Temple Health’s CEO finds value in small efficiencies as the system’s results improve

Running the cash-strapped Temple University Health System is like playing poker with two cards while the other players have five.

That’s how Mike Young, who arrived in August 2018 as chief operating officer of Temple University Hospital and became the system’s chief executive in February, described the job.

“It’s the most challenging task I’ve ever had,” said Young, 64, who had previously run safety-net hospitals in Atlanta and Buffalo, N.Y., years before coming to Temple as part of a health system turnaround the Temple University board launched in June 2018.

The efforts by Young and his management team to make Temple more efficient are paying off. The Temple health system last week reported operating income of $72 million for the last fiscal year, up from $31.5 million the year before. That was the best result in many years at a system that disproportionately serves low-income people with poor-paying government insurance. Revenues were $2.3 billion.

The strong profit would not have happened without $92 million in COVID-19 grants and a surge in income from Health Partners Plans Inc., the Medicaid insurer that Temple co-owns with Thomas Jefferson University and Einstein Healthcare Network. At the height of the pandemic, patients were avoiding doctors’ offices, so the insurer, like others, made more money.

But other health systems in the region received substantial aid, too, and still had large losses.

The much larger Jefferson, for example, received $320 million in COVID-19 aid, but that didn’t prevent an operating loss of nearly $300 million. Similarly, Tower Health lost a whopping $378 million on operations for the year ended June 30, despite $98 million in CARES Act grants.

As part of its restructuring, Temple had agreed to sell the Fox Chase Cancer Center, which it bought for $84 million in 2012, to Jefferson. Jefferson backed out of the deal in May, calling it a “casualty of COVID-19.” Jefferson still has an agreement to acquire Temple’s Health Partners shares.

To make it clear that Temple’s operations had improved even without COVID aid, Young is quick to point out that Temple had logged $10.7 million in operating profit in the fiscal year through February — before the pandemic threw the health-care industry into turmoil in March — compared with a $15.2 million operating loss in the same period the year before.

A key state official who helps oversee millions of subsidies that Temple gets for serving a particularly vulnerable population has noticed changes at Temple.

“They stopped what they were doing because they always did it and said, let’s take a look at everything,” said Jen Swails, Gov. Tom Wolf’s budget secretary, who has years of experience overseeing Medicaid money, Temple University Hospital’s biggest source of revenue. “Temple decided it was time to take a look at themselves and see where they could make some adjustments.”

Temple did that first with the help of a chief restructuring officer, Stuart McLean, from the turnaround advisory firm Alvarez & Marsal. Now it’s up to Young, a York County native who also served as CEO of Pinnacle Health in Harrisburg and Lancaster General, now owned by the University of Pennsylvania, in Lancaster, where Young still has his permanent residence.

Young, who isn’t afraid to compare health care to a factory-like process, doesn’t throw around many buzzwords when he describes the changes he’s brought to Temple.

“It’s getting the patients in and out and not getting them infected, and getting companies to pay us for these clinical trials, and getting someone to pick up additional responsibilities,” he said. “It’s been pretty exciting.”

Young said he focuses on the quality of clinical care because improving that leads to better financial performance. Besides that, he’s trying to institute what he called “systemness” by doing more to integrate Jeanes, Episcopal, Fox Chase, and Temple University Hospital.

For example, Temple until recently had separate laboratories for tests at the main hospital, at Jeanes, and at Episcopal. Now it has one main lab at the flagship hospital, where a robotic line can do a test at a cost of eight cents apiece that cost three or four times that at Episcopal and Jeanes, Young said. Small labs for quick-turnaround tests remain at those satellite locations, but the change saves $1.5 million a year, he said.

By combining certain Temple and Fox Chase purchasing contracts, they’ve saved $4 million since the sale of Fox Chase fell through, Young said. That doesn’t count an estimated $15 million to $20 million on the joint purchase of five linear accelerators used in cancer treatment. Previously, Temple and Fox Chase would have bought them separately, at much higher prices, he said.

Temple University Hospital needed someone to run its plastic surgery residency, Young said. “Fox Chase has a spectacular plastic surgeon,” and he’s agreed to step up and be the program director as well. “That saves me 500 grand,” Young said.

One of Temple’s reasons for agreeing to sell Fox Chase was that Temple couldn’t afford to invest in Fox Chase’s aging facilities. Among other things, Fox Chase was eyeing a new patient tower. That won’t happen, but Young said his plan calls for spending $100 million at Fox Chase over four years to expand the intensive care unit and create private rooms.

Temple would have to invest up to $700 million to bring the age of its physical plant up to the national average of 11.5 years. Right now, Temple stands at 17.7 years, the system’s new chief financial officer, Nick Barcellona, said.

It won’t be easy to get there. More than 80% of Temple’s inpatients have Medicaid or Medicare insurance. At better-off hospital systems, private health plans pay 2.5 times what Medicare pays, according to a recent Rand study, and make up for losses in government-sponsored plans.

Because of where it is, Temple has too few patients with more lucrative private insurance.

“We’re never going to be a cash-flow machine and building big shiny new buildings like others,” Young said. “That’s just the reality. So it is always tougher.”

But Young seems to like it. Temple’s services are so critical to North Philadelphia. “It gives you a different feel at the end of the day.”