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chapter8and10.pdf

CASESTUDIES

1.MovetoaConciergeModeloraDirectPrimaryCare–MedicineBusinessModel?

MichaelGlenrunstheGeneralMedicalClinic,agroupof22primarycarephysiciansinaprosperoussuburbofPhiladelphia,Pennsylvania.Hehasheldthispositionforjustovertenyearsandhasseenmanychangestothehealthcaresector.Theclinicincludesaspectrumofprimarycareproviders,withsixgeneralinternalmedicine,sixpediatricians,andtenfamilypractitioners.Theclinichasprospered,andalmostallthephysicianshavefullornear-fullpractices. However, in the past five years, expenses have continued to increase, whilerevenuesremainedstagnant.Althoughcomparedtonationalstandardsthephysiciansappeartomakegoodsalaries,theirtake-homepayhasbeenflatoverthepastthreeyears,andtheyareconcernedthatitmaydecreaseifhealthcarereformproceeds.Currently,GeneralMedicalClinic'sprimarycarepractitionersmakeabout$190,000peryear,withsomevariationforage,practiceintensity,andotherfactors.

Theclinichasbilledinsuranceandsoughttocollectthedifferencefromthepatientor,ifthepatientwasuninsured,wouldseektosetupapaymentplan.Itspatientloadconsistsof25percent Medicaid, 40 percent Medicare, 5 percent bad debt, and 30 percent commercialinsurance.Currently,itdidnothaveanycapitatedcontracts.

Michaelrecentlyattendedaconferencewherehelearnedaboutconciergemedicineanddirect primary care (DPC). The presenter noted that more and more physicians feeloverworked,revenuesandsalariesareflat,andmanydoctorsspendmoreandmoretimeonnonclinicalpaperwork.Manyprimarycarephysicians,shereported,havebeguntolookforpracticeoptionswithalternativefinancialarrangements.Capitationhasbeenoneoption,butithasnotbeenverysuccessfulformostprimarycarepractices.

Conciergemedicineanddirectprimarycare(DPC)aretworelativelynewoptionsthatcouldsolvetheseproblems,thepresentersaid.Inconciergemedicine,practiceschargetheirpatients a flat fee (monthly or annually) for enhanced services and greater access. These“enhanced”servicesusuallyincludesame-dayaccesstothedoctor,whichmightbedoneviacellular phone or text messaging. Such practices often also provide online consultations;unlimitedoffice visits with no copayments; and free prescription refills, house calls, andpreventivecareservices.Mostconciergemedicineservicesalsobillpatients’insurance.

ThewomanalsodescribedDPC,which,likeconciergemedicine,chargesamonthlyor

Walston, Stephen. Strategic Healthcare Management: Planning and Execution, Second Edition, Health Administration Press, 2018. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=6452271.Created from apus on 2022-03-24 02:22:02.

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annual fee to patients for enhanced services and access. DPC differs from conciergemedicine,aspracticesdonotbillinsuranceformedicalvisits,andgenerallynothird-partyinvolvementoccurs.Therefore,alloftheworkassociatedwithbillings,claims,andcodingiseliminated(Qamar2014).DPCservicesalsogenerallyincludebasiclabtests,vaccinations,andgenericdrugsatornearcost.Practicesusingeithermodelderivemostoftheirrevenuesfrommembershipfeesandgenerallyexperienceanincreaseinprofitability.

The proponents at the conference suggested that both models would work well forpatientswithcomplexmedicalconditionsneedingcarefulmonitoringandhelpcoordinatingmultiplespecialists.Asbotharerelativelynewpracticemodels,onlyafewstudiesexist,andtheysuggestbetteroutcomes.OnestudyshowedpatientsinaDPCmodelhad27percentfewer visits to the emergency department and 60 percent fewer hospital days, and theirhealthcarecoststheiremployers20percentless(Beck2017).Astudyonconciergemedicineshoweddecreasesinpreventablehospitaluse,with56percentfewernonelectiveadmissionsandmorethan90percentfewerreadmissions(Goodman2014).

Conciergepracticesgenerallychargemonthlyfeesbeginningat$175amonth,buttheycancostmorethan$5,000peryear.Mostpracticesthatmovetoconciergemedicineretainonly15–35percentoftheirexistingpatients.Aconciergephysiciangenerallymaintainsapatientpanelofonly300to600patients.DPCpracticeschargeabit less,however,withmonthlyfeesofabout$100.Therefore,DPCpracticestendtohavelargerpatientpanelsof600–800perphysician(Colwell2016).

Even though concierge medicine and DPC practices often target upper-middle-classfamilies, some seek higher-income families and maintain an even more restrictive andexpensivepractice.Afewveryrestrictivepracticescharge$40,000to$80,000perfamilyforanextensive,immediatearrayofservices.Thesepracticesmayincludeonly50familiesintheirpatientpanels.Thesehigh-endpracticescanincreaseaprimarycarephysician'sannualincometoabout$600,000(Schwartz2017).

General Medical Clinic's primary care physicians each currently serve 2,000–3,000activepatients.Theolderphysicianshaveenjoyedarelationshipwithmanyoftheirpatientsformorethan20years.Movingtoeithermodelwouldmeaneachphysicianwouldloseover1,000patients—morethan22,000individualsforthefullclinic.

TheinsurancemarketinPennsylvaniahaschangedandwillcontinuetodoso.ThesechangesmayencouragefamiliestoconsiderconciergemedicineorDPC.Onesurveyshowsthatoverhalf(51percent)ofworkershaveahealthcareplanthatrequiresthemtopayupto$1,000 of out-of-pocket costs for healthcare before their insurance covers any of theexpenses.Patientsalsocomplainabout the longwaits inphysicianofficesandveryshortphysicianconsultationduringvisits.Datashowthatanaverageprimarycarephysicianinatraditionalpracticespends13to15minutesseeingapatient,whileaphysicianinaDPCpracticewouldspend30to60minutes(Ramsey2017).

Some studies show that patients appear to like concierge medicine and DPC, as themonthlyfeeprovidesbasiccheckupswithsame-dayornext-dayappointmentsandtherighttopurchasemedicationsandlabtestsatornearwholesaleprices.Theseservicescomewithvirtually round-the-clock access to a primary care doctor, which might include usingFaceTimewhileafamilyisonvacationorameetingintheofficeforstitchesafterabadfall

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on a Saturday night. Since DPC practices do not accept insurance, patients owe nocopaymentsorothercostsbeyondthemonthlyfeeforofficevisitsandprimarycare.

Yetthereareafewproblems—forexample,up-front,prepaidfeesinbothmodelsdonotqualify as medical expenses that can be reimbursed from a flexible spending account orhealthsavingsaccount.Thebiggestchallengeisthatpatientsmusthavethefinancialmeanstopaythefees.InGeneralMedicalClinic'scase,mostofthelesswealthypatientswouldnotparticipate.Amovetoeithermodelrequiresthattheclinictargetitsaffluentpatients.

Michael also read that a large company from Philadelphia plans to enter conciergemedicineandDPCacrosstheEastCoastandannounceditsintenttoenrollupto800,000workersinthenextfewyears.Itplanstoofferveryhighsalariestoattractgoodprimarycarepractitioners for its expansion. Given General Medical Clinic's current business model,Michael fears that he would be unable to match any lucrative salary offers from thiscompany,andhisphysicianswouldleave.

Michael also has ethical concerns about both models. Adopting either model forcespatients to find a new physician in a market with primary care shortages. Decreasing aphysician'spatientpanel,asbothmodelsdo,wouldalsointensifytheprimarycareshortage.Inaddition,currently,primarycarephysiciansrefermanypatientstospecialists.Reducingtheprimarycarepanelswoulddirectlyreducethenumberofreferralstospecialists,whichmightaffecttheclinic'sabilitytonegotiatebettercommercialinsurancecontracts.

GeneralMedicalClinicwillholdanexecutivecommitteemeetingintwodays.Michaelwantstobeabletopresentbothoptionsfairly.Heneedstodevelopanoverviewandmakearecommendation.

Questions1. WhataretheadvantagesanddisadvantagesoftheGeneralMedicalClinicmovingits

primarycarephysicianstoconciergeorDPCmodels?2. HowwouldGeneralMedicalClinic'sbusinessmodelneedtochangeifitmovedtoeither

model?Specifically,howwoulditsvalue,input,processes,andrevenueschange?3. Giventhedirectionofhealthcare,whatwouldyourecommendifyouwereMichael?

2.TheVirulentVirus

BackgroundAnewdisease,aguasangre,wasdiscoveredabouttenyearsago.Itisanonfatalbutannoyinginfirmitythatcausesthesolesofthefeettosweatprofuselyandemitaterriblesmell.Ithasaninfectioncycleofabouttwoyears.Onceitmanifests,ittakesapproximatelythreemonthstoreachanepidemicstageandthendisappears,onlytoreemergeacoupleofyearslater.Populations can receive immunizations against the disease, but the vaccines must beredevelopedeachtimeitreemergesfromitssiteoforigin.Thissitevaries,althoughitisoftensomewhereintheAmazonBasin.Eachtimethevirusmutates,thesiteoforiginchanges.Ifsomeonefindsthenewsiteoforiginsoonenough,avaccinecanbedevelopedandsold,butoncethevirusreachesanepidemicstage,thevalueofthevaccinedropsprecipitously.Ifthe

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siteisfoundandsamplesaredeliveredtotheresearchcenterinParana,Argentina,withinthreemonths,hugeprofitscouldbemade.

SituationAnoutbreakoccurredtwoandahalfmonthsago.YouhadinformationthatsuggestedtheoriginationsitewasnearIguazu,Brazil.YouimmediatelytraveledtoBrazilandhavebeenwanderingupanddowntheParaguayRivertributariesfortwoandahalfmonths.Duringthisdangerousjourney,alargespiderbityourlefthand,andyourhandswelled.Youalsomildlysprainedyourankle.Atthispoint,youarelowonsuppliesbutdeterminedtopersevere.

Amazingly,youfinallydiscoverthesiteandobtainthesamplesneededtodevelopthevaccine.YouhaveexactlytwoweekstodeliverthesamplestotheresearchcenterinParana.Ithasbeenrainingoffandonforthreedays.Whenheavyrainsfallintheregion,largeareascanbefloodedforalongtime.Ifyouarrivelate,theepidemicwillhavepassedandyourworkwillhavebeeninvain.Youwouldliketocallinahelicoptertoliftyouout,butyoursatellitephonehasbeendamagedanddoesnotwork,andthereisnootherwayforyoutocommunicatewiththeoutsideworld.Aftercarefulconsideration,youcomeupwiththesealternatives:

1. Waitfortherainstoend.Yourhandandanklewillhealinthemeanwhile,andyoucanenjoyasafetriphomeandhopeforbetterlucknextyear.

2. CrosstheParaguayRiverbasin.Thistripcanbedangerous.Withtheheavyrains,partsofitmaybeimpassible.However,youcancrossitquickly;thetriptakesseventotendays—ifyoumakeitwithoutharm.Ifyouencountermorerainorareinjuredagainbeforeyouarriveontheothersideoftheriver,youprobablywillhavetoturnback.Ineithercase,youmayperish;piranhas,snakes,andotherwildanimalsinhabitthebasin,andthewaterisdeep.

3. Goaroundtheheadoftheriverbasin.Thispathislessdangerousandusuallypassable.Itisslowandtiring,however.Ingoodhealth,youcouldprobablymakeitintwotothreeweeks.

Theweatherappearsonlymoderatelyfavorable;heavywetcloudshoveroverthearea.Ithasbeendrizzling,butitcouldclearuporrainintensely.Youlistentoyourradio.Meteorologistsarepredictingthatin48hours,theywillknowifatropicaldepressionismovinginlandoroutwardtotheAtlantic.Youthinkofonemoreoption.

4. Waittwotofourdays.Atthatpoint,choose#2iftheweatherpermitsor#3ifitdoesnot.

Whatdoyoudo?(Circleyouranswer.) #1 #2 #3 #4

3.TheCaseofHumanaandVerticalIntegration

Humana,Inc.,isoneofthelargestpubliclytradedmanagedcarecompaniesintheUnitedStates.Thecompanyhasabout6.2millionenrolleesin16states.ItoffersprimarilyHMOand PPO plans, along with Medicare and Medicaid insurance products and other

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administrativehealthservices.Earlyinitshistory,however,Humanapursuedandseeminglyfailedtocarryoutaverticalintegrationstrategy.Thecompanybeganinthenursinghomeindustry,developedintoasophisticatedintegratedhealthcarecompany,andthendivestedtobecomeamanagedcarecompany.Thiscaseposesmanyquestionsregardingthevalueanddifficultyofbecomingalarge,verticallyintegratedcompany.

Humana is a good subject for analysis and highly relevant to typical corporatehealthcaredecisionmakingbecauseithasexperiencedmultiplestagesofdiversificationanddevelopment,onbothaproductlineandcompanywidebasis.Atonetime,itwasoneofthelargesthospitalcompaniesintheUnitedStates,knownforitsefficiencyandcentralization.ItferventlypursuedexpansionintohealthinsuranceandofferedthisproductfirstinJanuary1984.

Humana'sHistoryIn 1961, four friends put up $1,000 each to found a nursing home. Subsequently theyexpandedintomorethan40facilities,andbythelate1960stheircompany,ExtendicareInc.,wasoneofthelargestnursinghomecompaniesintheUnitedStates.WiththepassageofMedicare,theybranchedintothehospitalbusinessandby1970ownedtenhospitals,whichbecamesoprofitablethattheydivestedtheirnursinghomesin1972.

Theychangedthecompany'snametoHumanain1974.Throughintensecostcontrols,centralization, and high volumes from growth, Humana achieved economies of scale andcontinued to earn significant profits. By the early 1980s Humana was one of the largesthospitalcompaniesintheUnitedStates.Humanadeterminedthatowningitsowninsuranceproductscouldbenefititshospitalsbygarnering70percentofreferrals,andsoitbegantoofferhealthplans.However,inrealityHumanawasunabletoattractmorethan46percent,anddifficultiesandconflicteruptedamongitshospitals, insurancedivisions,andmedicalstaffmembers.

Bythelate1980s,Humana'snetincomeplunged,promptingthecompanytorestructureits hospital and insurance businesses. By the early 1990s, its managed care plans weregenerating more than $2 billion in revenues and had become more profitable than itshospitals. Finally, in 1993, Humana spun off its hospital division of 76 facilities into acompanycalledGalenHealthCareInc.,whichmergedwithColumbiaHospitalCorporationsixmonthslater(seewww.fundinguniverse.com/company-histories/humana-inc-history/).

AnumberofsignificantproblemsmotivatedHumanatodivestitshospitalbusiness.Thefirstproblemwastheconflictingeconomicobjectivesofthehealthinsurancebusinessandthe healthcare-providing business. The purpose of a health insurance company is to sellinsurancepoliciesbykeepingitspremiumslow.Thebestwaytocontrolitsexpensesistominimize its customers’ use of healthcare services. The majority of a health insurancecompany's savings result from lowering the incidence and length of hospitalization. Incontrast,healthcareprovidersincreasetheirincomebyincreasingutilization.Theyhaveanincentivetogivetheirpatientsthebestandmostofeverything.Inthisway,theymaximizetheirpatients’welfareandtheirown.

Second,transferpricingencouragedtheuseofnon-Humanahospitals.Humana,likeallintegrated companies, used transfer prices (see chapter 4) to account for the sale of its

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hospital services to its insurance division. Generally, transfer pricing may be set at fullcharges, at cost of goods, or at a discounted rate. But surprisingly, despite the financialexpertise of Humana cofounder David Jones, Humana set the transfer prices for its ownhospitalshigherthanthemarketpricesforitscompetitors’hospitals.Asaresult,Humana'sinsurance division preferred to refer its patients to non-Humana hospitals. After all, thehospitalsthatwerenotownedbyHumanachargedtheinsurancedivisionless.Ironically,theverticallyintegratedfirmwaspayingtoputitspatientsincompetitors’hospitalswhilebedsinitsownhospitalsstayedempty.

Third, Humana's relationships with its physicians were problematic. Predominantly,HumanaorganizeditsHMOsaroundphysicianpracticesknownasIPA-modelHMOsinsteadofemployingdoctorsdirectly,asdidstaff-modelHMOs.WhatHumanarecognizedtoolatewas that the IPAs often didnot representHumana's best interests.Humana's HMOs, likeothersintheindustry,triedtotrimcostsbycuttingtheamountofmoneytheypaiddoctors.Because Humana's doctors were not on the company's staff but under a contractualrelationship with Humana as well as other HMOs, the doctors could—and did—retaliatewhenHumanaloweredtheamountitpaidtotheIPAphysicians,referringpatientsawayfromHumana'shospitalsandintocompetitors’beds.

Another problem concerned doctors not selected to be on Humana's HMO panels.PhysicianswhohadbeenexcludedfromtheHumanainsuranceplanwereoftenangry—soangry that they also started referring more of their patients to non-Humana hospitals.Humanawelcomedthesephysicianstoolateintotheinsuranceplan.Whenitfinallyincludedthem,yetanotherproblemsurfaced:Humanahaddiminisheditspowertoinfluencethesephysicians’ behavior. Humana's health insurance plan was not a significant part of thesenewly included doctors’ practices; it covered only a few of their patients, and Humanathereforehadlittlepoweroverthem.ThislackofincentiveandinfluencebredindifferenceamongphysiciansandoccasionedanincreaseinthelengthofHumanaenrollees’hospitalstays—andmanyoftheseextrahospitaldayswerespentinnon-Humanafacilities.

The fourth problem was costs. Humana's hospital costs grew because the hospitaldivision'smanagementwasdistractedbymanyofthecompany'snewacquisitionsandlackedexperience in the insurance area. David Jones had started the health insurance divisionpreciselybecauseof the largenumberofemptybedsinHumana'shospitals.Thesalariedphysicians in Humana's primary care centers did little to enhance referrals to Humana'shospitals.Humana'stightlycentralizedhospitalmanagementhadnoexperienceinguidingsalariedphysicianpracticesandcouldoffer littleadvice to theirphysicianmanagers.Thephysiciansearnedthesamesalaryregardlessofthenumberofpatientstheysaw,andmanyofthemfailedtodevelopapatientfollowingintheircommunities.Asanownerratherthanarenter, Humana was forced to pay the full costs of its hospitals and full salaries to itsphysicianswhethertheyhadpatientsornot.

