Hospital system's 'lean' growth methods called into question

It appears that New Jersey-based Virtua Health has found the financial fountain of youth, but through what means remains to be determined. Chief executive Richard Miller points to a lean management approach he implemented throughout the system back in 1998 as key, but at least one rival hospital believe that it's Virtua's unwillingness to see lower-income patients that has helped its bottom line.

The march toward profitability began back in 1998, when Memorial Health and West Jersey Health merged to form Virtua. Chief executive Richard Miller, with the help of General Electric, created an environment of "rigor and accountability" that has helped save $27 million since 2002.

"If you build a great health system programmatically from a quality and safety perspective, I don't care where you're based, you're going to be successful," Miller said.

However, Cooper University Hospital in Camden, N.J., complained to the state last year that Virtua funneled its low-income patients to Cooper. Virtua responded by taking Cooper out of its referral system.

Furthermore, according to 2008 financial documents, only 8 percent of Virtua's patient revenue came from Medicaid and uninsured patients.

Still, while other hospital systems around it either are barely making ends meet or hemorrhaging money, Virtua, which just built one luxury health and wellness center (vir tú) and has plans to begin construction a second one soon, is realizing operating margins of more than 9 percent over the last two years. Comparatively, the average New Jersey hospital had nearly flat revenues in 2008, with an operating margin of two-tenths of 1 percent, according to the New Jersey Hospital Association.

"What they're doing is very unusual," said Jerry Katz, a healthcare specialist with Kurt Salmon Associates, a management consulting firm. They're expanding at a time when other places are contracting." 

To learn more:
- read this Philadelphia Inquirer article