Triumvirate Keeps NW On Course

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Two top executives recently left Northwest Health System Inc. including its CEO, Bill Bradley, who joined the competition.

The Springdale firm’s annual Medicare cost reports contain more red than a Boston-St. Louis World Series, and its parent company, Triad Hospitals Inc. of Plano, Texas, has once again found itself in a capital investment arms race steep enough to give its accountants vertigo.

Despite all that, the administrators of Northwest’s three local hospitals said there’s only one trend that matters: Helicopters used to take patients away from the Bentonville hospital. Now, they bring them there.

Mark Bever, administrator and chief operating officer at Northwest Medical Center of Benton County, said net losses for his Bentonville hospital and its local sisters — Northwest Medical Center of Washington County in Springdale and Willow Creek Women’s Hospital in Johnson — were expected because Triad is investing in the future.

The only real difference lately at his medical center, the Bentonville native said, is the level of service it offers.

NWMC-Benton County opened in May 2003. The 221,000-SF, 128-bed facility replaced aging Bates Memorial Hospital and signaled a $63 million commitment to the community complete with the latest in cutting-edge everything.

“We haven’t missed a beat,” Bever said. “That’s nothing negative to Bill [Bradley]. He helped build Northwest into a successful system … And financially when you make such a huge transition from who we are today to who we intend to be as a system tomorrow, the investment is just part of it.”

Other major Triad investments have included the July 2002 acquisition of the 98,000-SF Willow Creek (for an undisclosed sum) and ongoing construction projects totaling $15.2 million on the general hospital campuses. Additional capital improvements at Willow Creek are expected to be announced soon.

Bever said added services such as cardiac catheterization labs, a medical intensive-care unit and other products totally changed NWMC-Benton County’s level of service. He also said the amenities haven’t just come because the area is in the middle of a health care building boom.

“We’re not ostriches,” Bever said. “We don’t have our heads in the sand. But what other people are doing doesn’t affect what we choose to emphasize. Our service and development strategies are based on what makes sense for our customers — employers, patients and providers.”

The Market

Northwest’s local hospitals recorded a combined net loss of $23.41 million in 2003 on $378.3 million in total revenue (see list, p. 24).

The 18 hospitals in Northwest Arkansas combined lost $1.56 million last year on $3.36 billion in collective revenue.

Northwest did edge out Fayetteville’s Washington Regional Medical Center with 11 percent of the market revenue. WRMC, where Bradley is now CEO, had 10 percent.

Nick Marzocco, a divisional president at Triad whose territory includes Arkansas, was in Springdale on Oct. 20 when he said Triad is enthusiastic about Northwest’s growing market share.

“This is a fast-growing area with a diverse population, and it includes a variety of healthcare challenges,” Marzocco said.

“The people of Northwest Health understand these challenges – they are an integral part of the community – and we all know that in a place like Northwest Arkansas you need to constantly grow and adjust to take care of the community’s health needs. There is a strong commitment here.”

Mercy Health Systems Inc. of Northwest Arkansas (St. Mary’s Hospital) in Rogers garnered 40 percent of the market, followed by Arkansas River Valley giants Sparks Health System (15 percent) and St. Edward Mercy Medical Center (12 percent).

Nancy Weaver, an analyst at Little Rock securities firm Stephens Inc., said it’s Triad’s “M.O.” to try to take market share by upgrading facilities and bringing in better doctors.

Triad, a $4.7 billion chain of 56 general acute hospitals and 16 ambulatory surgery centers, had 2003 revenue of $3.87 billion, net income of $134 million and earnings per share of $1.77, according to consensus estimates by First Call.

“Wall Street complains about how much Triad puts into capital expenses,” Weaver said. “But when you look at their balance sheet as a corporation, they’re in good shape. Their track record is they get a good return on the capital investments they make, but it just doesn’t happen in one year.”

Weaver added that Medicare cost reports, albeit the best source available to the public, aren’t always the greatest indicator of a hospital’s financial health. Triad, she said, has seen improving margins during the last three quarters and has beaten recent revenue projections.

The Triumvirate

Donnie Frederic and Chuck Long hold the same titles as Bever at their hospitals, NWMC-Washington County and Willow Creek, respectively. The trio is managing Northwest Health by committee while Triad searches for a new local CEO.

Combined, they have more than 80 years experience in health care.

“This has turned out to be really easy,” Marzocco said. “Our three hospital administrators work very well as a team, and have succeeded in keeping everything moving along smoothly and worry free. It gives us the luxury of time to be choosy about finding a new CEO.”

Frederic said the triumvirate has made time to discuss pressing issues, but that their day-to-day chores haven’t changed greatly. The Lafayette, La., native also sees Triad’s local capital injections as more than just an investment in Northwest, since the first thing people moving into a new area want to know are things like, “How are the schools? How are the health care facilities?”

“[NWMC-Washington County] has had the reputation of meeting the community’s expectations for many years,” Frederic said. “Some of the first procedures done in the area and even the state were done here, particularly in the cardiac field.

“At the end of the day, it’s the nurses and staff who are out there on the front lines doing their jobs, who make it easier for us to manage the business end.”

Long, a Helena native, said Willow Creek will continue to focus its energies on women’s and children’s health. Although, he said, office space on campus for physicians other than OBGYN doctors shows Northwest knows women’s health is about more than just OBGYN care.

“We’re doing general surgery, urology and a lot of initiatives that are focused on women’s overall health,” Long said. “We’re expanding our imaging capabilities, and we’ve started doing GI lab procedures here. It’s like the upgrades Triad is making to facilities locally and around the state … It’s obvious [the company] is in it for the long haul.”