In theearly1990s,HumanafoundthatowningbothHMOsandhospitalsput itatadisadvantagewhenitcametimetosigncontracts.Jonesstated,

Afterthestrategiesbegantoappeartosomeextentincompatible,westartedhavingtroublecarryingwateronbothshoulders.Itseemedthatifwesolvedaproblemforthehospitalitwouldcreateaproblemwiththehealthplan,and[viceversa].Wecouldseethatconflict,butamazinglyenough,itdidnotsurfaceforanumberofyears.Westartedin

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1983beinganintegratedcompany,andthestrategyworkedreasonablywellforawhile.Butitgotmoredifficultaswegotlarger,whichsurprisedme.Iwouldhavethoughtitwouldhavegotteneasieraswegotlarger.(Luke,Walston,andPlummer2004,243)

After the hospital divestiture, Humana divested and outsourced other operations. Itexitednumerousunderperformingmarkets,divestedaunitthatsoldandadministeredflexiblespending accounts, sold its wholly owned health centers, transferred the risk andadministrationofitslong-termdisabilityproductstoDuncanson&HoltServices,andsolditsMedicaresupplementandworkers’compensationbusinesses.

ThesetransactionsenabledHumanatofocusonacorebusinessofhealthinsuranceandtoinvestintechnologicalenhancements.Thecompanysoughttopositionitselfasaleaderinthe“digitalhealthplanindustry”andpossiblyasthefirsthealthplantooperatefullythroughthe Internet. During the 1990s, Humana made more than 20 corporate acquisitions andbecame one of the United States’ largest managed healthcare plans. By 2011, Humana'smedical benefit plans had grown to about 11.2 million members and its other specialtyproductstoapproximately7.3millionpeople,with76percentofitsrevenuescomingfromcontractswiththefederalgovernment(Humana2012).

Atonetime,Humanawasoneofthemostpowerfulverticallyintegratedplayersinthehealthcarefield.Asaresultofbothenvironmentalpressuresandthedifficultiesofsustainingaverticalorganizationinhealthcare,Humanahasbecomeastronghealthinsurancebusiness.

Questions1. WhatcanhospitalsconsideringverticalintegrationlearnfromHumana'smishaps?2. WhydidHumanaintegrateandthenevolveintoamanagedcarecompany?3. DidHumanaactmostefficientlybydivestingitsproviderassets?Whatmightthe

companyhavedonetoovercometheproblemsinherentinmanagingbothproviderandinsuranceoperations?

4. DidHumanahavedifficultytransferringmanagerialknowledgeacrossbusinesslines?Whyorwhynot?

5. Wasverticalintegrationanissueasaresultofthefourproblemsmentionedinthecase,orisitanissueinalllargeorganizations?HowcanlargenessaffectthemanagerialabilityofacompanysuchasHumana?

6. WhatproblemsdidHumana'schoiceoftransferpricingpresent?WhywerethetransferpricesofHumana'shospitalssethigherthanmarketprices?WhatrecommendationwouldyouhavegiventoHumana?

7. Whatwerethespecificreasonsphysicianrelationshipsandincentivescausedproblems?Whatstructuralorincentiveplansmighthavehelpedresolvetheseproblems?

4.AnOrthopedicGroupDecidestoConstructaSpecialtyHospital

The“AboutUs”webpageofOrthoIndy,anorthopedicgrouppracticebasedinIndianapolis,Indiana,states:“Withover80physiciansprovidingcaretocentralIndianaresidentsfrom

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morethan10convenientlocations,OrthoIndyprovidesleading-edgebone,joint,spine,andmusclecare.”

OrthoIndy has adjusted its practice over time. For years its physicians took patientemergencycallsforallhospitalsintheareaandprovidedservicestoalltypesofpatients.Asthe market became more competitive and the physicians’ incomes declined slightly,OrthoIndydecidedtoreducecallsandcoveronlykeyfacilities(MethodistHospitalsbasedinGary, Indiana, and Indianapolis-based St. Vincent Health) and stopped treating Medicaidpatients.Thisdecisionupsetmostofthehospitalsinthearea,aswellasorthopedistswhowerenotaffiliatedwithOrthoIndy.SomeofOrthoIndy'spartnerswereconcernedabouttheethicalandpoliticalramificationsofthedecision,butultimatelyallpartiesagreedwithit.Althoughthesechoicesimprovedtheincomeandlifestyleofthepracticingphysicians,theywishedtoaugmenttheirsalariesfurther.Thegrouppracticealreadyownedalarge,profitablesurgicalcenter.

TheOrthoIndygrouphadalwaysbeensupportiveofcommunityactivities,especiallysports.Itservedmorethan15teams,includingprofessionalfootball,basketball,andracingteams,aswellashighschoolteams.OrthoIndy'spatientcommitmentisstatedonitswebsite(Revolvy2017):

ThephysiciansandstaffatOrthoIndyandIOHarecommittedtoourpatients.ThefollowingisourcommitmenttoYOU:

AtOrthoIndy,ourphysicianssetouttocreateapatientexperienceunlikeanyotherinCentralIndiana.Theresult,theIndianaOrthopaedicHospital[is]oneofthehighestrankedfacilitiesinthecountryforpatientsatisfaction.

Our patients are at the center of everything we do, and their collective experience—both clinically andpersonally—istheresultofeveryinteractiontheyhavewitheachpersoninourhospital.Andthat'swhywestrivetotreatourpatientsasmembersofourownfamilyinalike-homeenvironment.AtOrthoIndyandIOH,ourhighly-skilled physicians and staff are committed to our patients’ health, safety and the comfort of their individualorthopaediccare.

Theopening(orimpendingopening)offourspecialtyhearthospitalsintheIndianapolisareacausedOrthoIndytoanalyzethepotentialforajoint-venturedorthopedichospital.Frommanyofthephysicians’perspectives,thecardiologistsworkingatthenewhearthospitalswere gaining a new stream of revenue and, along with their partners, would be able toprovidenew,beautifulfacilitiesandequipmenttoattractbetter-payingpatients.Followinglengthyandsomewhatheatedarguments,OrthoIndydecided toproceedwitha for-profit,partnership-style organization—a state-of-the-art hospital that would specialize inmusculoskeletalcare.OnlymembersofthegroupcouldbecomepartnersinthenewIndianaOrthopaedic Hospital. Those with ethical or other reservations could distance themselvesfromtheventure.

Theplanwastofast-tracktheopeningofIndianaOrthopaedicHospitalbyshorteningitsconstructiontimebysixtotenmonths.OrthoIndy'sleadersjustifiedtheventurebyassertingthattheirstand-alone,state-of-the-artfacilityownedandoperatedbyOrthoIndyphysicianswouldprovidepatientshigher-qualitycareandbettertreatmentoptions.

Byofferingvariousservices,OrthoIndyaimedtodifferentiatethenewhospitalfromtheother general hospitals practicing orthopedics in its market area. From admission todischarge,patientswouldenjoya“like-home”atmosphere,completewithsatellitetelevision

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andaccesstoe-mailandtheInternet.Patientroomswouldbespaciouslyandwellappointedandwouldincludeaworkorreadingnookforfriendsandfamilymembers.Afterdischarge,patients would enjoy additional conveniences, such as coordinated postoperativeappointments with their physician's office and referrals to the state-of-the-art, on-campusphysicaltherapycenter.

With great effort, construction crews completed the hospital on time. The followingannouncementwaspublishedonitsopeningday(PRNewswire2005):

INDIANAPOLIS,March1—OrthoIndyannouncedtodaytheopeningoftheIndianaOrthopaedicHospital,centralInd.'sfirstandonlyorthopaedicspecialtyhospitallocatedatI-465andWest86thStreet.Spanning130,000squarefeet,thehospitalrepresentsa$50millioncommitmenttothecityofIndianapolis,itsresidentsandtothepatientswhowillreceivecareatthisstate-of-the-artfacility….

TheIndianaOrthopaedicHospitalwasbuiltwhenOrthoIndyphysicianssawan increasingneed todeliverspecializedorthopaediccareinapatient-focusedenvironment.Approximately60physiciansfromcentralInd.willpracticeatthehospitalthatwillfocusoncomplexsurgicalprocedures,includingtotaljointreplacementsandspinalcases.Amenitiesinclude10spaciousandtechnologicallyadvancedoperatingsuites,37patientrooms,39preandpost-operative rooms, 16 post-anesthesia care unit (PACU) rooms, an imaging center with digital radiography,MagneticResonanceImaging(MRI),andCatScan(CT)availability,inandoutpatienttherapyservices,apharmacyand cafeteria. Additionally, each patient room features a workspace area for guests and is equipped with theGetWellNetwork™ which provides patients with an Internet connection, satellite television and access to patienteducationalmaterials.

Interestingly, about a year later, one of the larger hospitals in the area—St. VincentHealth—spent$9milliontoimproveitsorthopedicservicesbyforminga61-bedorthopediccenterandtocreate“somethingthatwillbethebestintheMidwestfororthopediccare.”Other area healthcare leaders were expected to respond to St. Vincent's investment inorthopedicsandincreasethecompetitioninthismarket(Murphy2006).

Questions1. WhatstrategyperspectivesdidOrthoIndyemployindeterminingtobuilditsown

hospital?2. DoyoubelieveOrthoIndy'sstrategictacticsworked?Whyorwhynot?3. WasthestrategycongruentwithOrthoIndy'smission?Whyorwhynot?4. Whateffectdoyouthinkthenewconstructionhadonconsumers?5. DoyouthinkthataspecialtyhospitalsuchasIndianaOrthopaedicHospitalwould

increaseordecreasethecosts,quality,andavailabilityofcareforconsumers?6. Howwerethegeneralhospitalsnearthespecialtyhospitalsaffected?WhydidSt.Vincent

Healthcreateitsownorthopediccenter?7. HowdidOrthoIndy'sbusinessmodeldifferfromthoseofothercompetitors?

5.TheStruggleofaSafetyNetHospital

Thecostsofcaringforuninsuredandunderinsuredpatientsareshoulderedbybothpublicandprivateorganizationsbutoftenfallprimarilyonolder,publiclyownedfacilities.Thecostpressuresanddemandsforcareoftenfarexceedthebudgetsandresourcesofmanypublic

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providers.WishardHealthServices, located inIndianapolis, Indiana, isanexampleofapublic

providerthathasstruggledtopositionitselfstrategicallytoachieveitsmissiontocareforthepoor of Marion County. Its mission, vision, and values are as follows (Wishard HealthServices2013):

OurMissionThemissionofWishardHealthServicesisto:

AdvocateCareTeachServe

withspecialemphasisonthevulnerablepopulationsofMarionCounty.

OurVisionWishardHealthServiceswillenhancecontinuouslyourabilitytomeettheneedsoftheunderservedandallpeopleofMarion County, will be sound economically, and will lead innovatively in clinical care, research, education, andserviceexcellence.

OurValues

ProfessionalismRespectInnovationDevelopmentExcellence

By 2003, Wishard was under tremendous pressure. The hospital was owned andoperated by the county and, as noted, had a mission to care for the vulnerable andunderservedpopulationofthecounty.Althoughtherewerealmostadozenotherhospitalsinitsserviceareathatprovidedsomecaretotheindigent,thecountyhospitalwasseenasthemainproviderforthissegmentofthepopulation.Althoughtheotherhospitalsdidnotrefusetoprovideemergencycareforthepoor,mostelectiveMedicaidandindigentpatientswereroutinelysenttoWishard'sfacilities.Almost90percentofitspatientswerecoveredbyagovernmentprogramorhadnoinsurancecoverage.Asaresult,revenueswerealwaysshort,operatinglosseshadtobesubsidizedbytaxrevenues,andcapitalprojectswereconstantlydeferred.Withnofundstoexpandorrefurbishitsfacilities,WishardHospitalandWishard'sclinicswereextremelycrowdedandlookedoldandworn.Thefacilities’condition,coupledwith their location in a poor part of Indianapolis, Indiana, discouraged the patronage ofinsuredpatients.

In2003,thesituationseemedtobeworseningfurther.Wishardwasindeepfinancialtrouble, and its executives discussed ways to reduce the system's losses. Wishard's CEOpubliclystatedadeepconcernabout the144-year-old institution's future.WishardHealthServices included its 492-bed hospital, six community health clinics, and MidtownCommunityMentalHealthCenter,whichtogetherservedabout800,000patientsperyear.AccordingtoDr.RobertB.Jones,thehospital'smedicaldirector,50percentofthosepatients

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wereinsuredbyMedicaidorMedicare,and40percenthadnoinsurance.CityofficialsalsowereworriedaboutthefinancialhealthofWishardandtalkedabouta

potentialshortfallofbetween$20millionand$80millionoutofa$385millionbudget.ThebestestimatewasthatWishardwasontracktoendtheyearwithspendingat$35million,butitcouldturnouttobemuchworse.Thehospitaldidhavecashreservesthatcouldcoverthisdeficit in 2003, according to Wishard's president Matthew Gutwein. But if the deficitcontinuedandworsenedin2004asexpected,thisreservewouldbecompletelyempty,andWishardessentiallywouldbebrokebytheendof2004withevenworseyearstocome.

Wishard'sabilitytosurviveandfulfillitsmissionwasseriouslychallenged.Theprimaryfactorscontributingtothedeeplossesincludedthefollowing:

DecliningreimbursementsfromtheMedicareandMedicaidprogramsfortheelderlyandpoor(Forevery$1inhospitalbillssubmittedtothetwofederalprograms,Medicarepaidjust82cents,comparedto89centsfouryearsearlier.Medicaidpaid70centsforeverydollarofservice,downfrom90cents.)Increasingnumbersofpatientswithoutinsurancetopaytheirbills(Nationwide,thenumberofuninsuredhadreached43millionresidents,700,000ofwhomwereinIndiana.)Continualhikesinthepricesofdrugsandnewequipmentandinwagesfornursesandspecialists,whowerealwaysinshortsupplyStiffcompetitionfromspecialtyhospitalsandsurgerycentersthatappealedtowell-off,payingpatients,whommainlinehospitalsdependedontoearntheirprofitsAweakstockmarketthatsenthospitalendowmentinvestmentincomeplummeting

Something had to be done, and Wishard was seriously considering almost all of itsoptions,includingthese:

ClosingWishard'sheavilyusedandhighlyrespectedemergencydepartmentMergingwithClarianHealth,whichoperatesIndianaUniversity,RileyChildren's,andMethodisthospitals,orenteringjointventures,potentiallyinvolvingconstructionprojectsBuildingahospitaltoreplaceWishardfacilities,someofwhichhadbeenbuiltin1914Increasingcopaymentsforoutpatientstoreduceunnecessaryoutpatientvisits

Wishard's CEO stressed that construction of a new hospital would not be likely foranother 5, 10, or even 15 years, depending on the pace at which fundraising set asidesufficient monies for construction or on the ability to pass a county bond to fund theconstruction.Theconstructionwouldbeveryexpensive;replacementofthewholefacilitycouldcostupto$750million.

WhileWishardwasstrugglingtodecidewhattodo,aconstructionboomoccurredandcompetition increasedamongareahospitals.HospitalsaroundIndianapoliswerespendinglavishly,investingmorethan$700millioninneworupdatedfacilities,mostwithinteriordecorandlobbiesfitforluxuryhotels.TheseelaboratenewfacilitiesmadeWishardappearevenworseoff.

ThisnewfocusonconsumerismandprofligatespendinginthehospitalbusinessgaverisetowhatDanielEvans,presidentofClarianHealth,called“mindlesscompetition.”For

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example, the$60millionHeartCenterof Indiana inCarmel,whichopened inDecember2002,offeredcooked-to-ordermeals.City-focusedClarian,thelargesthealthcaresysteminthearea,expandeditsmarkettothesuburbsbybuildinga$150millionhospitalinHendricksCountyanda$235millionhospitalinCarmel.TheHendricksCountyMedicalCenterwassituated in a parklike setting that included a half-mile of walking trails in a sereneenvironmentintendedtoreducethestressofavisitorstayinthehospital.Tokeeppatientsandattractnewones,bothSt.VincentandCommunityHospitaltookonphysiciangroupsasequity partners in their heart hospital projects, while Clarian sought to partner withphysicians at its two for-profit suburban hospitals. St. Vincent opened a $24 millionchildren'shospitalin2003,becomingthefirstfacilitytocompeteheadtoheadwithClarian'sRileyHospital forChildren,previously theonlychildren'shospital incentral Indiana.St.Vincentalsoopeneda$15millioncancercenter,completewithaserenitygardenandanindoorwaterfall,whileClarianplannedtocounterwithanevenlargercancercenternearIUHospital.

Areahospitals’struggletocompetewascompoundedbythemarketentryofnationalfor-profitproviders.Forexample,almostalllocalhospitalsofferingcancercarelostbusinessto an aggressive for-profit operator, U.S. Oncology, which opened four cancer treatmentcenters in theIndianapolisarea in theprevioussixyearsunder thenameCentral IndianaCancerCenters.Thesefreestandingcenterswereprojectedtotreatmorethan43,000patientsin2003.Thecancercenterscouldhandlepatientsatalowercostbecausetheylackedlargehospitals’ overhead stemming from their big maintenance staffs, parking garages, andbuildingneeds.

ThehospitalsalsofacedcompetitionfromOrthoIndy,alargeorthopedicspracticethatwasbuildinga$30millionorthopedichospital,andthe60-roomHeartCenterofIndiana,whichfeaturedahighlytrainedstaff,oneofthefirstall-computerizedpatientrecordsystems,and furnishings befitting a Fortune 500 firm. Other hospital sites also demonstratedopulence.Clarian'sfuturistic$40millionPeopleMoverwasdesignedtoferrydoctorsandstaffovercitystreetstoitsscatteredhospitals,andthelobbyofClarian'stwo-year-old,$30millioncardiovascularcenterfeaturedaterrazzostonefloor.

Amid all of this change, most hospitals were receiving lower reimbursements frominsurersthantheyhadpreviously,andthegrowingdemandforcharitycaredecreasedtheprofitability of three of Indianapolis's four largest hospital networks. The following tableshows these threenetworks’ revenue,earnings,andfull-timeequivalents in2002and thepercentagechangeinrevenueandearningsfrom2001.ThefiguresforSt.Vincent,thefourthnetwork,arefromthefirsteightmonthsofthe2002–2003fiscalyearandincludeitshospitalinCarmel.

