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How did management accomplish the turnaround? "There isn't one single thing we have done. We have done various things," says Steven Johnson, the hospital's president and chief executive officer who was brought in three years ago to reverse course at the 371-bed hospital in Panama City.

Those things clearly worked. The hospital's bottom line improved from a net loss of about $500,000 in its fiscal 2001 to net income of $4.1 million last year, and its operating margin went from negative 0.55% in 2001 on operating revenue of $159 million to a positive margin of 1.6% on revenue of $205 million in 2004.

One successful move: a new policy to encourage doctors not to do outpatient tests or procedures on inpatients who are well enough to be discharged and then cared for in an outpatient setting. In the past, for example, doctors often performed outpatient gastrointestinal tests on patients who were originally admitted to the hospital to be assessed for a heart attack. "Most appropriately, that patient would be treated in an outpatient setting at the GI doctor's office," Johnson says. "If they need (additional) hospital care, fine, but typically that is not the case."

As a result, the hospital's average length of stay dropped from 6.3 days in fiscal 2003 ended Sept. 30, to 5.2 days in fiscal 2004, for a savings of $3.4 million. While the hospital introduced the new policy three years ago, it didn't see results of the program immediately because it took time for all physicians to feel comfortable with the change.

The drop in length of stay is just one example of how Bay Medical improved its financial and clinical performance, helping it land on Solucient's list of 100 Top Hospitals for the first time in 2004, the 12th annual ranking from the Evanston, Ill.-based healthcare information company.

How it's compiled

To decide which hospitals make the list, Solucient compares hospitals within a class-based on size and teaching status-using nine clinical, financial and operating-efficiency measures, such as mortality and infection rates, average length of stay, operating profit margins and expenses per discharge.

"We find that those who come on the list have been focused on high performance for some time," says Jean Chenoweth, Solucient's senior vice president of performance improvement and the 100 Top Hospitals program.

The 2004 list includes 36 newcomers and 64 veterans, including 10 hospitals that have been on the list six or more times.

In all, 3,033 U.S. acute-care hospitals with 25 or more beds were included in the study. Solucient's analysis is based on data from Medicare cost reports for 2003 and Medicare Provider Analysis and Review data from 2002 and 2003. Solucient groups hospitals in five classes: Major teaching hospitals (400 or more acute-care beds and high levels of physician education and research); teaching hospitals (200 or more beds); and three tiers of community hospitals-large (250 or more beds), medium (100-249 beds) and small (25-99 beds).

Nine performance measures

The nine performance measures include a new risk-adjusted patient-safety index, which is based on the Agency for Healthcare Research and Quality's public-safety indicators. Solucient uses 15 of the AHRQ's indicators, excluding those related to childbirth and newborns because the research firm's analysis is based on Medicare data. The index compares hospitals' actual patient-safety performance with expected performance.

As a group, the hospitals that made the 100 Top list outperformed their peers on all nine measures applied:

* The risk-adjusted mortality index was nearly 18% lower at the 100 Top Hospitals, also known as benchmark hospitals, compared with their peer facilities.

* The risk-adjusted complication index was more than 18% lower at benchmark hospitals.

* The risk-adjusted patient-safety index was about 10% better for benchmark hospitals.

* Average length of stay-3.63 days vs. 4.07 days-was nearly 11% shorter at benchmark hospitals.

* Expenses per discharge (adjusted for case and wage mix) were nearly 10% lower at benchmark hospitals.

* The operating profit margin was 6.29% at benchmark hospitals vs. 2.19% for the peer group;

* The cash-to-total-debt ratio was 110% higher at benchmark hospitals.

* Tangible assets per adjusted discharge --$3,391--were 20% higher at the 100 Top Hospitals.

* The percentage of the hospital's community served grew at benchmark facilities compared with a slight drop within the peer group.

The implications of these performance differences can be dramatic in real-life terms. According to Solucient, if all peer hospitals delivered the same level of care to Medicare inpatients as the top 100 hospitals:

* An additional 66,000 more patients would survive each year.

* Nearly 67,000 medical complications would be avoided.

* Hospital expenses would decline by more than $6.2 billion per year.

* The average hospital stay would decline by nearly half a day.

