Nearly halfway through his first year at the helm of Empire Health Services, the turnaround specialist whos serving as the organizations CEO says its headed in the right direction.


Empire, which owns and operates Deaconess Medical Center and Valley Hospital & Medical Center, has eliminated a handful of pediatric programs in recent monthsalong with a total of 56 employeesand has closed its child day-care services, all to help stem continuing losses. Turnaround specialist and acting CEO Jeff A. Nelson now says he hasnt ruled out further cuts, but believes the organization can begin looking soon at ways to expand its services.


Were trying to grow this company, Nelson says. Well try to take what we have today and grow it. The financials will allow us to look at the future, rather than staying in the present.


As of early March, Empire had more cash on hand than it did five months ago, and its revenues are growing, Nelson asserts. Also, expenses so far this year are in line with budget projections.


To date in 2005, the financial picture is in sharp contrast to the hospital operators performance last year, Nelson says. Its year-end results currently are being reviewed by accountants and arent available for public dissemination. After an especially rough fourth quarter, however, Nelson says they will be the most disappointing annual results that Empire has ever seen.


Through the first nine months of 2004, Deaconess and Valley Hospital lost $8 million and $4.2 million, respectively, according to reports submitted to the Washington state Department of Health.


Optimism is a familiar sentiment from Empires leaders, but sometimes has been followed by disappointment. In early 2003, then-Empire CEO Tom White said that the organization was on the backside of its difficulties following a year in which it had lost $18 million and cut 117 employees. Two months after he made those comments, Empire cut employee pay across the board by 9 percent in lieu of additional layoffs.


Longtime Empire Chief Financial Officer Garman Lutz took over as the organizations CEO after White resigned in mid-2003. Later that year, Lutz said the operations finances had strengthened, and it was able to restore part of the pay cut. In the first quarter of 2004, however, Empire began to bleed red ink again, and last July, the organization cut 150 positions. Lutz resigned in September, saying he had taken Empire as far as he could.


After all of the rounds of layoffs, Empire now has 1,650 full-time equivalent employees, down from 2,085 in late 2001. Last December, though, the organization fully restored employee pay to the level it had been before the 2003 pay cut.


Empire board Chairman Mike Taylor says hes confident theres reason for optimism this time around.


We made some difficult decisions that have needed to be made for a period of time, and were benefiting from the consequences of those decisions already, says Taylor, speaking about the dropping of the pediatric programs and day-care cuts. My general assessment is that things are moving in the right direction, distinctly.


He adds that Empire has always delivered high-quality health care and says the management team is just building the infrastructure around that to sustain it.


Nelson says a key area in which Empire could grow is cardiac-related services. In 2004, Deaconess was named one of the nations top 100 cardiovascular hospitals by Solucient LLC, an Evanston, Ill.-based health-care research company. It was the third time in five years Deaconess had received that designation. Nelson says the organization could continue to develop its expertise and expand services in that field, though no specific growth plans have been determined.


Empire also could expand services in orthopedics, urology, and oncology, Nelson says. All of those fields have strong revenue potential, he says.


Under Nelsons management, the hospital also has developed new mission statements and goals and has introduced a process-improvement program. The organizations main goal is to be the No. 1 hospital nationwide in terms of physician, employee, and patient satisfaction and safety by 2015.


Nelson might be long gone before Empire finds out whether it reaches that goal, though. His contract with Empire is for 12 months and ends in October. While working for the Spokane organization, he remains a partner in the Minneapolis office of Atlanta-based Tatum CFO Partners LLP, with which Empire has a separate consulting contract.


Taylor says the board hopes to convince Nelson to stay with Empire beyond a year and to continue to improve the organizationand possibly become a leader in community efforts as well.


Nelson, however, says he has worked as a turnaround specialist for his entire 24-year career, during which he has worked at a number of hospitals across the nationfrom Hawaii to New Jersey.


If the board isnt successful in its attempts to lure the specialist into a longer stay, Taylor says Nelson will help it find a chief executive who can sustain the changes that are being put in place today.


Taylor says one characteristic the board looked for when bringing in an outside expert was a track record of making changes that stay intact over a number of years. All of Nelsons references reported that the systems he put in place have stood the test of time, Taylor says.


Another leadership change is in the works and likely is more imminent. Taylor says he will be stepping down as Empires chairman and hopes to have a successor identified in the next couple of months.


Taylor has been on Empires board since 2001 and has been its chairman for about 18 months. He says he wants to resign from that post to concentrate more on his work at Taylor Engineering Inc., of Spokane, of hes president.


Nelson also likely will help the organization select a chairman, Taylor says.


During his career, Nelson has worked as CEO, chief operating officer, and chief financial officer of acute-care hospital organizations, health plans, and health-care technology startups. In his biography on the Tatum Partners Web site, Nelsons list of expertise includes strategic planning, capital acquisition and deployment, budgeting, revenue recovery, and provider contracting. He is a certified public accountant with a bachelors degree in accounting from the University of Minnesota and a masters degree in hospital administration from the University of Iowa.


Tatum Partners specializes in a broad range of professional services related to financial and information-technology leadership. The company has 400 partners and 30 offices nationwide.