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Althoughtheirreimbursementsandprofitsdecreased,allofthehealthcaresystemsexceptWishardstillmademoneyin2002.

WhatShouldWishardDo?Somebelievedthatthedaysofastand-aloneWishardwereover.Dr.Brater,deanoftheIUMedicalSchool,believedthattherewerestrongreasonstoconsiderbringingWishardintothe Clarian network in a formal way. Few (if any) inner-city, tertiary hospitals providinghigh-level,specializedcarecouldsurvivewithinaone-mileradiusofeachother.In1995MethodistHospitalmergedwithIU'shospitals,whichwerelocatedlessthanonemilefromWishard.Amergerwouldpotentiallyeliminateduplicationofservicesandcreateeconomiesofscale.

WouldClarianagreetotakeonWishard'smassivecommunityburdenofindigentcare?What effect would this liability have on the competitiveness of Clarian Health Partners,especiallyaftertheconstructionandfinancialcommitmentsithadrecentlymade?

Short of a merger—which was not a foregone conclusion—Clarian and Wisharddiscussed ways to collaborate and save money. They considered options that would beinvisibletopatientsandthepublic,suchasjointbillingandpurchasing.Collaborationonmedicalinitiatives,evenjointventuresinvolvingconstruction,alsowasapossibility.Somecollaborationalreadyexistedbetweenthetwo.Wisharddidnotprovideopen-heartsurgery,soitsentitsopen-heartsurgerypatientstoClarian.Wishardoperatedaburnunit,whereasClarian'slocalMethodistHospitaldidnot,soClariansentitsburnpatientstoWishard.

Wishardwasrecognizedasanimportantpartofthearea'shealthcaresystem.TheotherareahospitalsandcommunityknewthatclosingWishardwouldhaveadevastatingimpactonarea healthcare providers in that they would have to absorb the indigent care. Indigentpatientswouldalsohaveamuchmoredifficulttimefindingcare.

Mark Mueller, a patient whose perspective on Wishard had changed with his ownfortunesandhealthproblems,exemplifiedthestruggleofindigentpeopletoobtaincare.HecountedonWishardforalmostallofhishealthcare—infact,hislifedependedonit.Hehadbeendiagnosedwithdiabetes,andhiskidneyshadfailed.Hehadbeenunemployedforsixyearsandlivedondisability.Hehadlosthisinsurancecoverage,soWishardwastheonly

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placehecouldgoforcare.“Iwouldn'thaveanyoptions,”saidMueller,awidower.“Ijustdon'tseehowthepoor…well,alotofthemwon'tsurviveifWishardgoesdownthetubes”(Penner2003a).

AnInterimSolutionWishardhad todosomething tostemits losses.Frustrated,Wishard'sboardrealized thatmost of the options it had considered were too long-term or impractical. However, itseriously discussed yet another option—increasing and enforcing copayments. While theoverallpurposeofWishardwastocareforthepoor,themorepoorpatientsitserved,thegreater the hospital's losses. In an effort to reduce the number of visits by poor patients,Wishard implemented a new copayment policy on October 1, 2003, that dramaticallyincreasedcopaymentsforpatientsvisitingphysicianclinicsandusingemergencydepartmentservices.Althoughrevisionsofthispolicyin2004decreasedtheamountofup-front(timeofservice)copaymentrequiredofself-paypatients,copaymentsstillrangedfrom$35to$120,asignificantamountformostindigentpatients.

Collectionofcopaymentsalsobecamevigorouslyenforced.Inthepast,theclinicsandtheemergencydepartmentoftenoverlookedit,understandingthatmanyoftheirpatientshadlittleornomoney.Beginninginlate2003,eachclinic,hospital,andemergencydepartmentwasrequiredtocollectcopaymentsfromallnonemergencypatientsupfront.

Someboardmembersandphysicianswereconcernedthatthispolicywoulddiscouragevulnerable patients from seeking care. They speculated that pregnant women might skipphysicianvisitsandwinduprushingtotheemergencydepartmentatthetimeofdelivery.Theyalsofearedthatpatientswithdiabetesandhypertensionmightself-treatandseekcareonlyinemergencies,whichcouldincreasehospitalstaysandtheoverallcostofcare.

Wishardcontinuedtostruggletofinditsstrategicdirection.Theonlycertaintywasthatthefuturewouldbecomeonlymoredifficultforallhealthcareproviders,especiallythoselikeWishardthatprimarilyservedpoorandvulnerablepopulations.

Sources:Penner(2003a,2003b);Swiatek(2003).

Questions1. WhatwasWishard'scompetitivesituation?2. DidWishardhavedirectcompetitors?Ifso,inwhatareasdiditcompete?3. WhatstrategicleveragedidWishardhaveovertheotherareahospitals?4. Fromasocietalperspective,whatproblemsoccurbyhavingastand-alonepublichospital

withaprimarymissionofservingtheindigentpopulation?5. WhatstrategicstepswouldyourecommendforWishard?

6.St.John'sReengineering

St.John'sHospital,amedium-sizedhospitallocatedinSeattle,Washington,wasestablishedin1894withaprimarymissionofcaringforthesickanddowntrodden.Thehospitalhadgrownanddevelopedasasolofacilityuntil2000,whenitmergedwithasuburbanhospital,

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St.Agnes.Thismergercausedmanychangesintheorganizationalstructureofbothhospitals.Acorporateofficewasestablishedandlocatedapproximatelyhalfwaybetweenthefacilities.The president of St. John's, Abhishek Ghosh, was promoted to the position of corporatepresident,andthepresidentofSt.Agnesbecametheseniorvicepresident.

Theearly2000swasabusytimeforthecorporateoffice.By2002,ithad45employees.Thehospitalsdiversifiedtheirorganizationbypurchasinganumberofurgentcarecenters,physicianofficepractices,andskillednursingfacilities.Ghoshwascertainthatintegrationwouldcreatestabilityandfinancialsuccess.However,theurgentcarecentersandtheskillednursing facilities barely broke even, and the physician office practices lost almost half amillion dollars per year. As the years progressed, it became increasingly critical for thehospitals to generate enough cash flow and profit to subsidize the other parts of thecorporation.

Bothhospitalsdidreasonablywellintheearly2000s,butwithreductionsinMedicaidandMedicarereimbursements,theirmarginsnarrowed.By2003,bothhospitalswereearninglessthana2percentnetprofitmargin,andtheprospectsfor2004seemedworse.In2003,patientrevenuesdidnotcoverexpensesforthefirsttime.Afterseeingthesefigures,Ghoshcalledanemergencyexecutivesession.Thoseinattendanceincludedthepresidentsofbothhospitals,Ghosh,andcorporatelegalcounsel.Theonlyitemontheagendawastofigureoutwhattodotogetbackintotheblack.

ThefirsttospeakwasJoeAlexander,whoatthatpointhadservedascorporatecounselforfouryears.Hehadbeenastaunchpromoteroftotalqualitymanagement(TQM)sinceithadbeenintroducedin1993.However,becausethesystemhadnotprosperedrecently,heandmanyothershadbecomediscouragedwiththeprinciplesofTQM.Somethingstrongerwasneededtoreenergizethehospitalsandcorporation.Afewweekspriortothemeeting,Alexanderwasponderingthisdilemmaasheopenedtheafternoonmail.Amonghismanyletters,abrightmailercaughthiseye.Itwasaninvitationtoa localseminaronhospitalreengineering. He had read material about reengineering in Fortune and other popularmagazinesandknewthatprominentcompanieslikeTacoBellandAT&Tclaimedtheyhadexperiencedhugeimprovementsasaresultoftheirreengineeringefforts.Thelocalseminarcost only $250, so he decided to attend. He finished the seminar the day before theemergencyexecutivesession.

“I just came back from a seminar that may be the ticket to saving our hides,” saidAlexander.“Reengineeringhasbeenwidelyused inmany industries to radically improvefirms’costs,quality,andspeed.Iwishwehadlearnedmoreaboutthisopportunityearlier;wemightnothavewastedsomuchtimeonTQM.”

“Tellusmoreaboutit,”saidGhosh.“Well,it'sawaytoimproveprocesses.Everythingwedoinanorganizationinvolves

processes.Reengineering involvesdesigningand implementing themostefficient,neededprocesses. It dramatically lowers costs—some say as much as 30 percent—and improvesquality.”

Additionaldiscussionensued,duringwhichthedecisionwasreachedtoputAlexanderinchargeofanefforttoreengineerbothhospitals.

With great enthusiasm, Alexander took the corporate chief financial officer (CFO),

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Yoon Tae Chong, to another conference to learn how to implement this great processinnovation.Theywantedtobethorough,sotheyworkedwithanexternalconsultingfirmanddevelopedaseriesofprinciplesonwhichtofocus.AlexanderpresentedthemtoGhoshforapproval.

Alexanderstated,“Thankyoufortheopportunitytodevelopthisprocess.Ithinkwithour team and these guiding principles we can really reduce our costs and strategicallypositionourselvesforcompetitiveadvantage.”

Ghoshsaid,“Tellmeagainthesevenprinciplesyoudeveloped.”Alexander responded, “First, process-oriented organization, benchmarks set as

achievementgoals,andblanksheets(biasesaretoostrongamongestablishedpeople).Afterthosethree,standardizationbetweenthehospitalsandemployee-ledteams(whichare themostefficientstructurebecausetheyreducetheneedformiddlemanagers).Thenweshifttothreekeyareasoffocus:access,materials,anddeliveryofcare.Andfinally,dealingwithunionissuesdefacto.IjustneedyourapprovaltogetmovingandtogetYoontohelpusstartsavingmoney.”

“Joe,Ithinkyou'vedoneawonderfuljob,”repliedGhosh.“Gettoworkandlet'sgetthishospitalsysteminshape.”

Alexanderquicklybegantoorganizeanimplementationteam.HebroughtinSecondChanceConsultingInc.,andwith theCFO,selected36employees fromeachof the twohospitalstodesignchanges.Theseemployeesweredividedintothreegroups.Onegroupwasputinchargeofaccess,oneinchargeofmaterials,andoneinchargeofdeliveryofcare.Theconsultantssetbenchmarksof20percentreductionsincostsineacharea.Alexanderwasconcernedthatstaffinthekeyareasmightberesistanttochangingtheirprocesses,andhewantedafreshperspective.Hethereforeaskedthatallofthepeopleinvitedtoparticipatebeassigned to areas outside their own. He also decided not to include any of the hospitalmanagersanddepartmentheads,believingtheywouldnotrepresentthebestforthehospitalasawhole.

Theteamsspentatotalofsixweeksintensivelydesigningnewstandardizedprocessesthat could be implemented across the two hospitals. At hospital roadshows, corporatepersonneltalkedaboutthegreatchangesthattheteamsweredesigning.Staffweretoldthatthechangeswouldsavethehospitalsfromruinandreversetheirfortunes.

However, some expressed skepticism. As the date of implementation neared, thehospitals’ administrators—perturbed by what they considered a show of disloyalty—toldmanagers that those who did not support the effort should look for other work. Dissentimmediatelywentunderground,andtheadministratorsbelievedtheyfinallyhadallmanagersonboard.

Attheendofthesixweeks,leadershipdraftedadetailed“battleplan”toreengineertheorganization.Fourfromeachteamwereretainedtoimplementthedesignedsolutions.Therestoftheteammembersdisbanded.Eachemployeeinvolvedindesigningthechangeswasgivenalaptopcomputerasthanksforherwork.

The first action was to eliminate two-thirds of the nursing middle managers. Thischangewasprojectedtoyieldsavingsof$2millionperyear.Itwasinstitutedtopromoteteam-basedauthorityamongthenursingunits,althoughmanynursesfearedthatqualityand

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communicationwouldsuffer.Otherchangessoonfollowed.Thecafeteriawaseliminated;patientfoodmenuswereminimized;anewpositioncombiningfoodservice,housekeeping,andtransportationwascreated;andtheadmissionsstaffwascutbyhalf,amongothermajorchanges.

Hospitalexecutivesrequiredthatemployeesimplementchanges,butmanagersandrankand file found that many were impractical. Some issues caused by the changes were notaddressed,suchasadmittingMedicaidpatientsafterhalfoftheadmissionsstaffhadbeeneliminated.AccesstothehospitalslowedtoacrawlbecausemanyMedicaidpatientshadtowaitforverificationofbenefits.Theeliminationofthecafeteriaforcedemployeestobringinfoodorleaveformeals,reducingemployees’worktime.Theminimizationofpatientfoodmenus was a disaster. The three same menus were rotated over and over, and dinner onWednesdayswasalwaysthesame:cornedbeefandcabbage.Patientcomplaintsaboutfoodskyrocketed.

The hospital unions also complained and refused to cooperate. The new positionrequiredalotofcross-training,andtheuniondemandedwageincreasesforeachnewskillemployeeshadtoacquire.Mostnewpositionsincreasedexistingpersonnel'swagesbyabout$1.00/hour.Materialsmanagementwasdecentralized,and18newpeoplehadtobehiredasaresult;thischangeseemedtoincrease,notdecrease,costs.

Although the changes clearly were not producing positive results, managers werereluctant to express their concerns to hospital administrators. The executives remainedpositiveandwerecertainthatthechangeswouldsavetheirhospitals.Alexandercontinuedtobeabigsupporterofreengineeringandcitedsabotageandbadattitudesasreasonsforthelackofsuccess.Hisfocuswastostaythecourseandfullyimplementtheplan.Heremindedmanagersthatloyaltyandcommitmentwererequiredtomoveforward.

After a tumultuous year of implementing the changes, the hospitals’ financial lossesaccelerated. Costs did not decline significantly, but the number of patients declined.Employeeandpatientsatisfactionwereatanall-timelow.St.John'sboardoftrusteesbecameconcernedandbegantoquestiontheorganization'sdirection.

Questions1. WhatproblemsaroseduringthereengineeringatSt.John's?2. HowcouldtheexecutiveshaveimprovedtheprocessofchangeatSt.John's?3. Whatnextstepswouldyouhaverecommendedtothecorporation'sboard?

7.TheBattleinBoise

OnewouldnotexpectIdaho,astatewithfewerthan2millionresidents,tobehighlightednationally as an example of heightened conflict among physicians and hospitals.Nevertheless,competitivepressuresandthetrendofphysicianemploymenthaveprofoundlychangedthestate'shealthcaremarket.In2012,thedominantSt.Luke'sHealthSystemanditssmaller competitor, Saint Alphonsus Health System, employed about half of the 1,400doctorsinsouthwesternIdaho.

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St. Luke's is a regional health system consisting of seven medical centers insouthwestern Idaho. Its largest facility is a 399-bed hospital in Boise. The system hasexpandedintherecentpastandcontrolshospitalsinTwinFalls(228beds),Jerome(25beds),Ketchum(25beds),andMcCall(15beds)(St.Luke's2013).ThesystemalsoaggressivelyprepareditselfforthechangesthatwillbeinstitutedbytheAffordableCareAct.

SaintAlphonsus,ontheotherhand,belongedtoTrinityHealth,alargenationalsystemofapproximately30hospitals.SaintAlphonsushadtwofacilitiesinsouthwesternIdaho:the381-bedSaintAlphonsusRegionalMedicalCenterinBoiseanda152-bedhospitalinNampa(TrinityHealth2017).

By2012,accordingtoanarticleintheNewYorkTimes,manyindependentdoctorswerecomplaining that both hospitals in Boise, especially St. Luke's, had too much power andcontrolovertheirmedicalpractices(CreswellandAbelson2012b).ThedoctorsaccusedSt.Luke'sofdictatingwhichtestsandprocedurestoperform,howmuchtocharge,andwhichpatients to admit. Independent specialists claimed that their referrals from the physiciansemployed by St. Luke's had dropped sharply and that patients frequently paid more fortreatmentatthehospitalthantheywouldpayatanindependentphysician'soffice.

Atthesametime,employedphysiciansvoicedgrowingpressuretomeetthefinancialgoals the hospitals had set for them, which in the physicians’ opinions often entailedunnecessarytests,procedures,andhospitaladmissions.

Althoughthetwohospitalshavecompetedfordecades,theirrivalryintensifiedintheyearsjustpriorto2013.SaintAlphonsus,tryingtoslowSt.Luke'sperceiveddomination,evensoughtacourtinjunctiontostopSt.Luke'sfrombuyingphysicianpractices.Thislegalmaneuver claimed that St. Luke's market dominance allowed them to raise prices and todemand exclusive or preferential agreements with insurance companies. As an example,SaintAlphonsusclaimedthatthepriceofacolonoscopyhadquadrupled,andthatSt.Luke'schargesforlaboratoryworkwerenearlythreetimesthefeeschargedbyothersinthemarket.SaintAlphonsusarguedthatSt.Luke'sdominancewashurtingSaintAlphonsus'sbusinessandcreatingsteepdeclinesinhospitaladmissionsandreferralsfromphysiciansemployedbySt.Luke's.

St.Luke's justified itsactions,saying itwaspositioning itself tobettercompeteandimprove itsability tocoordinatepatientcarewhenitwas tobecomeanaccountablecareorganization(ACO).ACOsrequireclosecoordinationbetweenhospitalsandphysiciansandare predicted to cut healthcare costs by eliminating unneeded procedures and tests andkeepingpatientsoutofthehospital.

Asaresult,theFederalTradeCommission(FTC)andtheIdahoattorneygeneralbeganto investigate St. Luke's. Jeffrey Perry, an assistant director in the FTC's Bureau ofCompetition,wasquotedintheNewYorkTimes:“We'reseeingalotmoreconsolidationthanwedid10yearsago.Historically,whatwe'veseenwiththeconsolidationinthehealthcareindustryisthatpricesgoup,butqualitydoesnotimprove”(CreswellandAbelson2012a).

