Bankrupt Hospital Lands on Its Feet

Turnarounds aren’t easy. That’s one thing that we, the leadership at AtlantiCare Medical Center, can definitely attest to. Born in the early ’80s of a merger between two hospitals in Lynn, Massachusetts, AtlantiCare’s troubles began soon after. Part of the problem was overstaffing. In a time when most medical centers were trimming their headcounts, the hospital had an inflated payroll—in 1989, it employed more than six full-time workers per occupied bed, compared to only four at most hospitals.

Then again, part of the problem stemmed from the merger itself. The two cultures, forced upon each other, simply didn’t blend well. It was a clashing combination of inner-city and mainstream sensibilities, and employees were never offered the appropriate skills to become anything but rivals. Management, in turn, lacked appropriate development opportunities. Out of the conflicting cultures arose an atmosphere that promoted control of employees rather than growth of employees.

By 1989, the merger had been declared sour. The hospital—AtlantiCare Medical Center and its two hospital campuses—was in critical condition, bankrupt in all aspects: in finances, in leadership, in operations and in human resources. It was a prime candidate for elimination or conversion to another form of health-care delivery. Add to the situation new legislation enacted by the Commonwealth of Massachusetts to eliminate surplus beds and close down troubled hospitals, and AtlantiCare’s future looked grim. But we didn’t want to go down without a fight.

Buying time gives the hospital room to maneuver.
The very legislation that threatened AtlantiCare’s future also offered it an opportunity, by creating the Acute Hospital Conversion Board. The Board focused on unprofitable hospitals, using situations at these facilities to eliminate medical and surgical beds from the system by shutting down the unprofitable ones or converting them to another form of health-care delivery, such as nursing homes or assisted-living quarters. For most hospitals, this was the enemy. But instead of running scared, AtlantiCare chose to work with the Board and completed a pseudo-bankruptcy plan during a five-year period.

The idea was to buy the hospital some time. From December 1988 to September 1993, the hospital had to report to the Board quarterly on its progress of pulling itself out of its $37 million short-term debt. The arrangement with the Conversion Board spared it from immediate closure, allowing the organization to move off the critical care list and toward survival.

Heading into the turnaround, we knew the hospital would have to downsize considerably. But even more urgently, we knew we’d have to prepare the employees who’d be leaving—as well as develop those who would remain. AtlantiCare needed a new HR strategy.

To begin the development of our human resources, we performed a comprehensive audit of the organization using a tool known as the Management Diagnosis. Created by the JP Cleaver Co. in Boston, the Management Diagnosis is a paper-and-pencil questionnaire that elicits employees’ opinions on all aspects of the organization. It allows an organization to gauge where it stands in a variety of categories, such as management assets and liabilities, the planning process, organization identity and profit strategies; and in a variety of functions, such as sales, operations and, most importantly, HR.

A cross section of 17 AtlantiCare stakeholders, including doctors, managers, top managers and board members, filled out the questionnaire during a two-day period with the aid of an outside facilitator. Each category was rated and specific commentary provided. As a guide map in developing our human resources, we focused particular attention on one major category: factors hindering managers’ development (see “Barriers to Management Development”). Questionnaire respondents indicated that these factors were barriers that must be overcome or eliminated to succeed both in getting through the upcoming downsizings and in continuing the development of our workforce.

The turnaround is officially launched.
The Management Diagnosis offered both bad news and good news. The bad news was that JP Cleaver, the consulting firm that administered the test, reported that in its 35-year history, ours was the worst diagnosis it had ever seen. The good news, however, was that everybody in the room wanted to see a change. To get off on the right foot, the HR function was restructured immediately, elevating the HR leadership position to the senior management team—along with the CEO, CFO and others. In addition, a new HR leader was hired to play a major role in developing the program.

We then created two specific improvement teams to address HR issues head-on: the Management Development team and the Integrity team. The Management Development team set about to assist top-level people in converting the hospital from a culture of control to a culture that encourages development.

The Integrity team was created to help forge the new culture—and to set the tone for the downsizing. The first mission of the Integrity team was to create a set of ethical principles and values to serve as the basis of our new culture. People and communication became the specific focuses of our program. The people focus was chosen because the reason AtlantiCare was having so much trouble was because it had failed to develop its people. Communication was selected because the hospital knew open lines of dialogue would be necessary as it began informing employees about the downsizings and changes to come.

With the barriers to management development identified, and a strategy set for slimming down while building up remaining employees’ skills, AtlantiCare was ready to get things rolling.

AtlantiCare begins to develop.
In our Ethical Principles and Values statement, we’d placed particular emphasis on people and communication—and consequently, honesty and truth. So we forecast the future to the entire staff, being as truthful as possible. The truth was, we could not guarantee permanent employment or even future employment. We were an over-staffed hospital in an over-bedded state, and we were going to keep getting smaller. We stated our goals: to keep the greatest number of people employed, although that number will be shrinking; and to keep the facility open to meet the needs of the community, although those needs will decrease through managed care and other efforts to cut costs.