Getting specific

Bay Medical, like other hospitals on Solucient's list, is working hard to make those real-life differences in patients' lives, Johnson says. One way that happens is through the process of earning disease-specific certification from the Joint Commission on Accreditation of Healthcare Organizations. "We have found that it has been very good internally for keeping clinical issues and quality issues at the forefront," he says.

So far, the JCAHO has certified the hospital in care for stroke and acute myocardial infarction (heart attack). Johnson says the orthopedics department likely will apply for certification in about six months. Disease-specific certification includes a review of care processes, performance-improvement programs and outcomes data. After a hospital receives the designation, it must reapply within a year and then every two years after that.

Johnson says the process of applying for disease-specific certification is one important way Bay Medical has moved forward with three important goals: creating high-quality clinical programs; improving its clinical reputation among prospective patients; and fostering teamwork among physicians, hospital employees and management.

While Bay Medical has always had a good reputation in the community, Johnson says publicity about various achievements, such as disease-specific certification, has significantly improved its reputation as a high-quality provider. "All of the recognition has enhanced our reputation. People are now talking about us," says Johnson, who bases his claims on patient surveys, notes from patients and newspaper stories.

Johnson also says he believes he has eliminated the culture of distrust he inherited. "This is not something you fix overnight. You meet with folks, you do what you say and say what you do," he says. "Hopefully, what this does is set the tone from the top."

The hospital also has trained supervisors in how to respond to employees' needs.

Robust financial health

Riverside Medical Center, Waupaca, Wis.-another newcomer to the list-also has improved its financial and clinical health. The 25-bed facility reduced expenses by $600,000 in fiscal 2003, which ended Sept. 30.

In March 2004, Riverside became a critical-access hospital, a federal designation for some rural hospitals, allowing them to be reimbursed on a cost basis rather than on DRGs. The critical-access status brings in about $1 million in additional revenue annually to Riverside, says Craig Kantos, the hospital's CEO.

The medical center's net margin increased from 4.5% on net revenue of $23.2 million in fiscal 2003 to 7.6% on net revenue of $25.9 million in the hospital's fiscal 2004.

With the extra cash, the hospital, which is managed by QHR, added services and will continue to do so, Kantos says. One example is an outpatient congestive heart-failure program, which Riverside launched last year. Patients enrolled in the program are treated with an intravenous drug, Natrecor, which helps the heart pump blood more efficiently.

Each session takes about four hours, which includes the intravenous treatment as well as instruction on healthy lifestyles. Patients usually undergo the treatments three times a week for several weeks.

The program not only enhances patients' quality of life but also reduces readmission rates, hospital officials say. In fiscal 2004, 212 patients were treated at the clinic and 80 were treated during the first quarter of fiscal 2005. So far, none of the patients has been readmitted to the hospital for congestive heart failure. Nationally, the readmission rate for the condition is 20% within one month of discharge and 50% within six months of discharge, according to Natrecor manufacturer Scios.

Kantos says the hospital is evaluating other new services, such as total hip replacement so patients will travel for care less often-thanks to the critical-access designation. Says Kantos, "The move to critical access will give us a more financially strong foothold."

Spinning via the Web

Like Riverside and Bay Medical, 260-bed Poudre Valley Hospital in Fort Collins, Colo., which made the 100 Top list for the third time this year, focuses on continuous improvement of its clinical and financial performance, which hospital officials credit with its inclusion on Solucient's list. It's part of the Poudre Valley Health System, which includes a 40-bed psychiatric hospital and an outpatient center. The system also plans to open a $220 million, 134-bed hospital in Loveland, Colo., in 2007 as a joint venture with 96-bed Regional West Medical Center in Scottsbluff, Neb.

The system took an unusual step on its quality-improvement journey about a year ago: It began publishing clinical-quality performance data on its Web site.

So far, Poudre Valley has published four reports: patient safety, including information on nurse-staffing ratios, patient falls and mortality rates; gastrointestinal leaks around surgical staples in gastric bypass patients; wait times for appointments for various breast-cancer screening tests; and mortality rates for bypass surgery, aortic valve replacement and heart attack.

"We want to be world-class and that is an easy thing to say and a bit harder to back up," says Rulon Stacey, the system's president and CEO. Publishing the data "holds us to the course and it makes us do what we say we are going to do."

Linda Wilson is a freelance writer based in McHenry, Ill. She can be reached at lindajwilson@comcast.net

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