Thenumberof independentphysicians in theUnitedStates is rapidlydecreasing. In2000, 1 in every 20 physician specialists was a hospital employee. By 2012, 1 in 4 wasemployed and 40 percent of primary care physicians were hospital employees. By oneestimate,Medicareispayingupwardofabilliondollarsmoreannuallyforthesameservices

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becausehospitalscanchargemorewhentheirdoctorsareemployees.Forinstance,lasereyesurgerycancost$738whenperformedbyahospital-employeddoctor,comparedto$389whendonebyanindependentdoctor.Likewise,anechocardiogramcancost$319ifdoneinahospitalversus$143ifperformedinanindependentdoctor'soffice.

EmployedphysiciansinBoisealsostatedthattheywerestronglyencouragedtorefertootherdoctorsworkingfortheiremployer,evenifthosedoctorswerenotthebestchoiceofprovider for their patients. (Hospitals employing physicians have financial incentives toretainreferralsandadmissions.)InBoise,doctorsemployedbySt.Luke'swerepressuredtorefer only within the St. Luke's system, according to Saint Alphonsus's complaint. SaintAlphonsusclaimeda90percentdropinadmissionstoitshospitalsbyphysiciansemployedbySt.Luke's.Thecomplaintalsocontendedthatindependentdoctorsinanearbycommunityoftensentpatients40milesawayforCTscansbecauseof themuchhigherpricesatSt.Luke's.

Mr.Pate,St.Luke'sCEO,statedintheNewYorkTimes thatpricesforsomeoftheirserviceshadincreased,buthejustifiedtheincreasebysuggestingthattheserviceshadbeenexceptionallyunderpriced.HebelievedthatoverallcostswoulddeclineatSt.Luke'sasaresultofphysicianemploymentbecauseitwouldbebetterabletocoordinatecare,preventexpensiveemergencydepartmentvisits,andeliminateredundanttests.Nevertheless,manyareaphysiciansremainedskepticalthatpatientswouldbebetterserved,especiallyafterthepriceincreases.

Sources:CreswellandAbelson(2012b);Jameson(2012).

Questions1. TheAffordableCareActencouragedverticalintegrationandconsolidationtoimprove

thecoordinationofcare.However,toomuchconsolidationcangiveoneorganizationtoomuchmarketpower.Whatcouldbedonetobalancetheneedtocoordinatecareandmaintainsomelevelofcompetition?

2. Whataretheadvantagestodirectingphysicianreferralswithinonesystemofcare?Disadvantages?

3. Whycouldcosts(orcharges)increaseifservicesareperformedwithinahospitalsettingversusinanindependentphysician'soffice?

4. Howcouldvirtualintegrationbeusedtocoordinatecarewithoutraisingfixedcosts?

8.ResponsetoSt.Kilda'sACOOffer

InJanuary2013,St.Kilda's,ahealthcaresystemlocatedontheWestCoast,wasselectedbytheUSDepartmentofHealth&HumanServices(HHS)toformanewaccountablecareorganization(ACO)toencouragegreaterphysicianandhealthcareprovidercoordinationandhigher-qualitycare.Atthattime,HHShadassistedinsettingup250ACOsforMedicarebeneficiariesthatsetstandardsforqualityandfurnishedsharedsavingsforproviders.Qualitymeasures were guided by the 33 indicators that the Centers for Medicare & Medicaid

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Services(CMS)hadestablished.St.Kilda'sreasonsforcreatingtheACOincludedthefollowing:

Takingaleadershiproleinprovidingeffective,evidence-basedcarethattrulyservestheneedsoftoday'spatients,families,caregivers,andcommunitiesBuildingastrongnetworkofprimarycare—amedicalhomewherepatientsbuildarealrelationshipwiththeirhealthcareteamFocusingonpreventiontokeeppatientshealthyandoutofthehospitalMovingtowardasystemthatrewardsprovidersforqualitycare,successfuloutcomes,andcost-efficiency—notjustforthenumberofprocedurestheyperformEliminatingwasteinresources,timespentwaiting,andduplicationoftests

By2015,St.Kilda'sreportedhavingover24,000patientsparticipateinitsACOandhavingsavednearly$5million,but,evenwiththis,itdidnotreachthenecessary2.4percentminimumsavingstoachievethegovernment'sshared-savingspayment.However,St.Kilda'sleadersthoughtparticipatinginthisprogramwasworthwhile,asitallowedtheorganizationtoharnessnewandinnovativewaystoimprovehealth.Itsleadershipbelievedthat“aswemoveawayfromthefee-for-servicemodelandgetclosertoafee-for-valueapproach,wemustmastertheconceptofpopulationmanagement.Tomakethathappen,wemuststepupoureffortsinpreventionandhealthmaintenance.”

In 2016, St. Kilda's Health Partners (SKHP), a wholly owned subsidiary of the St.Kilda's Health System, had an integrated network of approximately 1,400 employed andaffiliatedhealthcareprovidersinitsACO.ItwasanticipatedthatbyJanuary2017,SKHPwould be in value-based arrangements with multiple payers to provide care forapproximately 170,000 members. The anticipated patients spanned the health–illnesscontinuumfromhealthytohigh-riskdiseaseconditions.

As most of the value-based business, existing and anticipated, would be paid bycapitation,SKHPsoughtwaystoreduceitscosts.Forexample,inNovember2016,arequestfor proposals (RFP) identified high-cost services unavailable in its system and sought toestablishpreferredprovidersandcentersofexcellencethatwouldbewillingtomeetbothqualityandcostcriteria.Itrequestedresponsesinthefollowingspecialtyareas:

Transplantation,includingsingleorgan,multipleorgan,andbonemarrowWomen'shealthGastroenterologyBariatricsOncologyNeurosciencesandspineservicesMusculoskeletalandorthopedicsCardiologyUrologyRehabilitationBehavioralandmentalhealthEndocrinologyanddiabetes

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Pediatrics

Successfulbidderswouldhavetoimproveaccesstoqualitycareandensureseamlesscare and communication with primary and specialty care providers. The bid listed thefollowing“valuepropositions”thatsuccessfulbidderswouldhavetoaddress:

ImprovedqualityImprovedvalueReducedbarrierstoaccessEnhancedpatientandcaregivercomfortandconvenienceStandardizationEfficienciesPatientsatisfactionPhysiciansatisfactionImprovedprocessesImprovedcommunication

Respondentstothebidwereaskedtoprovidealonglistofspecificdatapertinenttotheirareaofexpertiseandspecialtyrelatedtotheabovecriteria,including

LengthofstayRisk-adjustedmortalityindexProceduralinfectionrateOperatingroomtimeProcedurevolumePatientcompliancetotreatmentplanDisease-specificimprovementrates(e.g.diabetescontrol,weightloss)TransplantwaittimeTransplantgraftsurvivalrateExperiencewithCMSorpayerandemployerbundledpaymentsReadmissionrateCostpercaseAbilitytodemonstrateaffordabilityandconveniencetopatientandcaregiverwhileseekingcareawayfromhome(e.g.,accesstolow-costorcomplimentarylodging,utilities,meals,transportation)PatientperceptionofeaseofaccessandtimelinessofappointmentsClinicalGroupHospitalConsumerAssessmentofHealthcareProvidersandSystemsandtheHospitalConsumerAssessmentofHealthcareProvidersandSystemsPatientcommunicationwithhealthcareteamAccreditationinformationAbilitytodemonstrateaccessibilityandtimelinessofcareAbilitytodemonstrateaplantomanagethecareofSKHPpopulationProofofamultidisciplinary,patient-centeredapproachtocaredelivery

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Respondents were also requested to submit a cost proposal that would delineate themethod and amount the respondent would charge St. Kilda's for agreed-on services,including, but not limited to, medical expenses, necessary travel, overhead, supplies, andmiscellaneouscosts.Thecostproposalhadtobevalidforatleastoneyear.Contractsweretobeforthreeyears,beginningApril1,2017.

InDecember2016,ElizabethNarvaez-Luna,directorofstrategyatalarge,nationallyknownpediatricmedicalcenter,wascontemplating thebidwithherstaff. In thepast, itsmedical staff and administration had enjoyed a positive relationship with St. Kilda's andcertainlywantedtomaintainthisrapport.TheydidnotwantotherfacilitiestosiphonawaythepediatricvolumescurrentlycomingfromSt.Kilda'sprimarymarketarea.However,anumberofsignificantissues,bothpositiveandnegative,caughtthestaffmembers’attention.Theseincludedthefollowing:

1. St.Kilda'sHospital(notitsACO)hadbeenincrementallyaddingpediatriccapabilitiesforyears.Someoftheseserviceswereappropriatefortheirpopulation,butrecentlysomewereventuringintoareasbelievedpotentiallyunsafe,aswellasinefficientforthelargerregion(suchasapediatricbloodandmarrowtransplantationprogramforahandfulofpatientsorapediatriccardiacsurgeryprogram).PartneringwithNarvaez-Luna'spediatricmedicalcenterwouldallowSt.Kilda'stoeliminateordiminishthesemarginalprogramsandgethigh-qualityservicestoitscommunitythroughthecontract.

2. Thebiddidnotguaranteeorevenaddresschannelingpatients.Itcontainednoprovisionfordirectingpatientsintopediatricspecialtycare.Priorexperiencesuggestedthatrespondingtosuchbidstakesalotofworkanddatasharingonthemedicalcenter'spart,butthepediatricmedicalcentergainslittleinreturn,becausethebidsallowpatientstogoanyhospitaltheywish.Currently,St.Kilda'spediatriconcologistsrefertoalargenumberofpediatriconcologyprogramsacrossthewest.Withoutasteeringmechanism,thestaffwasconcernedthatthemedicalcenterwouldreceivenoadditionalvolumes.Ontheotherhand,workingthroughthisbidmighthelpbetterpositionindividualprovidersatSt.Kilda's,toexpandtheirreferralnetworks.

3. Thebidaskedbroadlyforcostinformation,butthetypeofrequestedproposalwasunclear.Themedicalcenterhadaverypowerfulcostaccountingsystemandcouldpriceservicesquiteaccurately—therefore,thepediatricmedicalcenterhasexperienceprovidingcareundercapitationandbundledpayments.Thereareadvantagesanddisadvantagestoeachpaymentsystem.

4. TheRFPcalledforbidsinthreeweeks.Itwasnotreasonabletodevelopbundledpaymentproposalsinthatperiod.Inaddition,thestafffeltsomefundamentaloppositiontobundledpayments,seenasa“racetothebottom,”inwhichmuchenergyisexpendedtosetapricethatissoontobeundercutbyacompetitor,triggeringyetanothercut.Thehospitalhadexperiencedthiscycleinthepastinotheropportunitiestosetbundledpayments.Oneoptionistosharethehospital'soverallcostpositioncomparedtocompetitors(whichisverygood)butnottocommittospecificprices.

Discussion continued. Ultimately, the director and staff knew they had to develop a

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recommendation to their CEO. Some of the points they would have to cover in therecommendationincludedthefollowing:

1. Whatisthevalueinrespondingtotheproposal?2. Howshouldthemedicalcenteraddressthelackofpatient-steeringmechanismsinthe

proposal?3. Whattypeofcostproposalorcostinformationshouldbeincludedinthebid?4. Whatcouldbetheanticipatedresponsefromcompetitors?

9.DecidingonaPopulationHealthReferralContractApproach

Jackie,thedirectorofstrategicplanningatHealthyHospital,wasworkingwithherCEOtodeterminewhatstrategytheirorganizationshouldtakeforspecialistproviderstowhomtheyrefertheircapitatedbusiness.Currently,15percentoftheirbusinesswaspaidonapopulationhealthorcapitatedbasis,butwhenspecialistswererequired,patientswerereferredtooutsidedoctorsandpaidoutofthecapitatedpoolofmoney.Thisamounthasbecomesignificant,withmostpaymentsmadeatfullcost.Jackie'sbossbelievestheremustbeawaytolowercostsand,atthesametime,improvequalitybycreatingasmallerspecialistpanel.

Sherealizesthatthecontinuedmovetopopulationhealth,ineffect,restrictsmoreofHealthyHospital'smarket'spatientsbycontracttospecificprovidersand,asitacceptsmorefullycapitatedarrangements,itneedstoexpanditsnetworkfromemployedproviderstoagroupofspecialists,whichwouldeffectivelylockdownthereferralpatterns.

Ratherthanonlylookingatthefinancials,Jackiehaswrittentheassumptionsithasusedtodate.Theseincludethefollowing:

1. Althoughcapitatedpaymentshavebeenslowtomaterialize,thenumberofpatientscoveredbysuchpaymentswilldoubleinthenexttwoyearsandquadrupleinthenextfouryears.

2. Payerswouldprefertohavefullycapitatedpopulationcontracts.3. High-qualityspecialistprovidersarewillingtocontracttopromotepopulationhealth.4. HealthyHospitalhastheabilitytoscreenpotentialprovidersforefficiency,quality,and

effectiveness.5. Betterqualityofcarecanbedeliveredbyapopulationhealthfocus.6. Largeprovidersystemsarerequiredtoprovidepopulationhealth.

Shehasalsolistedthehospital'spossiblechoices:

Donothingandcontinuetopaybilledchargesforreferrals.Establishapay-for-performancecontract.Contractwithspecialistsforimprovementsinoverallcostandquality.Movetobundledpayments.Thissystemworksbestforhigh-volume,electiveprocedures

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withsomepredictabilityincosts.Itcouldleadtoaracetothebottom.Enterintotraditionalcapitationforallpatients.Morepatientswouldbepresenttomoderatevariability,butitwouldbechallengingbecauseofthebreadthofcontracting.Enterintospecialtycapitationforthehighestcostpatients.Asmallernumberofpatientscreateshighervariationinpatientcosts.Enterintoaspecialtycapitationforabroadgroupofconditionsacrossmultiplespecialties.Thisarrangementwouldrequirecontractingwithalargegroupofmultispecialtyproviders.

JackieplanstopresenttheassumptionsandpossiblechoicestoherCEOtodeterminewhichoptionsarerealistictopursue.

Questions1. AreallofJackie'sassumptionscredible?Haveanyofthesechangedorarechanging?2. HowcouldJackiestrengthenherpresentationbyincorporatingherorganization's

mission,vision,andvalues?3. Whatadditionalproblemsmayarisewitheachofthechoicesshepresents?

10.BuildaNewServiceBecauseofaLargeDonation?

YouaretheregionalvicepresidentofamidsizehealthcaresysteminWestHadley.Awealthyphilanthropisthasservedwithyouforyearsonthesystem'sboard.Recently,hisyoungestbrotherinLittleBarringtondevelopedkidneyproblemsandrequireddialysis.However,thecommunity,withonly40,000residents,lacksdialysisservices.Thisshortfallnecessitateda50-miledrive,threetimesaweek,tothenearestdialysiscenter.Asthetraveltimeandfourhoursoftreatmentatthecentertookupthreefulldaysaweek,thisscarcitywasasignificantburdenonthisfamily.

ThephilanthropistwantedtoimprovethecareandmetwithLittleBarrington'smayorandtheCEOofahospitalinyoursystem.Duringthemeeting,heannouncedthathewaswillingtogive$8milliontoestablishadialysiscenterinthecommunity.Themayorwasecstatic,whiletheCEOwaspubliclyappreciativebutprivatelyabitapprehensive.Afterthemeeting,themayorissuedapressreleasepraisingtheforthcomingdonationandtheCEOimmediatelycalledyoutodiscussthematter.

Thehealthcaresystemhadstruggledwiththisissueinthepast.Donorshadofferedtogive a large financial gift for a service (an intensive care unit, pediatric wing, or otherexpensiveitem).Theseindividualsweregenerallyhighlyalignedwiththehealthsystemandfrequently prominent in the community. In addition, the donor was almost always highlycommitted to her pet cause. Frequently, however, community volumes made the serviceunsustainable.Ontopofthis,thevolumesatthenewserviceswouldsometimescannibalizethevolumesatalargersitewithinthesystem,makingthenewserviceevenlessefficientsystemwide.Qualityofcarecouldalsobeaffectedbythehalvedvolumesafterthelossofcriticalmassandsupportservicesneededroundtheclockandthedifficultyofhiringpeopleintospecialtyroleswithoutadequatevolumetokeepthembusy.

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You discuss the situation with the CEO, recognizing the aforementioned issues andacknowledgingthatthe$8millionthatwasofferedwasenoughcapitaltobegintheservicebut would not provide funds for continuing operation costs. The state currently has onedialysiscenterforevery76,000residents,fewbeingprofitable.Giventhis,itisprobablethattheproposeddialysiscentercouldrunataloss.TheCEOwouldlikedirectionfromyou.

Questions1. Whoarethekeystakeholdersinthiscase?Whowouldbethemostinfluentialand

engaged?2. IfyouweretheVP,whattypeofanalysiswouldyouasktheCEO(orhis/yourstaff)to

completepriortomakingadecision?Whatarethekeydecisionfactors?3. Howcould/shouldthemissionofthehealthsystemandindividualhospitalbetiedtoyour

decision?4. Whatalternativestoafixeddialysiscentermightyousuggesttothephilanthropist?

11.DissolvingaLong-StandingAffiliationandMovingOn

ByKhanhuyenVinh

Partnershipsandaffiliationsmaylastalongtime.However,whentheydissolve,animosityand increased competitiveness may result. A renowned medical school had a productiveworkingrelationshipfordecadeswithahospital.However,increasingclashesandperceivedcompetitivemovescausedtheschool tosever thedecades-oldaffiliation.Asaresult, thehospitalisurgentlyseekingtoinitiateimmediatechangesthroughthedevelopmentofseveralinitiatives.Thechangeswillhelpattractsuperstarsurgeonsandresearcherstopartnerwiththe hospital in its quest to become a world-class academic healthcare provider, whileseriouslydamagingitsformerpartner.

L Hospital (LH) is an 800-operating bed teaching hospital in an extraordinarilyfinancially strong healthcare system that includes three community hospitals and a homehealthagency.LH,astheflagshiphospital,wasaffiliatedwithJSchoolofMedicine(JSM),alocalmedicalschoolrankedamongthetop15inthecountrybyUSNewsandWorldReport.LHwasaccustomedtowinningannualaccoladesforseveralofitsservicelines.

