract in May 2008, the board “adjusted” MacKenzie’s salary to the 50th percentile, Barcomb says.

Hospital leaders, including MacKenzie, backed the recent hospital board decision not to raise the property tax rate in 2009, even though lower tax bills for property owners mean less revenue for SMH. In making its decision, the board members said they wanted to help residents cope with the economic downturn

Kerry Kirschner of the Argus Foundation, a local group of pro-business leaders, questions MacKenzie’s assertion that the hospital is in such tough financial shape this year that it would require layoffs. In fact, he says, SMH, with its $500 million in investments, is not operating at a loss and is more like a well- heeled private institution funded by public dollars. “Everyone wants the finest medical facility possible, but Argus feels that they should be more open to public scrutiny, exposing their capital budgets and future plans in order to justify their huge collection of revenues over operating expenses that they currently enjoy,” he says.

McKenzie politely disagrees. “He tends to dwell on the bottom bottom line,” she says. “Do you spend your investment income? Hospitals are evaluated on their operating income. That’s how you pay your bills everyday. We are not like a business that sets a price and that’s what you get. What we’re paid is dictated by everybody else. Looking forward we’re seeing household value is down, our millage went down almost 20 percent almost overnight. We have some very big capital necessities like the replacement bed tower. There are a formidable number of public hospitals that have closed, and that’s why we focus on our operating funds.”

It is against this background that MacKenzie puts in her 12-hour days, arriving in her office around 6:30 a.m. and departing for home around 6:30 p.m. She uses her noon break to work out, running three miles on a treadmill. According to her husband, she works weekends as well. “She may not be in the office but she is working, trust me,” he says.

Doug MacKenzie said he realized long ago that his wife is “a lot more brilliant and organized in her career than I was in mine, so I stepped back. She needed to be protected and taken care of and that’s my job. And believe me she is worth it.” The couple has been married 29 years. In addition to running the household, he works for a property management company.

MacKenzie may be a high-ranking executive, but she also understands the need to wear the white lab coat. “Early in my training, I remember hearing some of the nurses say, ‘Suit on the floor,’” she says. “That meant some manager was coming, because typically the managers were men and they wore suits. And I remember thinking I never wanted to be a suit on the floor.”

How does MacKenzie define her current job as CEO?

“To create the right environment for talented people to do what they need to do to advance medicine,” she says. “Our mission statement is to be the best place to practice medicine, the best place to work and the best place to be a patient. My job is to make sure all those things happen.”

Border Conflicts

Manatee and North Port fight SMH’s for-profit clinics.

 Sarasota Memorial’s two new regional outpatient clinics, one near Lakewood Ranch in East Manatee and one in the North Port Medical Center in southern Sarasota County, are being developed by the Sarasota Memorial Health Care System as part of an expansion strategy aimed at bringing in additional revenues.

The Lakewood Ranch facility, known as Heritage Harbour and located near the intersection of Interstate 75 and State Road 64, is scheduled to open in January, much to the chagrin of Manatee hospital officials, who have called the project a “predatory effort” to divert affluent patients and profits from Manatee hospitals.

The North Port clinic, located on

Bobcat Village Center Road
near Interstate 75 and
Toledo Blade Boulevard
, is set to open in mid-2009.  It will have a freestanding emergency room, comprehensive outpatient center and medical offices. North Port wants a full hospital and, until mid-September, its City Commission had been looking at a proposal to form a North Port hospital taxing district, thereby separating its community tax base from the Sarasota Public Hospital System. This idea was shelved temporarily because of North Port’s own budget problems and because commissioners realized North Port might have a different commission mindset after the elections. Revenues from the Sarasota Public Hospital District and would be impacted by North Port’s withdrawal. SMH says it is committed to eventually opening a hospital in North Port but not until conditions are “much more favorable.”

SMH hospital board chair Donna Barcomb explains the SMH strategy to expand services this way: “We are not-for-profit. We don’t take our money and send it to a corporate entity. Instead, we keep any money we make and reinvest in the system, whether through technology or other capital improvements.  So growing outpatient volume is a way to increase revenue.”

SMH hospital officials say that increased revenue from patients who can pay for services, with their insurance coverage and their pocketbooks, can help bolster the operating margin for SMH and offset losses from safety net services provided to indigent, uninsured and underinsured people in the Sarasota, Manatee and Charlotte County region.

SMH bought the parcel for its Heritage Harbour development near Lakewood Ranch for $2.9 million, according to CEO Gwen MacKenzie. As part of the purchase, SMH acquired plans for a two-story 28,000-square foot medical office building. Questions about Heritage Harbour came up recently during a program at the Sarasota Tiger Bay Club where four hospital executives, including MacKenzie, were discussing their budget pinches.

“We were all on a panel together, and we all politely disagreed,” MacKenzie said. “I asked the man from Manatee why they are upset now, since we bought the land for Heritage Harbour two years ago. He said they never thought we would build on it. He is worried that we will draw some patients from Manatee Memorial. I could make the same argument about them. Their parent company, Universal Health Services, built Lakewood Ranch Medical Center, an acute care hospital, two years ago right on the Sarasota County border. Universal has also made unsuccessful bids to build a hospital in North Port.

In the long run, MacKenzie says, “Whoever provides the best service will be where the patients want to go. They don’t stop at the county line.” About 20 percent of SMH patients now come from Manatee County.

“We lose a significant amount of money on inpatients admitted into our hospital from Manatee and outlying counties, primarily because we provide safety-net services that many for-profits have scaled back or eliminated—like our Level III Neonatal Intensive Care Unit and specialized inpatient obstetric, pediatric and psychiatric acute care units,” says MacKenzie. “We are expanding our outpatient network to help offset losses caused by the selective services of others.”

SMH has been careful to comply with state laws in developing outpatient clinics. “No tax revenue is or ever will support our venture into Manatee County,” MacKenzie says. SMH purchased the first floor of the two-story Heritage Harbour medical complex from the developer who built it and SMH will offer an array of outpatient services there, including imaging and laboratory testing. But the walk-in clinic at Heritage Harbour will be operated by a Manatee County group of physicians doing business as the Pinnacle Medical Group. The second floor of the complex will contain private physician offices.

The $27 million North Port medical facility will be much larger than Heritage Harbour and will feature a freestanding Emergency Room with 12 treatment rooms, a walk-in clinic with six beds, a range of rehabilitation services (physical therapy, occupational therapy, speech therapy), a laboratory and a full complement of radiology services, including CT scan, mammography and other imaging.

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