Empire Health Services, the nonprofit operator of Deaconess Medical Center and Valley Hospital & Medical Center, is making several moves to strengthen its business acumen and improve communications with physicians, staff, and the community.


The moves have included bringing Spokane-area business executives into its board of directors and establishing new in-house councils.


Already, says Empire Board Chairman Mike Taylor, Were detecting a sense of being re-energized. I think thats coming through in the bottom line as well.


Fiscally, Empire has shown improvement. After sustaining an $18 million net loss in 2002 and a $2 million net loss in the first quarter of this year, the organization posted net income of $6.6 million for the second quarter, interim President and CEO Garman Lutz says.


Lutz, who had been Empires chief financial officer for 13 years, took over as president and CEO after Tom White resigned from those posts earlier this month. Taylor says Lutz is most definitely a candidate to fill those posts permanently.


In addition to naming Lutz to the positions on an interim basis, Empires board has created a leadership council to help steer the nonprofit organization. That council includes Lutz, Valley Hospital Chief Operating Officer Mike Liepman, four additional Empire executives, and Spokane attorney Randall Stamper.


The early feedback is that this team is being very well-received by the doctors, staff, and community, Taylor says.


Meanwhile, Empires board of directors has begun discussing finding a permanent replacement for White, but it doesnt expect to select a candidate for at least six months.


In addition to the leadership council, he says, the board has created a physician council to give doctors a vehicle for more direct communication with Empire. Physicians input was taken into account before, but the physician council serves as a more formal procedure for such communications, he says.


Taylor says the leadership and physician councils have been established to enhance communications between Empires executives and staff and key physician groups, something those groups have felt has been lacking in recent years.


Also, in a symbolic move aimed at increasing interaction between Empire brass and hospital staff, Empires executive office will move next month to Deaconess main hospital building from the Deaconess Health & Education Center, one block to the west.


Lutz says he wants to move those offices so were on the superhighway of activity, rather than on a rural road over here.


Changes in the name of improved communications befit Lutzs management style, he contends.


Im a very open person, he says. I believe in solutions coming up from the organization.


Lutz says he feels employee morale is good despite the events of the past year, such as a painful 9 percent across-the-board pay cut, heated labor negotiations, layoffs, and the Empires financial uncertainty.


Lutz adds that he also is interested in collaborating more with Providence Services Eastern Washington, which operates Sacred Heart Medical Center and Holy Family Hospital, both of Spokane, and feels he has a good relationship with Sacred Heart CEO Ryland P. Skip Davis.


Taylor says its not that White was unwilling to participate in such collaborations, but the former CEO was wary of such efforts after being involved in some unsuccessful attempts to collaborate for example, the proposed childrens hospital that Providence Services decided to do on its own, rather than with Empire.


Taylor says that in addition to efforts to improve communications, There was an intention for the board to get a stronger business presence to deal with financial challenges.


Taylor, who is president of Taylor Engineering Inc., took over as Empires board chairman earlier this year, and Spokane developer Ron Wells joined the board about three months ago. Late last year, when a couple of seats came available, KHQ-TV President and General Manager Lon Lee and retired U.S. Bank executive Steve Matsko joined the board.


With a leadership change and expectations that Empire will finish the year in the black, the organizations own condition might be said to be improving from serious to stable.


Most encouraging, Lutz says, was Empires $1.2 million in second-quarter net operating income, which shows that Empires hospitals are covering their costs and making some money.


The rest of Empires $6.6 million in second-quarter net income came from quarterly investment income, sale of property, and a beneficial conclusion of a lingering issue with Medicareafter disputing those claims for years, Medicare reimbursed Empire $1.8 million for care provided in 1993 and 1994.


Empire still faces many of the challenges that other health-care providers face, including a tight labor pool, rising costs, and declining Medicaid and Medicare reimbursements.


Last year, Empire had cut 117 employees, eliminated its behavioral-science programs, and put into place additional cost-saving measures with the expectation that those moves would help right the ship. When Empire suffered a loss in the first quarter of this year, however, the organization resorted to the 9 percent pay cut.


Lutz attributes the second-quarter net operating income to the 9 percent employee pay cut, rather than to increasing revenues. In an interview with the Journal of Business shortly after the pay cut was announced, former Empire CEO White referred to the cuts as the last arrow in Empires quiver, meaning the organization was out of options if that move didnt return it to the positive side of the ledger.


The pay cut worked as Empire executives had hoped, at least on the short term, but now the organizations greatest near-term challenge is to return its employees pay to market rates, Lutz says.


To accomplish that, he says, patient volumes at the hospital must increase. Through the first six months of this year, overall volumes were down both industrywide and at Empire. Valley Hospitals patient volumes edged up 2 percent compared with the year-earlier period, but the much larger Deaconess volumes were down 10 percent, Lutz says.


Volumes have risen this month, however, and are projected to increase through the rest of this year both at Empire and industrywide, Lutz says. He says he hopes to look at the end of August at whether Empire can begin to reverse the pay cuts incrementally.