However, when the medical school terminated its affiliation with the hospital, LH'sleadership was angry and almost immediately began aggressively pursuing multipleinitiativestocombatthelossoftheformeraffiliationandfulfillitsgoalofbecomingatop-tieracademichealthcareinstitution.Thenewinitiativesconsistedofemployingprimarycarephysicians and establishing a graduate medical education (GME) program, building aresearchinstitute,andbuildinganewoutpatientclinic—allofwhichwouldbelocatednearthehospitalandownedprimarilybythehospital.LHalsosoughtanaffiliationwithanothermedical school. Although perhaps strategically sound, these developments tested therelationshipsandloyaltyofkeyphysicians,requiredimmensefinancialresources,andtaxedadministrativeandclinicalleaders.

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LHhadexperienceinemployingprimarycarephysicians.Inpreviousyears,thehospitalsimultaneouslypursuedbothfoundationandequitymodelstoacquireprimarycarephysicianpractices throughout the city. The foundation model later dissolved, while a modifiedframeworkoftheequitymodelremained.Followingtheterminationofthepartnership,LHchosetodirectlyemployprimarycarephysiciansandplacetheirofficepracticesphysicallyadjacenttothehospital,therebyestablishingitsowngeneralmedicineserviceand,toalesserdegree, contribute to the pipeline of patients admitted into LH. Direct employment, asopposed to relocating an acquired practice into the hospital facility, would expediteassimilationintotheLHculture,asLHwasattemptingtobuilditsmedicalserviceswiftly.

Tobeateachinghospitalrequiresapipelineofmedicalresidents.LHrealizedthatiteithermustdependonanothermedicalschooltoprovidethispipelineorbuilditsownsourceofmedicalresidents.Typicalofits“goingsolo”mentality,LHdecidedtobuilditsownGMEprogram to be accredited by the American Council for Graduate Medical Education(ACGME).MedicalstudentswouldapplydirectlytoLHforresidency,therebybypassingthehospital'sdependencyonamedicalschool.

Thenewresearchinstituteservedthepurposeofattractingresearchersattheforefrontoftheirfieldsbyprovidingavenueforwell-funded,cutting-edgeresearch.Thecombinationofpreeminent researchers conducting novel investigations that may redirect the course ofmedicinewouldelevatethehospital'simageandsecureitspositionasatop-tieracademicmedicalcenter.

Medical advances have allowed for more procedures to take place in an outpatientsettingwithoutrequiringaninpatienthospitalstay.Thehospital'scurrentoutpatientbuilding,located across the street, had reached capacity. A new outpatient building wouldaccommodate additional volume to capture downstream patient revenue, especially asmanagedcareincreasinglydirectedpaymentstooutpatientprocedures.

Amergerwithanothermedicalschoolwouldbecriticaltothehospital'svisionofbeingapremierteachinghospitalandformedthebasisfordevelopingthesenewinitiatives.Thismedicalschoolneededtobereputable,sothatLHcouldattractprominentphysiciansandresearchers.

The dissolution of the hospital and medical school affiliation represented a novelphenomenon.LH andJSM built their50-year relationshipon a foundationof power andprestige.JSMboastednationallyrecognizedphysiciansandresearchprograms.LHbroughtitsextensivefinancialresourcestofundthemedicalschool'sacademicservicesandresearch,astate-of-theartinstitution,andpatientsformedicalresidentstostudy.Thehospitaltreatedcelebrities,aformerUSpresident,internationalroyalty,andestablishedpatientsacrossthecity and nation. A world-renowned cardiovascular surgeon claimed affiliation with bothinstitutions.Together,bothentitiesaimedtoclaimapositiononthenationalandinternationalstage.Becauseoftheirtopphysiciansandresearchprograms,JSMbelieveditcontributedincreasinglytoLH'sprofitability.However,LHbelieveditsfinancialsuccessresultedfromitsownstrategicinitiativesandnotfromitsrelationshipwithJSM.

The increasingly tumultuous affiliation between the institutions ultimately crumbledbecause of the desire for control, as well as the personalities involved. LH had beenprovidingapproximately$50millionannuallytoJSM'sacademicservicesandannouncedit

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wantedanaccountingoftheseexpenditures.Ontheotherhand,JSMwantedtobuilditsownoutpatientclinictogeneraterevenue.Furthermore,JSMwantedonlyitsacademicphysicianstomakedecisions,therebyusurpingallauthorityheldbyprivatephysicians.LHvehementlyrefused a JSM-controlled outpatient clinic, fearing competition with its hospital. Theaffiliationagreementrequiredbothpartiestoconcuronsuchconstruction.LHinsistedthatitsprivate physicians be included because they brought in more than 60 percent of hospitalrevenues.

Thepersonalitiesofseniorleadershipfromtheentitiesalsoseemedtoconstantlyclash.Board members from both facilities consisted of individuals with strong roots in thecommunity. The JSM chairperson came from a prominent family with multigenerationalphilanthropiccontributionstotheartsandsciencesthroughoutthecity.ThenewlyrecruitedJSMpresidentwastoutedasanexperiencednegotiator.TheLHchairpersonwastheformerleaderofaFortune500company,whiletheLHsystemCEOhelddeep-rootedtiestothehospitalandlocalcommunityformorethan20years.Allfourpeoplefailedtounderstandtheoppositeparty'sneedsandseemedwillingtobattletotheend.

Distrustbybothpartiesledtostalleddiscussions.Aggravatingthesituation,numerousinternal leaks to the press revealed that the sides had labeled each other “antagonistic,”“dishonest,” and “not forthright.” The breaking point was reached when JSM publiclyannouncedithadenteredintonegotiationstoaffiliatewithSt.XHospital,acompetitorofLH, which would offer JSM more autonomy but less financial support. LH took thisannouncementtobeadefactoterminationofitsaffiliationwithJSMand,subsequently,LHrespondedbyannouncingitschangeinitiatives.

LH's and JSM's primary stakeholders consisted of academic physicians and privatephysicians, both of whom counted superstar surgeons among their ranks. The chiefs ofserviceatLHalsotraditionallyassumeddepartmentchairpositionsatthemedicalschool.TheseveredaffiliationbetweenJSMandLHforcedtheacademicphysicianstochoosesides.Theyhadtoassesstheirrolesateachentityandweighthefutureoftheirresearchprograms,whichweresupportedbyLH'sdeeppocketsandstellarfacilitiesandequipment.Theprivatephysicians were incensed that JSM wanted to exclude them from negotiations, therebyseverelylimitingtheirinfluenceonhospitaldecisions.

Otherprimarystakeholdersincludedtheboardsofboththemedicalschoolandhospital.TheJSMboardwantedmorefinancialautonomy,control,anddecision-makingauthoritybutstoodtolosesubstantialfunding,asfewhospitalsinthecountrypossessedLH'sfinancialcapability.TheLHhospitalboarddesiredanaffiliationwithabrand-namemedicalschooltoattracttopphysiciansandleadcutting-edgeresearchtoelevatethehospital'sreputationandprominence.

Thesecondarygroupofstakeholdersconsistedofpatients,whotraveledfromacrossthecity,country,andworldtoreceivecare.Thesepatientswerewell insuredorcash-paying.Theirsocialprominenceaugmentedthehospital'sreputation.

The system- and hospital-level CEOs at LH, along with the renowned chief ofneurosurgery, maintained routine communications with both the large physician practicegroups and the individual academic and private physicians. Those communication effortsservedtoopentheflowofinformationbetweentheleadershipandthephysicians.Theboard

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andseniorhospitalexecutivesaggressivelysoughttoattractacademicandprivatesuperstarsurgeons,while invitingallphysicianswhowouldjoinforceswithLH.Tothisend, theyannouncedaninitialcommitmentofapproximately$100millionfor theresearchinstituteand$70millionfortheoutpatientcenter.

TheLHCEOestablishedcommitteesforeachinitiativechange(physicianemployment,GME, research institute, and outpatient center), which were cochaired by a hospital vicepresident and a chief of service (or an influential physician designee, in cases where theservicechiefhadremainedloyal toJSM).Otherphysiciansparticipatedin thecommitteeworkgroupsbyprovidinginputtocreateasuccessfulimplementationplan.Eachworkgroupmetweeklyorbiweeklytofleshoutdetails,provideupdates,andidentifynextsteps.Thechair of the board, system and hospital CEOs, consultants, and legal experts handledapproachinganothermedicalschoolwithwhichtopursueanaffiliation.

Atthesametime,LHimplementedpolicychanges.AnewpolicyrequireditschiefsofservicetoadmitthemajorityoftheirpatientstoLH.Asaresult,chiefsofservicecouldnotconcurrentlymaintaintheirdepartmentchairpositionsatthemedicalschoolandadmitthemajorityoftheirpatientstoacompetinghospital.Thismeasureforcedtheacademicianstoidentifytheiraffiliationwitheitherentityexplicitly.Inaddition,officeleasesforacademicphysiciansintheLHbuildingsweretosoonexpire.LHhintedateitherevictionorarateincrease for its nonaffiliate physicians. The hospital justified rate increases to meet fairmarketvalue,asrateshadnotbeencomparablyadjustedforaboutadecade.

Established academicians with deep ties to both entities sought for reconciliationthrough letters tobothboardsandmultiplemeetings.Once itwasclearnoreconciliationwould result, physicians who supported LH welcomed the new direction. The privatephysicians, in particular, rejoiced in the absence of JSM. However, many academicphysicianswerebothconcernedandupsetaboutthedivision.

LHproceededwithitschanges,ultimatelyresultingincompletionofall theplannedinitiatives. A hospital physician organization was created to employ general medicinedoctors,therebyestablishingamedicineserviceatLH.TheGMEprogramwasestablishedformedicalandsurgicalservices.Approximatelyadecadeafterthedissolution,LHoffers36GME programs accredited by ACGME. The hospital purchased land within walkingdistance,demolished theexisting building, andbuilt a research institute. Asof 2015, theresearchinstitutesupports277principal investigatorsandscientistsperformingmorethan840ongoingclinicalstudiesconductedin540,000squarefeetofspace,andhasreceived$70millioningrantfunding.

Tobuildanoutpatientcenterconnectedtoitsexistingbuildings,thehospitalpurchasedanadjacentlotfromalocaluniversity,constructedabuildingfortheuniversityatanotherlocation, demolished the former university building on the lot, and then constructed theoutpatientcenter.These landpurchasesrepresentedasignificantfeatbecause thehospitalwaslandlocked,andrealestateinthatvicinitycommandedpremiumpricesasaresultofhighdemand.Asof2015,theoutpatientcenterconsistsof14operatingrooms,36pre-opbeds,and30postanesthesiacareunitbedslocatedina1.6-million-square-footbuilding.Whileafewprominentchiefsofserviceremainedwiththemedicalschool,agreaternumberofchiefsofservicepledgedtheirloyaltytothehospital.Finally,LHannounceda$100millionmerger

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withanIvyLeaguemedicalschoolasitsprimaryacademicaffiliate;atthattime,USNewsandWorldReportrankedthismedicalschoolhigherthanitsformerpartner.PhysiciansfromLHweretobegrantedacademicprivilegesattheIvyLeaguemedicalschool.Overtheyears,theLHSystemaddedcommunityhospitalsandphysicianpractices.The2013consolidatedfinancialstatementfortheLHSystemreportedgrossrevenueof$2.6billionandnetrevenueof$683million.

Questions1. Whatcausedthelong-standingaffiliationbetweenLHandJSMtodissolve?Whatcould

orshouldhavebeendonetorectifytheproblemsthatledtothedissolution?2. WasLHultimatelybetteroffwithoutJSM?Whyorwhynot?3. WhatfactorsdoyouthinkcontributedtothesuccessofLH'schangeinitiatives?4. HowdidLHinvolveprimarystakeholdersinitsdecision-makingprocesses?5. Howdidparticipationbyphysiciansinthevariousworkgroupsaffecttheoutcome?6. Whatelementsinthisscenariowerebeyondthecontrolofhospitalmanagement?How

couldorshouldthesebemitigated?

12.ValueinCapitationforHospitalists?

ByKhanhuyenVinh

Abusinessopportunityaroseforahospitalistphysicianpractice(MCHA)topartnerwithaninsurance payer (Healthsprings) to manage the insurance company's dual-eligible patientsadmitted to the hospital where it currently treats patients. Healthsprings currently has acontractwithacompetinghospitalistphysiciangroupbutisdissatisfiedwithitsperformance.This partnership would position MCHA to manage this patient group at the hospitalexclusively.Althoughanexcitingoption,partnershavequestionedwhetherthiscapitationcontractwithHealthspringswilladdvalueforthegroupofhospitalists.

MCHAisa20-physicianhospitalistgrouppracticingata large,prestigious, teachinghospitalintheSouthwestwithjustunder900beds.Thehospitalrecentlytransitionedtoaclosedpanelforhospitalmedicinephysicians,whichgavehospitalistgroupsexclusivecareforallmedicinepatients.Currently,thehospitalhascontractedwithsixhospitalistgroupsthatmanageapproximately1,300patientcasesmonthly.

MCHAisthelargestgroupandmanagesthehighestvolumeofpatientcases.Itperformscompetitively on hospital key performance indicators consisting of length of stay (LOS)index,mortalityindex,30-dayall-causereadmission,patientsatisfaction,andcoremeasures.Inparticular,MCHAusuallyleadsontheLOSindexmeasureandreportedthelowestLOSindexofallgroupsfromJanuarythroughMay2015.MCHAoperatesonafee-for-servicemodel with no capitation contracts. Its payer mix consists of 44 percent Medicare orMedicaid,54percentprivateinsurance,and2percentself-pay.

Referralsbyspecialistsandotherprimarycarephysicians(PCPs)providetheprimarysource of patient volume for all six hospitalist groups, thereby increasing competition.

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Referrals from these two sources are largely based on professional relationships andphysicianpreferenceforpracticestyles.AlthoughMCHAmanagestwiceasmanypatientcasesonaverageasthesecond-largesthospitalistgroup,itcontinuestocompeteforpatientvolume.

Thegroup'sgoalistocontinuetoincreasepatientvolumefromvarioussources.Thegroup is also one of two groups that have expanded their practice to cover emergencydepartment(ED)services.MCHAphysiciansalsomanagepatientsatLong-TermAcuteCareHospital(LTACH),whichservesasanothersourceofpatientvolumeforthegroup.MCHAbelieves thatexpansionopportunities includecaringforpatientsatLTACHandtakingoncapitationcontracts.

To understand more thoroughly where the hospitalists groups compete, MCHA'sdirectorcreatedthefollowingfigure,whichdisplayssourcesofpatientvolumeascomparedtolevelofcompetitionamongthesixhospitalistgroups.Thestrategycanvasillustratesthreehospitalist physician groupings. Four hospitalist practices (groups 1–4) together representone category because they demonstrate the same patient volume characteristics. Group 5constitutesthesecondcategorybecauseitcurrentlyhasthedual-eligiblecapitationcontractwithHealthsprings,andMCHAisthethirdcategory.Onlygroup5andMCHAmanagetheED's“no-doctor”admissions.AdmittedtothehospitalfromtheED,thesepatientseitherdonothaveaPCPwhohashospitalprivileges,haveadoctorwhodoesnotwanttomakeroundsatthehospital,orsimplydonothaveaPCP.

The hospital exclusively approached MCHA to provide patient care at the LTACHlocatedonthewestsideofthecity.ThisexclusivepartnershiphasbenefitedbothpartieswithmoreefficientcareforthehospitalandgreaterbillingsforMCHA.

Although managed care and capitation payments have not yet taken hold in itsmetropolitanarea,MCHAwantstolookbeyondthetraditionalreferralsourcestoaugmentitspatient volume. Because few other providers currently have managed care contracts, thebusinessopportunitywithHealthspringsprovidesMCHAanentrytoapotentialfirst-moveradvantage.MCHAbelievesthatwiththiscontractitcouldcaptureanotherimmediatesourceofpatientvolumeandpositionitselfforafutureinwhichcapitationbecomesthenorm.ThecapitationcontractwithHealthspringswouldalsoallowMCHAtomanagethedual-eligiblepatientpopulationexclusively.Giventhegroup'sabilitytoprovidequalitypatientcarewhilemanaging LOS, the contract could yield a net profit depending on the negotiatedreimbursementamountperpatientcaseandnumberofpatientsexpectedfromthisspecificpayer.TheadditionalcostscouldbemarginalunlessHealthspringsweretoincreaseitshighpatient volume dramatically—given MCHA's current physicians and existing capacity, itwouldnotneedtoaddphysiciansinitially.

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WhileMCHAfeelsitneedsnewsourcesofpatientvolume,theprofitabilityfromthisnewpatientbaseremainsuncertain.Medicarepatients,onaverage,havemorecomorbiditiesand require a higher level of medical care, and they form the majority of Healthspringspatients.Healthspringsalso tends to transfer itspatientsfromcommunityhospitals to theteaching hospital at which MCHA practices. These patient transfers translate toHealthsprings’enrollmentofsickerpatientswhorequiremorespecializedmedicalservicesandoftenprolongedtreatmentintheintensivecareunit.Asaresult,HealthspringspatientshavelongerLOS.Initially,theinsurancecompanyofferedacapitationcontractof$550perpatient per admission for an anticipated 15 patients per month. Healthsprings also wouldrequireMCHAphysicianstomeetwiththeHealthsprings’casemanagerstwiceaweek.ThispatientvolumewouldconstituteonlyasmallpercentageofMCHA'stotalvolume,butthelonger LOS and additional meetings would result in more work per patient for MCHAphysicians.

Thegroupwasdiscussingthepositivesandnegativesofthispossiblearrangement.ThemembersdidnotknowwhetherHealthspringswouldprovidealargerpatientvolumeoranincreaseintheircapitatedamount.

Questions1. Whataretheadvantagesanddisadvantagesofthisoffer?2. WhatarethespecificrisksMCHAwilltakeundercapitation?3. Whatcoulditdoornegotiatetomodifytherisks?4. WhatwouldbeMCHA'smarginalcostandopportunitycostsofthisproposal?5. WhatotherinformationwouldyouwantfromHealthsprings?6. Giventheinformationyouhave,whatwouldyourecommendtothegroup?

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13.BozemanHealth'sCompetitiveDilemma

ByEricConnell

BozemanHealthisanot-for-profithealthsystemthatoperatesinsouthwestMontana.ThemainhospitalinBozemanhas86beds,aLevel3traumacenterdesignation,andamedicalstaffofover200.Ithaspatientrevenueofapproximately$350million.BozemanishometoMontana State University (approximately 15,000 students) and is a haven for outdoorrecreationbecauseofitsproximitytomountains,rivers,andYellowstoneNationalPark.ThepopulationofBozemanis40,000.BozemanHealthis theprimaryhealthcareproviderforGallatinCounty,whichhasapopulationof100,000.ThecommunitycontinuestobeoneofthefastestgrowingmicropolitanareasintheUnitedStates.