Our plan was to position our employees for work either in our “new” organization or for work outside AtlantiCare. We pledged to train them for potentially moving on. Senior managers offered their networks and contacts to assist staff who desired to move outside the organization. We encouraged staff members to volunteer for TQM teams and facilitator training, and directed employees to look for ways to upgrade their skills, to expand their horizons and to apply for new jobs.

What we asked in return was that they give us their all while they were on staff. This included developing someone to succeed them.

We wanted to set the tone quickly and emphatically that employees must participate in developing themselves. The CEO presented a two-hour seminar entitled “Opportunities for Self-Development or Am I Really Responsible for ME?” We communicated a commitment to leadership principles that embraced the empowerment of each employee—we pledged to employees that we’d place the development of people over the control of people.

The leadership group also made five key pledges to the development of managerial staff. AtlantiCare would:

• Establish success standards for each position and be held accountable to meet these standards.


• Develop three- to five-year individual management career plans, which will be reviewed annually by the CEO.
• Identify skills that are needed to meet strategic objectives.
• Have a development plan in place for every manager within three years.
• Guarantee that each manager will develop someone to take his or her place, with staff development integrated into every manager’s annual evaluation.

We began at the top with senior management and cascaded the career-development program down through the organization. For instance, all senior managers sat down with the CEO and charted their career plans. The senior managers in turn created career plans with their direct reports, and those direct reports in turn sat down with the employees below them. Not only did senior management model the career-planning process, but also the career-development process. Managers knew if they wanted nurses to cross-train for lab work for example, they’d have to show some expansion themselves. In that vein, the top HR professional took over functions of the eliminated COO position: housekeeping, dietary and communications.

Job matching fits people with positions.
To further assist in the career-development process, the hospital offered another Cleaver tool: job matching. Through behavior and values analysis, the tool can offer insight into how well-suited a person is with a particular position, and can highlight areas for behavioral improvement. For instance, if a manager tends to exhibit the personal characteristic of making judgments too quickly, this in turn can hurt his or her decision-making process on the job. The tool allows the manager to recognize this and include it in the career development plan. Although the job-matching program started at the top, it’s now available through the HR department to any staff.

We also offered employees two college courses at company expense and on company time—Management of Human Resources and Management Principles. Both courses were three hours weekly for one college semester and consisted of theory, case studies and homework. Although primarily designed for AtlantiCare managers, some employees who wanted to move into managerial positions also took the course.

For support and nonmanagement people, we approached the career-development topic slightly differently. We brought in an outside trainer who ran numerous programs entitled Working in Turbulent Times, billed as an opportunity to learn about the nature of change and how to deal with it. It was a survival kit for the future. The program was created after input from several focus groups and from the staff, providing a forum for employees to share their feelings and have them validated. It gave people a chance to grieve for the old, yet suggested that they grieve quickly. It taught them to put together a plan—Making Me Marketable. Most of all, it encouraged them to act immediately, update skills, learn something new and experience a wide variety of work situations.

AtlantiCare strives to keep up the momentum.
It’s been a long road. In turning ourselves around, we’ve reengineered to patient-focused care; sold off businesses and product lines; and instituted TQM—all while operating two hospitals and a nursing home. How does the hospital look today? Better.

For one thing, we’re leaner, having reduced our management structure from four layers in 1991 to two layers now. Unfortunately, the downsizing continues. In January of this year, 400 people were laid off when we sold the psychiatric hospital. But we handled the downsizing according to our new communication values. As soon as we put in a request for proposal on the hospital, we informed employees of the future shutdown. We kept them up-to-date as the process went on. And we knew we were handling it effectively because we never had a mass exodus of employees. Many even thanked us for allowing them so much time to develop themselves for new positions in outside companies.

The same openness pervades AtlantiCare today. The CEO keeps the lines of communication open through town meetings as well as breakfasts and lunches on staffers’ birthdays. We share news of our profits and losses with employees as well as any new initiatives. We’re getting ready to go through a reengineering now, and our employees are ready to go along with us. They’re more empowered and self-guiding. For instance, a group of housekeepers caught onto the self-development message and questioned us on obtaining a high-school equivalency diploma so they could move into positions as patient-care technicians. Just as importantly, they quizzed us on why a diploma was required if they had the necessary skills. That made us rethink too, and as a result, we review situations less by credentials and more with an eye toward skills.

We’re getting ready for a full-scale cultural assessment, and we think that we’ll like most of the feedback. How do we know? People who are familiar with our history and who visit the hospital today are quite vocal in their amazement at our great attitudes and cultural change. Also, recently the Joint Commission on Hospital Accreditation spent five days with us reviewing our operations to determine if we could keep our license. Despite our downsizing, change initiatives and the selling of the psychiatric hospital, we came out with top marks—close to receiving a commendation. We gave all 1,000-plus employees a $50 gift certificate to a local mall in gratitude for their help.

Finally, we’ve taken a huge bite out of our debt, allowing our “going concern” stamp—the accounting term for an organization in risk of going out of business within 12 months—to be removed. In fiscal year 1995, we turned a profit.

No, turnarounds aren’t easy; that we can attest to. But thanks to a new culture that encourages the development of people, we’re on the right track. Our message and its supporting programs have given employees more control of their destinies. This in turn has given the hospital more control over its destiny—to be an organization for the ’90s and beyond.