Across its 43 years of providing treatment for alcohol and drug addiction, Livengrin Foundation of Bensalem, Pennsylvania, has seen many changes in both the field and how it conducts its operations. Despite Livengrin's well-earned reputation for quality services, the turn of the century was no picnic for the organization, one of the state's first nonprofit addiction treatment centers.
“As the 2003 fiscal year was drawing to a close, we were mired in a fifth straight year of financial distress,” recalls CEO Richard M. Pine. Livengrin was losing around $600,000 per year on an annual operating budget of approximately $7 million. Further losses would have seriously jeopardized its ability to stay in business.
Livengrin's Board of Directors knew that these trends resulted not from waste or ineptitude but from strategic choices. Despite the self-evident wisdom of the mantra “You can't be all things to all people,” Livengrin had tried to “successfully” operate with a patient population that was a blend of public- and private-pay clients. This resulted in extremely diverse clinical and patient-management needs, and each required its own marketing strategy.
Something had to change. “We could have adopted a ‘slash and burn’ mentality and cut programs and eliminated staff,” Pine notes, but instead he and his team came to understand that survival as a premier treatment center depended on choosing a market and focusing their energies on serving it well.
Livengrin had been using a business plan from the early 1990s that dealt with what many saw as the emerging “stranglehold” of managed care. Its “working-class” clients were being guided into outpatient, rather than inpatient care, by the tightening group of managed care companies and HMOs. Dependent on residential revenue to drive its operation, Livengrin expanded its public-pay business.
However, the influx of patients referred through municipal agencies “had the unintended and unfortunate result of reducing even further our private and commercial business,” Pine explains. “The middle-class employed population had become a minority at Livengrin, and felt intimidated and out of place with our younger, ‘tougher’ patients from very different and diverse backgrounds. To some degree, this was based on learned prejudice and, in other respects, practical consideration.”
By FY 2003, with reserves nearly drained, “We engaged in a new quality-improvement initiative to look at where our strengths were, both clinically and financially, and where the biggest impediments to realizing our operational goals lay,” Pine recalls.
To remain in business as a provider of inpatient addiction services, Livengrin felt it had to make a choice between fully committing to the public clientele or returning to its “roots” as a resource to business, industry, and unions. The latter would mean a smaller customer base but also a better chance for long-term success despite the immediate risks.
Livengrin began a five-year restructuring in both its financial and clinical spheres. Some decisions were driven by the simple objective of improving income from more profitable patient populations and contracts. Others were concerned with how well Livengrin did its job with the thousands of people coming through its doors each year.
Changes in mid-stream
The first and most critical move could not be avoided: canceling a local agreement for all county-funded patients seeking drug and alcohol treatment. In a nearby town, Livengrin's large outpatient center (established to manage this contract) was draining the bottom line by $100,000 per year and brought in additional below-cost patient referrals. While still providing services for public clients, Livengrin disengaged from the county contract (during a five-month transition) and set the tone for modifications to its marketing and business strategies.
Moving from low-paying, public business to the self-pay and higher-reimbursed commercial customers was neither a simple task nor devoid of significant risk. As Livengrin began remarketing to the industrial and union customer base, “We ran the risk of severely damaging the relationships with public contractors that relied on us, and having the referral sources abruptly pull away long before we had a large enough commercial base to support the organization,” Pine remembers.
Yet this transition did move smoothly. “There was open and honest communication, coupled with our ongoing commitment to serve indigent patients by significantly increasing our charity care budget, to assist the public sector when its funding ran dry by providing patient scholarships through our new operating surplus,” says Business Development Director Joe Curran. “Everyone could see the end result: We were serving more people, and filling a critical void in the system.”