YouarethenewCEOofBozemanHealth(BH)andhaveinheritedanorganizationthathasitsshareofchallenges.Followingalong-tenuredCEO,atBHforover20years,thelasttwo CEOs have been unable to stay long. One CEO resigned after nine months, statingdifferences with the board of directors. Rumor was that the CEO was pushing forproductivityincreasesandstaffreductions,upsettingcertaindoctors,whousedtheirpersonalrelationshipswiththeboardtoforcetheCEOout.

Thenextexecutivewasfiredforethical issues.Hehadfailed todiscloseacriminalconvictionduringthehiringprocess.Althoughtheoffenseoccurredover30yearsbeforehishiring,theboard'spublicexplanationwastheCEOhadfailedtobecompletelyhonestandliedonhisapplicationthathehadneverhadafelonycriminalconviction.Althoughthiswastheboard'spublicposition,rumorsspreadthattheethicalconsiderationwasonlyanexcuse.Stories surfaced that the CEO was actively engaged in trying to merge the hospital withSanfordHealth,a largehealthsystemin theDakotas—andbeingpaidunder the tablebySanford.Inashorttime,theCEOpushedtheorganizationtoimplementanelectronichealthrecordsystemhostedbySanford,despitecontraryrecommendationsfromBH'sinformationtechnologydepartment.Theimplementationwasafailure.TheCEOalsomadeaunilateraldecisiontojoinSanford'sgrouppurchasingorganization(GPO)andchangethenameoftheorganizationfromBozemanDeaconessHealthServicestoBozemanHealth,whichwastoosimilarformanytoSanfordHealth.

YouknowthattheBHcultureisverystable,anditsleadersaredeeplyentrenchedinthewaytheorganizationoperates.YouareworriedthatitcouldbeaseriousthreattoBH'slong-termviability.Duringtheinterviewprocess,yourecognizedthatmostoftheseniorleadersatBozemanHealthareclosertotheendoftheircareersthanthebeginningandestimatethatmostwillberetiringwithinthenextfiveyears.

ThemainhospitalinBozemanisneitherlovednorhatedinthecommunity,andthislukewarm response is also troublesome. You know that your biggest advantage is thatBozeman Health is the only hospital in the county, essentially giving the organization amonopoly. But Bozeman has a relatively high percentage of commercial payers and agrowingpopulation.Yourecognize thateventually theremaybeanotherhospital inyourprimarymarket.

BillingsClinic,whichoperatesawomen'shealthclinic,hasaninterestinthemarket.It

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hadpreviouslyexpressedplanstobuildahospitalintheresorttownofBigSky,45milesfromBozeman.BozemanHealthviewedthisasathreatandfast-trackeditsownplanstobuildahospitalinthetown.BecauseBHalreadyownedtheland,itwaseasytoturnthefirstshovelofdirtandkeeptheBillingsClinicfromenteringthemarket.Thefour-bedhospitalopenedinDecember2015andwaslargelyadefensivemove.TheBigSkyMedicalCenterisunlikelytobreakevenforthenexteightyears.

The main campus in Bozeman is a sprawling web of various construction projectsintended to meet the services demands in the growing community. The original hospitalbuildingwasconstructedin1986.A$10millionadditiontotheemergencydepartmentwascompleted in 2012; an additional office tower was completed in 2015; and in 2016, BHopeneda$10million,37,000-square-footoutpatientclinic inabedroomcommunityninemilesfromBozeman.

Itseemsasthougheverydepartmentisaskingforadditionalspace.Yourfamilybirthcenter,forexample,had1,300birthsinthelastyearandwasfrequentlyrequiredtodivertpatientstootherhospitalsbecauseofalackofspace.NursesstruggletooperateintinyICUroomsthatweredesignedinthe1980sandarenowfilledwithlife-sustainingequipment.Operatinginspacesthatarenotoptimizedforworkflowscreatesadditionalworkandstressforprovidersandstaffmembers.Patientsrightlycomplainoflimitedparking.Fortunately,theorganizationownshundredsofacresoflandadjacenttothecampusthatweredoantedtotheorganizationandhasyettodeterminehowtousethespace.

Afterspeakingwithkeyphysicians,boardmembers,anddepartmentheads,youwonderwhatyouhavegottenyourselfinto.Youfaceamultitudeofchallengesandaveryuncertainfuture. If you are unable to implement an effective strategy, it is highly likely that theorganizationwillstruggleandyouwillloseyourjob.EstimatethatyouhavetwotothreeyearstogetBozemanHealthonapathtosuccess,butyouwanttotakeafewmonthstogettoknowtheorganizationbetterbeforeyoulayoutadetailedplan.

However,timeisnotyourfriend.Fourmonthsbeforeyoustarted,theBillingsClinicannouncedthefollowingintheBozemanDailyChronicle.

BillingsClinicBuys54acresinBozemanByLewisKendall,StaffWriter,Jan6,2016

BillingsClinicannouncedWednesdaythat ithaspurchased54acresof landasitpreparestoexpanditsmedicalservicesinBozeman.

The lot, purchased for an undisclosed amount, is located west of Costco near the North 19th Avenueinterchange.Clinicofficialswillnowmeettodecidewhattypeoffacilitytodevelop,saidJulieBurton,theclinic'sdirectorofcommunications.

“Wewillhavethatconversationandmakedecisionswhenthetimeisright,”saidBurton.“Itwillhavetorunitscourse.”

For comparison, the lot size of the adjacent Costco is about 13 acres, while Bozeman Health DeaconessHospitalsitsonapproximately34acres,accordingtostatetaxrecords.

TheclinichaslongbeenlookingtogrowitsofferingsinBozeman,Burtonadded.“Thiswasanopportunitythatcameupandthelocationofthelandwasideal,”shesaid.“Wethoughtthiswas

theperfectplacetolookforward.”TheclinicalreadyoperatesanOB-GYNfacilityonHighlandBoulevard,whichhasbeenaroundformorethan

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adecade.Foundedin1911, thenonprofitemploysaround4,000people inMontana,WyomingandNorthandSouth

Dakota.

TheBillingsClinicisaformidablefoe.Ithasbeenaggressiveintheregionbuthaddonerelatively little in Bozeman. You have spoken with Billings Clinic providers, and theysuggestthattheBillingsClinicmightmoveslowly,butthispacecannotbeguaranteed.YouareconcernedthattheclinicmightseekacapitalpartnershoulditdecidetomovequicklyinBozeman.

TodayyouarriveatBHat7amforabrainstormingsessiontooutlinekeyissueswithyourvicepresidents.Youknowthatyoujustdonothavethenecessarytimetoconstructathoroughandvettedstrategicplanningprocess.Infact,youmayonlyhavemonthstodevelopa strategic direction. You need to formulate an agenda and desired outcomes for yourupcomingmeetingnow.

Questions1. Giventhechallenges,howwouldyoustructureastrategicplanningprocess?2. InyourcompetitionwithBillingsClinic,whoarethekeystakeholders?3. WhatalliancesandpartnershipscouldyouconsidertoimproveBH'scompetitive

position?4. WhatshouldyourpublicpositionberegardingthepossibleentryoftheBillingsClinic

intoBozeman?Whatwouldyourinternal,strategicpositioningtowardBillingsbe?

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L e a r n i n g O b j e c t i v e s

After you have studied this chapter, you should be able to

➤➤ integrate the various disciplines into a comprehensive framework to assess problems in

healthcare strategic planning,

➤➤ exercise strong managerial problem-solving skills using SWOT analysis,

➤➤ formulate strategy and implement change using gap analysis and force-field analysis, and

➤➤ discuss the multidisciplinary teamwork required to enable an organization’s leaders and

team members to efficiently implement change.

C H A P T E R 4

S W O T A N A LY S I S

I skate where the puck is going to be, not where it has been.

—Wayne Gretzky

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Harrison, Jeffrey P.. Essentials of Strategic Planning in Healthcare, Third Edition, Health Administration Press, 2020. ProQuest Ebook Central, http://ebookcentral.proquest.com/lib/apus/detail.action?docID=6349384.Created from apus on 2022-03-24 02:18:14.

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 0 8

K e y t e r m s a n d c O n c e p t s

➤➤ Bundled payment

➤➤ Churn rate

➤➤ Downstream value

➤➤ Force-field analysis

➤➤ Freestanding emergency department

➤➤ Opportunities

➤➤ Strengths

➤➤ SWOT analysis

➤➤ Threats

➤➤ Weaknesses

in t r O d u c t i O nHealthcare organizations must continually adjust to ensure optimal performance. The rapid, continuous, and unpredictable changes in the field accelerate the speed at which strategic planning must happen for healthcare organizations that are adapting to these changes (Johnson 2017). These organizations believe that strategic planning is critical and requires the short- and long-term allocation of resources, the integration of geographically separated organizations, and a team that can focus on a clear strategy. As a result, strategic planning is evolving into a more continuous and integrated process. Strategic teams can use a variety of techniques to determine where adjustments are needed. One essential technique involves a discussion of an organization’s strengths, weaknesses, opportunities, and threats (SWOT analysis). Originally designed for use in other industries, SWOT analysis is increasingly being used in the healthcare industry (Gurel and Tat 2017).

To get the most out of its planning efforts, an organization, before beginning its strategic planning, should have a panel of experts who can assess the organization from a critical perspective and conduct a SWOT analysis. This panel could comprise senior lead-ers, board members, employees, medical staff, patients, community leaders, and technical experts. The panel members would base their assessment on utilization rates, outcome measures, patient satisfaction statistics, organizational performance measures, and financial status. While based on data and other facts, the conclusions drawn from SWOT analysis are the expert opinion of the panel.

The annual strategic planning process should incorporate action planning and operational oversight into an ongoing cycle. Many of the elements discussed in SWOT analysis are a part of this process and include environmental factors, organizational structure, capital financing, operational planning, and financial performance.

st e p s i n sWOt an a Ly s i sThe primary aim of strategic planning is to bring an organization into balance with the external and internal environment and to maintain that balance over time. Organiza-tions accomplish this balance by evaluating new programs and services with the intent of

SWOT analysis

Examination of

an organization’s

internal strengths

and weaknesses,

its opportunities

for growth and

improvement, and the

threats the external

environment presents

to its survival.

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C h a p t e r 4 : S W O T A n a l y s i s 1 0 9

maximizing organizational performance. SWOT analysis is a preliminary decision-making tool that sets the stage for this work.

The first step of SWOT analysis involves the collection and evaluation of key data. Depending on the organization, the data might include population demographics, com-munity health status, sources of healthcare funding, and the status of medical technology in the organization. Organizational surveys are an effective means of gathering some of this information, such as data on an organization’s quality, finances, operations, and processes (Gurel and Tat 2017). Once the data has been collected and analyzed, the organization assesses its capabilities in these areas.

The team now takes step 2 of the analysis, sorting the data into four categories: strengths, weaknesses, opportunities, and threats. Strengths and weaknesses generally stem from factors in the organization, whereas opportunities and threats usually arise from external factors. Exhibit 4.1 illustrates step 2 of SWOT analysis in a hypothetical example of an outpatient clinic considering the value of adding magnetic resonance imaging (MRI) appointments on Saturdays in response to increasing demand.

Step 3 involves the development of a SWOT matrix for each business alternative under consideration. For example, say a hospital is evaluating the development of an ambulatory surgery center. It is looking at two options: The first is a wholly owned center, and the second is a joint venture with local physicians. The hospital’s expert panel would complete a separate SWOT matrix for each alternative.

In step 4, the panel uses the SWOT analysis to decide which business alternative best meets the organization’s overall strategic plan. The more comprehensive the SWOT

exhibit 4.1Sample SWOT Matrix

Strengths

• Worldwide reputation• Focus on patient care• Focus on quality and value• Experience in medical imaging• Location of hospital• High-tech facility and equipment• No capital expenditures

Weaknesses

• Some increase in staffing• Some dissatisfaction by employees working on Saturdays• Increased workload for radiologists already working at peak performance

Opportunities

• Local community targeted marketing• Improvements in payer mix• Improvements in integrated care

Threats

• Local competitors offering Saturday MRIs• Loss of potential market share and revenue to competitors• Unknown implications of healthcare reform

Helpful to Objective Harmful to Objective

Ext

ern

al O

rig

inIn

tern

al O

rig

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 1 0

review, the less likely the organization is to pursue inappropriate services or projects. As they conduct their analysis, the panel members might find that the four components of SWOT can interact with each other. For example, opportunities can sometimes be used to counter threats, and weaknesses can be managed through strengths. Strengths can also be used to respond to threats. Two criticisms of SWOT analysis are the subjectivity of the list and its lack of quantifiability. However, the panel can address those issues by engaging other stakeholders in a robust discussion and by combining the SWOT tool with other quantitative processes for prioritization (Gurel and Tat 2017).

s t r e n g t h s

Traditional SWOT analysis views strengths as current factors that have prompted out-standing organizational performance. Examples include the use of state-of-the-art medical equipment, investments in healthcare informatics, and a focus on community healthcare improvement projects.

To draw an example from real life, Mayo Clinic is a not-for-profit, integrated, multispecialty medical practice with more than 65,000 employees. This outstanding organization integrates the provision of healthcare through teamwork, the use of real-time patient healthcare information, and the application of advanced technology to provide high-quality care to the patient at an affordable cost. In 2014, Mayo Clinic celebrated its 150th anniversary and the then CEO, Dr. John Noseworthy, had three strategic goals for the next five years. One goal—to hop off the acquisition bandwagon—seemed contrary to the goals of the rest of the country’s healthcare organizations. Mayo chose to invest in a network model that would support “the diffusion of knowledge” without extensive consolidation of other organizations (Kimmel 2019). In 2011, it had created the Mayo Clinic Care Network, where outside organizations could pay a subscription fee to Mayo for access to many resources such as medical consultations, the Ask Mayo Clinic resources, and administrative consultations. In 2018, the network collectively saw more than 12.5 million patients and now includes 40-plus practices across 35 states, as well as international sites in Mexico, Egypt, Saudi Arabia, United Arab Emirates, South Korea, Malaysia, and China. Mayo attributes its success to an “extensive due diligence process” for prospective member practices; the due diligence allows Mayo to carefully vet the organizations it allows to share its brand. Mayo uses its own strengths in planning to evaluate other organizations.

Though well known for its strengths in quality and safety, Mayo Clinic is also thought to be the most expensive. A 2008 research study from Dartmouth Medical School, however, showed that Medicare patients at the Mayo Clinic consistently cost Medicare far less than did similar patients at clinics across the country. The Mayo patients also had better outcomes than did patients from elsewhere. The study found that although the initial costs might be higher for a procedure, the efficiency and value were derived from

strengths

Current factors that

have prompted

outstanding

organizational

performance.

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C h a p t e r 4 : S W O T A n a l y s i s 1 1 1

the fewer complications and readmissions after the procedure (Wennberg et al. 2008). A more recent study confirmed that Medicare beneficiaries hospitalized at a major teach-ing hospital had lower total standardized costs at 30 days than did similar patients at other hospitals (Burke et al. 2019). Like the older study, the newer study found that initial hospitalization costs were higher at major teaching hospitals, partly because the patients were often sicker, but readmissions and post-acute care services cost less, leading to lower overall spending at 30 days.

The Centers for Medicare & Medicaid Services (CMS) uses the metric Medicare spending per beneficiary (MSPB) to look at total cost 3 days before hospitalization, during the hospitalization, and 30 days after hospitalization. The number is presented as a ratio using the hospital MSPB calculation divided by the national mean MSPB calculation. The lower the number, the more efficient the organization. For example, in 2017, the MSPB in the Mayo Clinic in Florida was 0.97, which is lower than the MSPB for the state of Florida, at 1.03, and the national average of 0.99 (Hospital Compare 2020).

Mayo Clinic exemplifies how the elements of SWOT can interact. The clinic used its strengths in quality and safety to offset the costs for a more efficient practice. Mayo’s strengths also include its investments in technology (the clinic recently spent $1.5 billion on a standard electronic medical record [EMR] for all sites), the use of teams for accurate diagnoses, and a culture of teamwork and excellence to deliver patient-centered care. This cooperative attitude translates into a unified focus on shared values and much collabora-tion across the team. The teamwork enhances learning, inspires confidence, and promotes camaraderie among the clinical team members.

For other healthcare groups, potential organizational strengths include highly com-petent personnel, the employees’ clear understanding of the organization’s goals, and a focus on quality improvement. An organization’s future strengths include growth through mergers and acquisitions as healthcare organizations consolidate into larger organizations. In 2017, there were 115 reported healthcare mergers and acquisitions, the largest number in recent history. One study showed that the acquired hospitals involved in these mergers had a 2.5 percent decrease in cost per admission (LaPoint 2018). Larger organizations can reach economies of scale and reduce costs, and combined with improved quality, create greater value for the patient.

W e a K n e s s e s

In the healthcare business, weaknesses are organizational factors that increase healthcare costs or reduce healthcare quality. Under healthcare reform, hospitals that seek to go it alone will no doubt increasingly struggle to acquire the financial and human resources necessary to build the infrastructure required for coordinated care.

The fundamental Affordable Care Act (ACA) model for integrated care shifts the healthcare system from volume-driven, fee-for-service care to chronic-disease management

weaknesses

Organizational

factors that increase

healthcare costs or

reduce healthcare

quality.

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 1 2

and value-driven episodes of care (see highlight 4.1). The shift is occurring piecemeal, one payer and one contract at a time—forcing hospitals to operate in both the volume-driven and the value-driven models at the same time. As a result, many hospitals have entered mergers to find strategic partners that could manage the transition from a volume-driven to a value-driven marketplace. In 2000, some 52 percent of hospitals were part of multihospital systems, whereas by the end of 2016, about 69.7 percent of hospitals were affiliated with 626 health systems in the United States (AHRQ 2017). As organizations now position themselves for value-based reimbursement with shared savings and bundled payments (single payments made to providers or healthcare facilities for all services rendered to treat a given condition or provide a given treatment), freestanding hospitals will increasingly be unable to provide integrated healthcare.

bundled payment

Single payment

made to providers or

healthcare facilities

(or jointly to both) for

all services rendered to

treat a given condition

or to provide a given

treatment.

