The president and CEO of Stanford Hospital & Clinics, Martha Marsh, announced Monday that the hospital ended fiscal year 2002 with a net income of $12.5 million, reversing several years of losses.

Christopher Dawes, president and CEO of Lucile Packard Children’s Hospital, also announced a strong financial performance for fiscal year 2002. Stanford Hospital & Clinics and Packard Children’s Hospital are separate financial entities, although they are both part of Stanford University Medical Center.

When Marsh became CEO of Stanford Hospital & Clinics in April 2002, the hospital had suffered two years of losses and was projecting a $10-million loss in 2002. Instead, the hospital finished 2002 with a positive net income. Marsh credited the financial turnaround to a strong new management team, outstanding efforts by physicians, careful financial management and operational improvements. The turnaround is even more noteworthy given diminishing state and federal support for health care and increased state and federal requirements for efforts such as bioterrorism preparedness and new technology to protect patient privacy.

"In the last year our staff has done an excellent job of refocusing resources on quality care and service," Marsh said. "Stanford has a long tradition of providing patients with the latest technology in a caring environment. We are so pleased to be able to put Stanford back on a strong financial footing so we can reinvest in new programs and services for patients and their families, new equipment and facility improvements."

Stanford reported losses in 2000 and 2001 following efforts to merge and then separate again from the University of California-San Francisco Medical Center.

In 2002 Marsh’s new management team at Stanford Hospital & Clinics was able to stop the financial losses through several major efforts. The hospital reduced supply costs 20 percent by working with doctors and nurses to identify the best supply vendors and then negotiating a limited number of supply contracts with those vendors to take advantage of volume discounts. In addition, the new management team strengthened business systems and operations resulting in improved productivity and cost efficiency.

"This is an exciting time at Stanford," Marsh noted. A new state-of-the-art Cancer Center is under construction at Stanford and expected to open in early 2004. The center will provide convenience and special amenities for cancer patients, and improve opportunities for multidisciplinary collaboration on patient diagnosis and treatment.

Packard Children’s Hospital earned $38.6 million in fiscal year 2002, which ended on Aug. 31, compared to $9.7 million in the prior year. Approximately 40 percent of 2002’s earnings were the result of several one-time items and increased philanthropy. Philanthropic support does not go toward ongoing operations.

Officials at Packard Children’s Hospital said the institution benefited from careful financial management, operational improvements and the expansion of nationally recognized centers in heart and cancer care, organ transplantation and neonatal and obstetric service.

"We are very pleased with the results, and proud of the hard work and careful planning that led to a positive financial performance in fiscal year 2002," said Dawes. "We believe we are on solid footing and are excited about the progress we are making in clinical care and medical research on behalf of our most precious resource — our children."

While the hospital has improved its financial health — overcoming losses incurred during and after the merger with UCSF and a 2000 nursing strike — Dawes cautioned that these are difficult economic times, and pediatric health care faces serious challenges. Among them are the state and federal budget deficits and the troubled economy.

In addition, Packard Children’s Hospital is the safety-net hospital for the Mid-Peninsula, caring for the region’s children regardless of their families’ ability to pay. At a time when the number of Medi-Cal patients cared for at Packard is increasing, the government is proposing cuts in reimbursement for such patients. Cuts in government reimbursement for physicians are also possible.

"Our responsibility is to be here for future generations," Dawes said. "To that end, we must reinvest in our institution to keep it healthy, and we need the community to continue investing in us, too. We must continue to build our endowment while investing in patient services and building a new pediatric cancer center, intensive care unit, operating rooms and other facility improvements over the next few years."

Regardless of the challenges, excellence in the care of children and expectant mothers remains the highest priority at Packard, Dawes said, and 2002 saw many milestones in this area. The Children’s Heart Center, aided significantly through philanthropy, grew with the recruitment of world-class surgeons, cardiologists and researchers and the creation of a dedicated cardiovascular intensive care unit. The hospital also invested in new leaders in general surgery, cancer and imaging and opened the region’s first MRI/CT program designed exclusively for children.

Despite positive financial results for both Stanford Hospital & Clinics and Lucile Packard Children’s Hospital, the health-care environment remains volatile, and the administrations of both institutions remain braced for continuing challenges. Both organizations, like other hospitals, continue to be adversely affected by reductions in federal reimbursement, especially for academic medical centers, and by labor shortages in skilled positions.