AHM didn't stop there. As soon as the company had a full profitable year under its belt, Volla and his chief financial officer, Bill Harrigan, began looking for banks to refinance the approximately $100-million remaining postbankruptcy notes. It wasn't an easy task: this was a company just two years out of bankruptcy, in a tough industry many banks don't consider a good risk, asking for money at a difficult juncture in banking history. "I've done a lot of bank deals over the years, but this was probably one of the hardest," Harrigan says now.
After searching for six months and approaching about 80 banks, the AHM team sat down in July 1992 with a consortium of six lenders, to get a variable-rate financing of $105 million. Finally, AHM was free of its onerous bankruptcy debt. Its average real interest rate fell from 12.5% in 1991 to 7.9% by the end of 1992. By April 1993 the company was able to join the New York Stock Exchange.
You'd think the AHM team would have taken a bit of a rest -- and enjoyed the company's newly deleveraged status. But hospitals are a cash-hungry business, always in need of renovations and new equipment. In addition, AHM wanted longer-term debt than banks like to provide. And to improve its competitive position, AHM management believes the company needs to be able to expand in its geographic markets.
So despite all the trouble that leverage has caused the company, AHM began preparing to go back to the public markets as soon as it was feasible, in March 1993. The goal this time: to raise $100 million to refinance debt and to fund acquisitions and capital investments. The new notes couldn't be more different from the postbankruptcy debt: instead of having unusually restrictive covenants, they are unsecured, with only interest payments until the end of their 10-year term.
After their successful offering last July, Volla and his colleagues are eager to start acquiring and investing -- without, they hope, running into the problems of their predecessors and overpaying. "We're now in a position to do what a normal company would do -- and that's to try to work toward enhancing shareholder value over the longer term," says Harrigan.
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3. Quality
Tracking the outcomes
Lois Quinn is the first to admit she's the conscience of AHM. As vice-president of professional affairs for the company, her job is to argue for an intangible -- quality of care -- against the numbers jocks in top management. Not surprisingly, she uses statistics to make her case.
Like the rest of the AHM management team, Quinn over the last three years has been busy getting better data to analyze and getting much of that information on-line. But while manufacturers plot statistical information on defect rates and machine precision, Quinn has her hospitals tracking variables she thinks are key to the quality of health care delivered, such as the number of inpatient deaths or the number of times a patient has an unplanned readmission soon after being released from the hospital.
Quinn's data are part of a larger movement within the health-care industry known as "outcomes management,' through which hospitals and the businesses that pay them are trying to get a handle on indicators they think measure the quality and value of health care. But because outcomes management is a relatively new trend, there are few consistent national standards for those measurements.
As a result, Quinn has had to come up with her own variables to monitor. Some of them are obvious -- like tracking the number of patient deaths -- but others Quinn has developed are more specialized. She now has 10 quality indicators on-line and is tracking an additional 18 manually. She also has indicators of the quality of medical records on-line and is in the process of adding data from new patient-satisfaction surveys. Now Quinn can peruse quality reports the way her financial counterparts can browse through numbers, scanning for anything unusual or problematic.
Here's how her system works in practice. Soon after she arrived at AHM, in 1990, Quinn became concerned about patients' falling while in the hospital. She began researching the subject and found some academic data suggesting that a typical fall rate was 2.9 falls per thousand patient bed days. AHM's patients were falling at a rate of about 3.6 per thousand -- which didn't please Quinn. She set a 1992 goal of reducing falls 20% between the first and third quarters. Already she had checked to see if hospitals had a protocol for nurses to follow when admitting patients to determine if the patients were at a high risk of falling. If the nurses decided a patient was high risk, there were certain procedures to follow, such as placing the patient close to the nursing station and checking frequently to see if he or she needed help getting to the bathroom. If the hospitals didn't have a protocol, Quinn distributed samples and asked them to develop one.
By the third quarter of 1992, the number of falls had dropped to 2.7 per thousand, a decrease of 25%. Lately, however, Quinn has seen the rates rising slightly, especially in one or two hospitals. (See chart, below.) She plans to follow up with a discussion with the nursing staff at those hospitals.
The tension between Quinn's task (measuring quality of care down to the last patient fall) and operations chief Bob Fleming's (measuring value of care down to the last nurse on duty) is an obvious one. Here is a for-profit company in tough inner-city markets like East Los Angeles, trying to provide good health care for the urban poor and yet still make a buck. When it comes to quality versus value, AHM must perform a continual, difficult balancing act. But in many ways, the company's day-to-day operating dilemmas mirror the national debate on health-care reform. These days, that tough question -- how much care at what cost? -- is one we all have to ask.