HIGHLIGHT 4.1 Value-Driven Episodes of Care

The Centers for Medicare & Medicaid Services (CMS) has been continuously expanding

its new payment models in an effort to drive value-based care and shared risk with pro-

viders. In early 2019, CMS rolled out five new payment models for primary care practices

and other providers. There are two paths: Primary Care First (PCF) and Direct Contracting.

PCF has two payment models: one for the general population and another for high-

needs populations. The Direct Contracting path has three payment models: global,

professional, and geographic. The models are summarized as follows:

1. PCF General

2. PCF High-Need Populations

3. Direct Contracting Global

4. Direct Contracting Professional

5. Direct Contracting Geographic

Before 2011, many Medicare payments to providers were tied only to volume,

rewarding providers, for example, according to how many tests they ran, how many

patients they saw, or how many procedures they did, regardless of whether these ser-

vices helped (or harmed) the patient. The PCF payment models will be tested for five

years and were slated to begin in January 2020. The first two Direct Contracting options

were expected to begin in January 2020, and the third option, the geographic model,

is expected to launch in January 2021 and run for five years. CMS expects 25 percent of

primary care providers to join one of the five models (Ellison 2019).

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C h a p t e r 4 : S W O T A n a l y s i s 1 1 3

Other hospital weaknesses include aging facilities and a lack of continuity in clini-cal processes; continuity problems can lead to duplication of efforts. Weaknesses can be broken down further to identify their underlying causes. For example, a disruption in the continuity of care often results from poor communication. This fragmentation leads to inefficiencies in the entire system—weaknesses also breed other weaknesses. Thus, poor communication can ultimately hurt an institution’s financial picture: The flawed commu-nication disrupts the continuity of care, which causes inefficiencies, which in turn deplete financial and other resources.

The growth in integrated delivery systems allows greater efficiency across the con-tinuum of healthcare. As a result, hospitals will need to develop ambulatory care networks and enhance their relationship with multispecialty physician groups. Failing to market ambulatory services in the face of increasing competition could prove to be a fatal weakness as patient referrals migrate to larger health systems.

Other common weaknesses include poor use of healthcare informatics, insufficient management training, lack of financial resources, and an organizational structure that limits collaboration with other healthcare organizations. A payer mix that includes many uninsured patients or Medicaid patients can also diminish an organization’s financial per-formance, and lack of relevant and timely patient data can increase costs and lower the quality of patient care.

O p p O r t u n i t i e s

Traditional SWOT analysis views opportunities as significant new business initiatives available to a healthcare organization. For example, organizations could collaborate through healthcare delivery networks, pursue increased funding for healthcare informatics, partner with communities to develop new healthcare programs, or introduce clinical protocols to improve quality and efficiency. Additional opportunities include efforts to increase reim-bursement, institute value-based purchasing, increase patient satisfaction, provide new clinical services aligned with population health needs, and deliver integrated, patient-focused care. Healthcare organizations might also improve patient satisfaction by increasing public involvement and ensuring patient representation on boards and committees.

Organizations that successfully use data to improve clinical processes have lower costs and higher-quality patient care than do groups that don’t put data to good use. For example, healthcare organizations with CMS Hospital Compare quality scores above the ninetieth national percentile are eligible for CMS pay-for-performance incentives (see chapter 6 for information on CMS Hospital Compare). Pay-for-performance incentives base their provider payments on quality and efficiency measures to encourage the providers to work toward desired outcomes. The greater the number of organizations achieving high CMS Hospital Compare scores, the greater the patients’ access to quality healthcare. High scores also enhance an organization’s reputation in the community. While some hospitals will always reach the ninetieth percentile, the bar continues to be raised. Even the best must continue to improve.

opportunities

Significant new

business initiatives

available to

a healthcare

organization.

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 1 4

t h r e at s

Threats are factors that could hurt organizational performance. Examples are political or economic instability, increasing demand by patients and physicians for expensive medi-cal technology that is not cost-effective, increasing state and federal budget deficits, and increasing pressure to reduce healthcare costs. Additional threats include healthcare fund-ing cuts, the increasing cost of technology, and the potential for reduced access to capital.

One of the basic threats to a healthcare organization’s survival is churn rate, the quantity of new patients relative to existing patients. Hospital churn rates can vary, but a good target is 15 percent new patients annually. This rate replaces lost business while maintaining significant growth. A high churn rate can be good news. A low churn rate suggests that an organization is losing potential new patients to its competitors and poses a significant threat if the number of existing patients also declines. Such a decrease in the number of existing patients can have many causes; patients may move out of the area, die, or age into a cohort requiring a different type of provider. Referral patterns among primary care physicians may also change. A health system must continually monitor how easily new residents to the community can gain access to one of its primary care physicians. Specifi-cally, health systems must be vigilant about ensuring patient access, regardless of the payer, to their network. Low churn rates clearly reflect an organization’s inability to attract new patients—a shortcoming possibly driven by low patient satisfaction or the lack of primary care providers.

in t e r n a L a n d ex t e r n a L pe r s p e c t i v e sAs shown in exhibit 4.1, SWOT analysis has both an internal and an external focus. Strengths and weaknesses are primarily internal in origin. Examples of these internal factors include patient satisfaction, cost per procedure, and level of quality. Conversely, opportunities and threats are primarily external in origin. These could include the level of competition in the market, the availability of integrated care, and the economy of scale as measured by an organization’s market share. Strengths and opportunities are helpful to the objective; weaknesses and threats are harmful to the objective.

FO r c e-Fi e L d an a Ly s i sHealthcare organizations’ responsibility to implement change that is beneficial to the patient, staff, and organization is increasing. The primary drivers of change in healthcare are the push for quality improvement, the need for customer satisfaction, the desire to improve working conditions, and the diversification of the healthcare workforce.

Force-field analysis (see exhibit 4.2) takes SWOT analysis a step further by iden-tifying the forces driving or hindering change—in other words, the forces affecting an organization’s strengths, weaknesses, opportunities, and threats. Lewin’s (1951) force-field

threats

Factors that could

negatively affect

organizational

performance.

churn rate

Ratio of the number

of new patients to the

number of existing

patients.

force-field analysis

Examination of

the forces helping

or hindering

organizational change.

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C h a p t e r 4 : S W O T A n a l y s i s 1 1 5

analysis and diagrams are the founding theory for the identification of these important forces. Forces that propel an organization toward goal achievement are called helping forces, while those that block progress toward a goal are called hindering forces. After identifying these positive and negative forces, an organization can develop strategies to strengthen the positives and minimize the negatives. For an organization to succeed, the helping forces must outweigh the hindering forces. When it reaches this state, an organization moves from its current reality to a preferred future.

Effective force-field analysis considers not only organizational values but also the needs, goals, ideals, and concerns of individual stakeholders. Individuals who promote change are helping forces, whereas those who resist change are hindering forces. Con-sidering the impact that stakeholders can have, leaders must work to understand these

Limited Financial Resources

Poor Payer Mix withLow Reimbursement

Marginal Patient Safety

uil

ibri

Low Healthcare Quality

Lack of Motivated and Skilled Personnel

Culture Opposed to Change

Patient Perception of Quality

Driving Forces Restraining Forces

Culture of Innovation

Adequate Financial Resources

Profitability

Highly Skilled Personnel

Transformational Leadership

High LowProbabilityof Change

+2 +1 0 –1 –2

exhibit 4.2Healthcare Model for Force-Field Analysis

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 1 6

individuals, their attitudes, and the culture of the organization. A group performing force-field analysis should also identify the key stakeholders in an issue and develop a plan to gain their support. The group needs to counteract organizational inertia (the hindering forces) and create an environment that proactively supports future change (the helping forces). Such change is accomplished by modifying current attitudes (“unfreezing” an organization’s perspective on a particular issue), emphasizing the positive aspects of change, and then incorporating the new attitudes in the organization’s processes (“refreezing” the new attitudes so that they and their associated behavior patterns become entrenched in the institution).

A transformational management style that solicits input from inside the organiza-tion is important in implementing change. This approach also supports working groups in the development of a consensus, which helps refreeze the new, desired behaviors in the organization.

su p p L e m e n t i n g sWOt an a Ly s i s W i t h ga p an a Ly s i s dataTo further refine its planning decisions, an organization can supplement its SWOT analysis with gap analysis, which, as explained in chapter 3, reveals differences between the organi-zation’s current standing and its target performance. Knowing where to focus intervention efforts improves the efficiency of the interventions. Obtaining data that can be used for local benchmarking and improvement is a key step in raising awareness and driving qual-ity improvement.

Research shows that while we have seen improvement, there are still gaps in the quality of care in healthcare practice. For example, one of the pressing issues in the United States is maternal and infant mortality. In 2019, the US maternal mortality rate increased over the previous ten years after decades of decreasing mortality. The Centers for Disease Control reports that between 800 and 900 women die each year from pregnancy-rated complications, a rate of 20.7 deaths per 100,000 live births. Infant mortality, the death of a child within the first year of life, continues to decrease worldwide. Although US infant mortality overall is 5.8 deaths per 1,000 births, down from 7.1 in 2005, state rates vary substantially, from 3.7 per 1,000 in Massachusetts to 8.6 per 1,000 in Mississippi. States are charged with using the data to identify improvement opportunities and utilize evidence-based interventions to reduce both maternal and infant mortality rates (Bellazaire and Skinner 2019).

In implementing a gap analysis to improve the quality of patient care, an organiza-tion needs to ask and answer a series of tough questions of its stakeholders (Hill Golden et al. 2017) (see exhibit 4.3).

Gaps also exist between people’s expectations of high-quality care and situations in which they receive low-quality healthcare. An unsatisfactory outcome may stem from

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C h a p t e r 4 : S W O T A n a l y s i s 1 1 7

the providers’ lack of responsiveness, marginal competence, unreliability, weak commu-nication skills, or breaches of confidentiality. In fact, patients think that their provider’s communication of such things as treatment protocols, cost information, and potential side effects is a primary driver of high quality (Wong, Roach, and Meropol 2016). Per-formance variations also result from trade-offs in the allocation of healthcare resources. For example, some healthcare organizations may lack the financial resources to purchase new equipment or hire additional staff when experiencing increased demand, because they have allocated their resources for another purpose; as a result, patients experience excessive waiting times.

dO W n s t r e a m re v e n u eUnderstanding downstream value—the revenue captured by the services a patient uses after the initial visit—can provide a hospital with a better foundation for strategic plan-ning and resource allocation. Although hospitals tend to think in terms of transactions, in the rapidly changing healthcare environment, institutions must increasingly look beyond the dollars spent on the initial transaction and incorporate downstream revenue. Hospital executives are now looking at access points for ambulatory and primary care and their potential for downstream revenue (Kacik 2019a). Other sources for downstream revenue may also be considered. Healthcare systems have marketed care model innovations such as Geisinger Health System’s patient-care management model, which Geisinger has licensed to Epic Systems Corporation and Cerner Corporation for their clinical-decision support systems. Some organizations have leveraged royalties from drugs, diagnostics, and devices.

downstream value

Revenue captured

by the services a

patient uses after an

initial visit, such as

subsequent testing or

return visits.

What are we trying to accomplish?

What to Ask How to Answer

Identify best practices.Pinpoint the gaps and who falls through them.

Identify the target population or process andimprovement goal.

What changes can we make that will result in improvement?

Identify the causes of a gap and the barriers toclosing it.Determine what changes would improve careor close the gap.Prioritize the gaps.Summarize interventions to address the gaps.

How will we know if a change is an improvement?

Collect appropriate data.

Plot or display the data for analysis.

exhibit 4.3Tough Questions in a Gap Analysis

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 1 8

For example, Spark Therapeutics, the gene therapy company of Children’s Hospital of Philadelphia, is generating a return of more than $450 million (Kacik 2019b).

A 2019 survey of physicians found that a full-time physician brings in an average of $2.38 million in net revenue every year to the hospital with which the professional is affiliated, and some specialties bring in almost double that amount. This revenue includes both net inpatient and outpatient revenue derived from hospital admissions, tests, treatments, prescriptions, and procedures performed or ordered by physicians (Merritt Hawkins 2019). Cardiovascular surgeons topped the list of specialty physicians, generating an average of $3.7 million a year for hospitals. The same survey showed that primary care physicians generated an average of $2.13 million in net revenue annually for their affiliated hospitals (Merritt Hawkins 2019). This figure did not include indirect revenue they may have created from patient referrals to specialists. Hospital revenue from outpatient services, such as surgical procedures, grew from 30 percent in 1995 to 47 percent in 2016 (Adams, Balan-Cohen, and Durbha 2018). In an analysis of Medicare claims data from 2012 to 2015, hospitals that had quality- and value-based contracts provided 21 percent more outpatient services and generated 13 percent higher outpatient revenue (Burrill 2018).

Hospital emergency departments (EDs) have been a key entry point for consum-ers to receive care in hospitals. As part of the treatment process, patients are frequently cared for in the ED and then discharged home. Other patients who come to the ED are frequently admitted to the hospital for ongoing care and treatment. A more recent innova-tion designed to provide better access to this community resource and patient admissions is the freestanding ED. According to recent estimates, there are at least 566 freestanding EDs in the United States (Haefner 2019).

Downstream revenue can provide a strong foundation of resources for future stra-tegic planning. Moreover, as changes in reimbursement drive transactional revenue down, positive patient relationships that produce an ongoing revenue stream from repeated and clinically appropriate visits are critical.

Organizations conduct SWOT analysis before their strategic planning. Ideally, the analy-sis includes a comprehensive review of the healthcare literature, an in-depth data analysis, and input from a panel of SWOT analysis experts. Findings from the analysis are sorted into four categories: strengths, weaknesses, opportunities, and threats. Force-field analysis supplements the SWOT analysis by identifying the forces affect-ing the strengths, weaknesses, opportunities, and threats. To refine these analyses even further, leaders may do a gap analysis to determine where deficiencies exist in

freestanding

emergency department

An independent facility

that provides hospital-

level emergency

care in communities

without full-service

hospitals. For seriously

ill patients requiring

hospitalization,

protocols and

emergency

transportation are

in place to move the

patient quickly to a

hospital.

s u m m a r y

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C h a p t e r 4 : S W O T A n a l y s i s 1 1 9

r e v i e W Q u e s t i O n s

1. How does SWOT analysis set the stage for strategic planning?2. Discuss the use of force-field analysis in promoting change in a healthcare

organization.3. Provide examples of how gap analysis can be used to improve the quality of health-

care services.4. Provide an example of how a hospital’s strategic plan can affect downstream

revenue.

c O a s ta L m e d i c a L c e n t e r Q u e s t i O n s a n d e x e r c i s e s

1. SWOT Analysis and Hospital Emergency Department Expansion Exercise

Using the four steps of SWOT analysis discussed in this chapter, create a panel of experts and perform a SWOT analysis for Coastal Medical Center (CMC). Use SWOT analysis to identify factors that would help CMC get back on track and move forward on a new road to success.

CMC CEO Richard Reynolds has met with Dr. John Warren, the chief medical officer, and Dr. Debra Jones, the director of the CMC emergency department (ED). They discussed the data included in the following two tables. They also discussed a workload report of the ED service volume for the past year. The data shows high ED utilization. (The average charge for a hospital ED visit is $1,000 plus $500 in ancillary charges such as laboratory, radiology, and pharmacy.) However, the numbers also suggest that the percentage of ED patients leaving without being seen is twice the state or national average. Mr. Henderson, Dr. Warren, and Dr. Jones are concerned about lost revenue because hospital data shows that, in addition to the ED charges, patients generate an average of $100 in profit per inpatient-day if they are admitted to the hospital.

an organization’s delivery of care. SWOT analysis and the supplementary analyses pro-mote (1) a better understanding of the barriers to change, innovation, and the transfer of knowledge to practice; (2) improved outcomes; and (3) more efficient allocation of healthcare resources.

A review of potential revenue sources enables hospitals to use strategies other than expense management to maximize financial performance. These products and services can often have a high profit margin and downstream revenue when there is an associated reasonable payback period. Organizations can explore internal and external environmental issues as potential opportunities as part of their SWOT analysis.

e x e r c i s e s

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 2 0

CMC Hospital Data

Annual discharges 40,720

Average length of stay (days) 5.1

Average daily census 423

Inpatient surgeries 13,000

Outpatient surgeries 14,900

Births 2,400

Outpatient visits 245,000

Emergency department patients (not admitted) 36,400

Emergency department patients (admitted) 24,700

Total emergency department patients 61,100

Comparison of CMC Emergency Department (ED) Quality of Care

Measure CMCState

AverageNational Average

Average (median) time patients spent in ED before admission (minutes) 340 282 272

Average (median) time patients spent between decision to admit and depart-ing for inpatient room (minutes) 130 108 97

Average time patients spent in ED before being sent home (minutes) 150 143 133

Average time patients spent in ED before being seen by a healthcare professional 36 23 24

Average time patients with broken bones waited for pain medication 70 56 55

Patients who left ED before being seen (%) 4 2 2

Patients who came to ED with stroke symptoms and received brain scan results within 45 minutes (%) 55 67 61

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C h a p t e r 4 : S W O T A n a l y s i s 1 2 1

2. CMC Emergency Department Data Analysis Exercise

Use the preceding tables to answer these questions:1. Looking at the data provided, calculate the potential lost revenue for ED visits over

the past year.2. Using the data provided, calculate the potential lost downstream hospital revenue

from ED admissions who walked out over the past year.3. Make a recommendation to Mr. Henderson, Dr. Warren, and Dr. Jones for how to deal

with the ED problem.

O n L i n e e x e r c i s e

Discussion Board: Patient Satisfaction and Hospital Efficiency

Go to the Hospital Compare website (www.medicare.gov/hospitalcompare/search.html), and evaluate three hospitals in your home or university community. The data elements to be used should be the “Survey of patients’ experience” scores (HCAHPS) and the “Payment & value of care” scores, specifically the Medicare spending per beneficiary (MSPB).

From your analysis, determine which hospital in your community has the highest level of satisfaction and is the most efficient (MSPB). In addition to comparing the local competitors, how did these organizations compare with the state and national norms? Is there a hospital that you would choose as a patient, and if so, why?

Adams, K., A. Balan-Cohen, and P. Durbha. 2018. “Growth in Outpatient Care: the Role of

Quality and Value Incentives.” Deloitte Insights. Published August 15. www2.deloitte.

com/us/en/insights/industry/health-care/outpatient-hospital-services-medicare-

incentives-value-quality.html.

Agency for Healthcare Research and Quality (AHRQ). 2017. “Snapshot of U.S. Health

Systems, 2016.” Comparative Health System Performance Initiative, Data Highlight

No. 1. Published September. www.ahrq.gov/sites/default/files/wysiwyg/snapshot-of-

us-health-systems-2016v2.pdf.

Bellazaire, A., and E. Skinner. 2019. “Preventing Infant and Maternal Mortality: State

Policy Options.” National Conference of State Legislatures. Published July 3. www.ncsl.

org/research/health/preventing-infant-and-maternal-mortality-state-policy-options.

aspx.

r e F e r e n c e s

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E s s e n t i a l s o f S t r a t e g i c P l a n n i n g i n H e a l t h c a r e1 2 2

Burke, L., D. Khullar, J. Zheng, A. Frakt, J. Orav, and A. Jha. 2019. “Comparison of Costs

of Care for Medicare Patients Hospitalized in Teaching and Nonteaching Hospitals.”

JAMA Network Open 2 (6). https://jamanetwork.com/journals/jamanetworkopen/

fullarticle/2735462.

Burrill, S. 2018. “An Eye on Growth in Outpatient Hospital Services.” Health Care Current.

Published August 21. www2.deloitte.com/us/en/pages/life-sciences-and-health-care/

articles/health-care-current-august21-2018.html.

Ellison, A. 2019. “CMS Unveils 5 New Payment Models to Overhaul Primary Care: 6 Things

to Know.” Becker’s Hospital Review, Published April 23. www.beckershospitalreview.

com/finance/cms-unveils-5-new-payment-models-to-overhaul-primary-care-6-things-

to-know.html.

Gurel, E., and M. Tat. 2017. “SWOT Analysis: A Theoretical Review.” Journal of Interna-

tional Social Research 10 (51): 994–1006. https://doi-org.dax.lib.unf.edu/10.17719/

jisr.2017.1832.

Haefner, M. 2019. “Freestanding EDs Charge Up to 22 Times More than Physician

Offices, UnitedHealth Study Finds.” Becker’s Hospital Review. Published March 6. www.

beckershospitalreview.com/finance/freestanding-eds-charge-up-to-22-times-more-

than-physician-offices-unitedhealth-study-finds.html.

Hill Golden, S., D. Hager, L. J. Gould, N. Mathioudakis, and P. J. Pronovost. 2017. “A Gap Anal-

ysis Needs Assessment Tool to Drive a Care Delivery and Research Agenda for Integration

of Care and Sharing of Best Practices Across a Health System.” Joint Commission Journal

on Quality and Patient Safety 43 (1):18–28. http://dx.doi.org/10.1016/j.jcjq.2016.10.004.

Hospital Compare. 2020. “Mayo Clinic in Florida: Medicare Spending per Beneficiary.” www.

medicare.gov/hospitalcompare/search.html.

Johnson, T. 2017. “Strategic Planning in the Healthcare Industry.” Balanced Scorecard

Institute. Published December 7. https://balancedscorecard.org/strategic-planning-

in-the-healthcare-industry.

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C h a p t e r 4 : S W O T A n a l y s i s 1 2 3

Kacik, A. 2019a. “Revenue Growth Overtakes Cost-Cutting as Hospital Executives’

Top P riority.” Modern Healthcare. Published June 12. www.modernhealthcare.com/

operations/revenue-growth-overtakes-cost-cutting-hospital-executives-top-priority.

———. 2019b. “Urgent Need for New Revenue Streams Will Shape Providers’ Strate-

gies.” Modern Healthcare. Published April 09. www.modernhealthcare.com/finance/

urgent-need-new-revenue-streams-will-shape-providers-strategies.

Kimmel, J. 2019. “5 Years Ago, Mayo Clinic Made 3 Huge Bets. Are They Paying off?” Advisory

Board Daily Briefing. Published August 12. www.advisory.com/daily-briefing/2019/08/12/

mayo-clinics.

LaPointe, J. 2018. “How Hospital Merger and Acquisition Activity Is Changing Healthcare.”

RevCycle Intelligence.com. Published July 20. https://revcycleintelligence.com/features/

how-hospital-merger-and-acquisition-activity-is-changing-healthcare.

Lewin, K. 1951. Field Theory in Social Science: Selected Theoretical Articles. Edited by

D. Cartwright. New York: Harper & Row.

Merritt Hawkins. 2019. “2019 Physician Inpatient/Outpatient Revenue Survey.” www.

merritthawkins.com/uploadedFiles/MerrittHawkins_RevenueSurvey_2019.pdf.

Wennberg, J. E., E. S. Fisher, D. C. Goodman, and J. S. Skinner. 2008. Tracking the Care of

Patients with Severe Chronic Illness: The Dartmouth Atlas of Health Care 2008. Dart-

mouth Institute for Health Policy and Clinical Practice Center for Health Policy Research.

www.dartmouthatlas.org/downloads/atlases/2008_Chronic_Care_Atlas.pdf.

Wong, Y. N., N. Roach, and N. J. Meropol. 2016. “Addressing Patients’ Priorities as a

Strategy to Improve Value.” Oncologist 21(11): 1279–82. https://doi.org/10.1634/

theoncologist.2016-0184.

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discus.docx

SWOT and Gap analyses are often used to assess organizational operations and performance improvement opportunities. Explain how a SWOT analysis is used in the strategic planning process and provide examples of how a gap analysis can be used to improve the quality of healthcare services.

Chapter 4

Chapters 8 and 10

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oce1001_ch05_homework_density_and_heat.pdf

120

100 Latent

o 80 0 -~ 60 :::J

~ ~ 40 E ~ 20

-20

-40

heat of fusion (80 cal/ gram)

Latent heat of vaporization (540 cal/gram)

~Water

~ —–~ ——– u vapor -==============-

20 100 200 400 600 780 800

Heat (calories/gram) C 2007 Thomson Hig her Education

140

Homework #4 Name _______________________ (Total 20 pts)

For this homework, the concept of “Density” and “Heat” will be explored. Density is the “compactness” of a material, or stated in a formula it is how much it weighs (mass) divided by how much space it takes up (volume). For pure water the density is 1 gram for every milliliter of water (1 g/ml). From the table below, determine what elements are described in Questions 1-3.

Name of element Density (g/ml) Magnesium 1.74

Silicon 2.33 Bismuth 9.80

Zinc 7.14 Sodium 0.97 Boron 2.34

1. Item weighs 25 grams and takes up 3.5 ml of volume _______________ (1 pt)

2. Item weighs 117 grams and takes up 50 ml of volume _______________ (1 pt)

3. This item floats on water ___________________ (1 pt)

4. If all these items were mixed together, which one is expected to sink to the bottom? ________ (1 pt)

“Heat” is the next topic. It is a somewhat difficult concept to grasp but it is very important. I encourage you first to read Chapter 5. Then carefully study the next figure. This figure is a graph that plots temperature over thermal energy. To answer questions 9-12 you need to read, use this graph. No formula is needed!

There are two general types of heat; “Sensible” and “Latent.” Sensible Heat describes a process where the temperature changes as heat is added or removed. Latent Heat Thermal Energy is absorbed but the temperature does not change, for example between points D and C shown in the graph.

The definition of “Heat Capacity” plays a significant role in sensible heat; it is the ability of a substance to store heat. For pure water, the heat capacity is 1 cal / g °C (1 calorie per every gram of water per every degree change in Celsius), or in words; if I have 1 gram of water and I want to raise it 1°C, I must add 1 Calorie of heat. Determine the following:

5. If I want to raise 2 grams of water 1°C, how much heat should I add? _____________ (1 pt)

6. If I want to raise 1 gram of water 2°C, how much heat should I add? _____________ (1 pt)

The higher the ‘heat capacity’ of an object, the more heat it takes to increase its temperature. Determine the following:

7. Wood has 4 times the heat capacity as steel. If I add the same amount of heat to the same amount of steel and wood, I find the temperature of the steel increases to 40°C. What is the temperature of the wood? ___________ (1 pt)

8. Water has 5 times the heat capacity as soil. If I add the same amount of heat to the same amount of water and soil, I find the temperature of the soil increases to 50°C. What is the temperature of the water? _________ (1 pt).

The next concept to be considered when dealing with heat, is “Latent Heat”. The word latent refers to the temperature of the system remaining the same even as heat is being added or subtracted from it. This will occur when the system is changing states. Consider a piece of ice.

9. The latent heat of fusion (or the amount of heat required to turn the ice into water) is 80 Calories/gram. How much heat must be added to melt 2 grams of ice at 0°C and what is the final temperature after this heat is added? _______________ _______________ (3 pts)

10. The latent heat of vaporization (or the amount of heat required to turn the water into a vapor) is 540 Calories/gram. How much heat must be added to turn 3 grams of water at 100°C into a vapor and what will be the final temperature after this much heat is added? _____________ _____________ (3 pts)

Putting sensible and latent heat together, it is now possible to figure out the temperature of water going through various stages of heat input/withdrawal. (Heat capacity of water is 1 cal / g °C)

11. 60 calories is added to 1 gram of water at an initial temperature of 80°C. What is the water’s final temperature and state (solid, liquid or vapor)?

Temperature = __________________ (2 pts)

State = ________________________ (1 pt)

12. 120 calories is removed from 1 gram of water at an initial temperature of 40°C. What is the water’s final temperature and state (solid, liquid or vapor)?

Temperature = __________________ (2 pts)

State = ________________________ (1 pt)

Homework 4 Name:
1 Item weighs 25 grams and takes up 35 ml of volume:
2 Item weighs 117 grams and takes up 50 ml of volume:
3 This item floats on water:
4 If all these items were mixed together which one is expected to sink to the bottom:
1 pt:
1 pt_2:
steel and wood I find the temperature of the steel increases to 40C What is the temperature of the:
water and soil I find the temperature of the soil increases to 50C What is the temperature of the:
80 Caloriesgram How much heat must be added to melt 2 grams of ice at 0C and what is the final:
3 pts:
540 Caloriesgram How much heat must be added to turn 3 grams of water at 100C into a vapor and:
undefined:
temperature and state solid liquid or vapor:
Temperature:
Temperature_2:
State:

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oce1001_ch06_homework_weather_map.pdf

Homework #6 Name _________________________ (Total 20 points)

Due to the fact our Earth spins, the Coriolis Effect gives weird responses to wind fields in pressure fields. By now you should be familiar with contour maps. In a previous homework, the contours were constant heights above sea level. Here the contours represent constant pressures (or isobars). The areas denoted by the Capital H represent High Pressure areas and the areas denoted by the capital L represent Low Pressure areas. If our Earth had no spin, the wind field from Albany, NY to Dallas, TX would be almost a straight line since high pressure always wants to flow directly to low pressure. This is not the case on our Earth. Read the section in Chapter 8 related to the Coriolis Effect to determine how winds would move.

Figure 1

For each of the following cities, fill in which direction the winds are blowing (ie. to the North, to the East, etc.) (9 pts).

Seattle, WA _____________________

Bismarck, ND ___________________

Albany, NY ____________________

Dallas, TX ______________________

___________________

You may recall from the previous homework the question about what hill had the steepest slope. To determine this, you simply looked to see which contour lines were closer together. The same idea holds true here. Where you see contour lines closer together, the wind fields are stronger.

From the map above place the 4 cities in order of least windy to most windy (9 pts).

Least windy _________________________

More windy _________________________

Even more windy _____________________

Most windy _________________________

For all low and high pressure systems, what general direction will they travel across the central United States? (2 pts)

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Program Evaluation Plan Proposal

Program Evaluation Plan Proposal –

Review the feedback you received from your instructor over the past 8 weeks. Complete a to determine the revisions you will make to your plan. Revise your plan based on your instructor’s feedback, course readings, and independent research. The final revised Program Evaluation Plan Proposal should be 18 pages long, not including references, title page, appendices, and cover page. The completed plan should include the following sections:
- Cover page
- Executive summary
- Briefly summarize the proposed evaluation
- Program description (Wk 2 Project Program Descriptions assignment)
- Program background and history
- Program size, locations, organization, etc.
- Evaluation needs (What question does the evaluation seek to answer/address?)
- Conceptual framework
- Program goals and outcomes (Wk 3 Program Logic Model assignment)
- Program logic model
- Stakeholders identification
- Stakeholders prioritization
- Program model (Wk 4 Evaluation Model/Approach)
- Evaluation model/approach
- Advantages and disadvantages of model/approach
- Program standards and indicators (Wk 5 Development of Standards and Indicators)
- Indicators used to evaluate program elements
- Indicators aligned to organizations goal/objective(s)
- Roles, responsibilities, and influencers of plan
- Evaluation design (Wk 6 Program Evaluation Design assignment)
- Evaluation purpose
- Evaluation questions and their justifications
- Evaluation plan matrices
- Data collection procedures
- Reporting procedures
- List of measure/instrument drafts (just a list, based on Evaluation Measures assignment)
- Evaluation management plan (Wk 7 Evaluation Management Plan assignment)
- Proposed implementation timetable (Gantt Chart)
- Estimated evaluation budget
- References
- Appendices
- Full copies of measure drafts
- Other, as appropriate
- Format your assignment according to APA guidelines. Cite a minimum of 10 peer-reviewed references.

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criminal discussion

You were recently elected to office as a state trial judge in your local trial court. You have just concluded your first criminal trial and will be sentencing the defendant at an upcoming hearing. As an attorney, you worked exclusively with civil cases, so you are concerned with the sentencing phase of the case, and you want to get this first one right. However, you really do not know where to begin.

Imagine that you are a judge preparing to sentence an offender who was just found guilty at a jury trial on two counts of bank robbery. Address the following questions:

What would you need to know about the defendant to impose a sentence?
What specific information would you need to know about the offense to aid in sentencing?
What are the top 5 factors that you would consider in fashioning a sentence?
What would be 2 aggravating and mitigating factors to consider in this case?

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Discussion Questions

Discussion Question: Must be at least 300 words.

What is the role of the adaptive unconscious and how does it apply to real-world situations?

Discussion Question:Must be at least 300 words.

In your opinion, what makes an effective intervention? Justify your points, providing supportive, research-based, reasoning behind your thoughts.

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Diana Chao speaker on mental health in minorities

Assimilate you are talking to a friend, family member or colleague about the event. How would you describe it? What did you learn?
Write a reflection on the event using the following criteria:
What was the topic? How would you describe the event?
What did you learn about the topic?
What medical terminology was used?
Translate the medical terminology into plain language.
How will you use this knowledge to better understand the subject matter?
Your reflection will need to be a minimum of 500 words in APA format.
Cover page

Body of paper – discussion of chosen topic using medical terminology and plain language

Cited referenecs

APA format – use the writing center and/or library for assistance

Reference page
About Diane Choa …
Diana Chao, an Active Minds national speaker, will be speaking at the April 21 event. Chao is a first-generation Chinese American from Los Angeles, and a 2021 graduate from Princeton University where she studied geosciences, history and diplomacy. Chao was diagnosed with bipolar disorder at 13 and is a suicide attempt survivor as well as a suicide loss survivor.

Chao said that in her darkest moments, she discovered healing through writing. Adopting the motto Writing is humanity distilled into ink, Chao brings the perspective of minority mental health as someone who grew up below the poverty line with parents who didnt speak English. Chao often talks about the impact that even the smallest acts of kindness had on her life and her mental health.

Chao also focuses on in-depth, actionable mental health education that can be used to support oneself and each other.

Dear Stranger, Chaos presentation, includes her personal story with perspectives of minority mental health and the importance of kindness.

Morris said Chaos message fits well with the theme of hope and bringing people together.

I hope individuals take away that even if and when we feel alone, there are people who are here for us, who want to support us, and that there is hope all around us, Morris said.

Active Minds was an integral collaborator in the planning of the art piece and event, Morris said. The executive board and adviser Michael Madonia assisted with the formation of the initial project concept and helped bring structure to Morris vision.

Active Minds were instrumental in helping to work through the initial ideation phase and have been an incredible support from the beginning to help turn my initial idea into a concrete project, Morris said.

Madonia said that Morris reached out to Active Minds in the spirit of collaboration and in an effort to maximally engage students.

Issues of mental health and suicide are at the forefront of student health issues today more than ever, Madonia said. Im pleased that Dr. Morris had the foresight to connect with the student group on campus whose sole purpose is to destigmatize issues of mental health and to openly dialogue about these difficult but important topics.

Madonia also said that the message of hope that the art installation and speaker event attempts to portray is important in the context of mental health, because hope is what keeps people going when things get difficult.

When we lose hope, we become vulnerable to a host of other problems and symptoms, Madonia said.

Gratitude is one way people can find hope.

Extending a kindness, taking inventory and being thankful for the things we have, however seemingly small, is the path to hope, Madonia said. Reaching out to someone else who is in need has a way of putting life in perspective and raising your spirit.

https://youtu.be/xP6AQCbROHQ
https://youtu.be/qDstuXvsJTE
https://www.activeminds.org/speaker/diana-chao/

March 26th, 2022

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Diana Chao speaker on mental health in minorities

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Chao also focuses on in-depth, actionable mental health education that can be used to support oneself and each other.

Dear Stranger, Chaos presentation, includes her personal story with perspectives of minority mental health and the importance of kindness.

Morris said Chaos message fits well with the theme of hope and bringing people together.

I hope individuals take away that even if and when we feel alone, there are people who are here for us, who want to support us, and that there is hope all around us, Morris said.

Madonia said that Morris reached out to Active Minds in the spirit of collaboration and in an effort to maximally engage students.

When we lose hope, we become vulnerable to a host of other problems and symptoms, Madonia said.

Gratitude is one way people can find hope.

https://youtu.be/xP6AQCbROHQ
https://youtu.be/qDstuXvsJTE
https://www.activeminds.org/speaker/diana-chao/

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