Community hospital healthcare system: a strategic management case study.
Choudhary, Amod
CASE DESCRIPTION
The primary subject matter of this case concerns strategic
management of community hospitals in the United States. This case has a
difficulty level of five; appropriate for first year graduate level
students. This case is designed to be taught in four class hours and is
expected to require twenty-four hours of outside preparation for
students. For the graduate student, it should be a half semester long
group project with a presentation and report at the end of the semester.
CASE SYNOPSIS
This case study analyzes the turbulent social, legal and
technological issues that are affecting today's suburban community
hospitals in United States. The soaring health care costs, increasing
number of uninsured or underinsured patients, reduced payments by
government agencies, and increasing number of physician owned ambulatory
care centers are squeezing the lifeline of community hospitals whose
traditional mission has been primary care. Furthermore, with the
enactment of Patient Protection and Affordable Care Act in March 2010,
community hospitals are facing new challenges whose full impact is
unknown. This case study would help students learn about Strategy
Formulation including Vision and Mission Statements, internal and
external analysis, and generating, evaluating & selecting
appropriate strategies for a healthcare organization.
COMMUNITY HOSPITAL HEALTHCARE SYSTEM
With the enactment of Patient Protection and Affordable Care Act in
March 2010 (Health Act), and President Obama's professed goal of
making heath care in the United States more accessible and affordable,
the next few years are sure to be very turbulent in the healthcare
industry. The Health Act is expected to provide healthcare coverage to
95% of Americans, which will include an additional 32 million persons
nationally (New Jersey Hospital Association, 2010). The Health Act goes
into effect in 2010 with many of its requirements not becoming effective
until 2019. Directly because of the enactment of the Health Act,
insurance premiums are expected to increase anywhere from 2% to 9%
depending on who is quoting them (Wall Street Journal, 2010). The Health
Act requires children to remain on their parents' health plans
until age 26, eliminates copayment for preventive care, bars insurers
from denying coverage to children and adults (in 2014) with pre-existing
conditions, eliminates lifetime caps on insurance coverage, and requires
setting up of insurance exchanges in all states (by 2014) through which
individuals, families and small business can buy coverage (Adamy, 2010;
Pear, 2010).
United States spends approximately $2 trillion annually on
healthcare expenses (Underinsured Americans: Cost to you, 2009). This
amount is more than any other industrialized country in the world and
counts for 16% of the U.S. GDP. This percentage is higher than any
developed country in the world (Johnson, 2010). Despite the substantial
healthcare spending, access to employer-sponsored insurance has been on
the decline among low-income workers, and health premiums for workers
have risen 114% in the last decade (Johnson, 2010). Furthermore,
healthcare is the most expensive benefit paid by U.S. employers
(Johnson, 2010). Despite this outlay, approximately 49 million Americans
are uninsured and about 25 million underinsured--those who incur high
out-of-pocket costs, excluding premiums, relative to their income,
despite having coverage all year (Abelson, 2010; Kavilanz, 2009).
Overall, the healthcare industry in America is besieged with high cost,
uneven access and quality (Flier, 2009). The intractable issues of high
cost, uneven access and quality have made everyone unhappy from
patients, hospitals, doctors to employers.
The American healthcare industry is composed of approximately six
major interest groups: hospitals, insurance companies, professional
groups, pharmaceuticals, device makers, and advocates for poor
(Goldhill, 2010) with the Physicians--part of the professional
groups-having the biggest influence on the industry. Although hospitals
constitute only 1 percent of all healthcare establishments--hospitals,
nursing and residential care facilities, offices of physicians &
dentists, home healthcare services, office of other healthcare
practitioners, and ambulatory healthcare centers--they employ 35% of all
healthcare workers (U.S. Department of Labor, 2010).
Community Hospital Healthcare System
Community Hospital Healthcare System is a not-for-profit
organization located in Monmouth County, New Jersey. With its 282 beds
and 2400 employees including 450 physicians, Community Hospital serves
approximately 340,000 residents in four suburban counties of central New
Jersey. The Community Hospital Healthcare System is a holding
corporation made up of (i) Community Hospital Medical Center, (ii)
Applewood Estates, (iii) The Manor, (iv) Monmouth Crossing, (v)
Community Hospital Healthcare Foundation Inc., and (vi) Community
Hospital Healthcare Services, Inc. (a for-profit-corporation).
Community Hospital Medical Center (Community Hospital) is a
general, medical and surgical community hospital offering an array of
primary and secondary services, including: cardiology services, magnetic
resonance imaging (MRI), diabetes services through Novo Nordisk Diabetes
Center, emergency services, endovascular surgery, inpatient psychiatric
services, maternity care (single room) and special care nursery,
oncology, radiation oncology, rehabilitation, short stay unit, Sleep
Disorders Center, Women's Health Center, and dialysis unit.
Community Hospital Medical Center operates a Family Medicine Residency
program in affiliation with the Robert Wood Johnson/UMDNJ Medical
School.
Community Hospital has been selected as one of the best places to
work in New Jersey by NJBiz--a business publication--and landed at 20th
place among 100 best places to work in healthcare by Modern Healthcare
magazine in 2009. The American Nurses Credentialing Center has
re-designated Community Hospital Medical Center a magnet status for
excellence in nursing and patient care in 2010 (Community Hospital
Healthcare System, 2009 Annual Report). Only 6% of hospitals in U.S.
hold Magnet designation and only 3% have earned re-designation one or
more times (Community Hospital Healthcare System, 2009 Annual Report).
Community Hospital is also a designated Primary Stroke Center. Finally,
a nationally recognized firm has ranked Community Hospital among the top
5% of hospitals in the U.S. for patient satisfaction (Community Hospital
Healthcare System, 2009 Annual Report).
Applewood Estates is a continuing care retirement community with
290 apartments, 20 cottages, 40 residential health care units, and 60
bed skilled nursing facility.
The Manor provides nursing services for 123 elderly residential
units including subacute, rehabilitation and intravenous therapy.
Monmouth Crossing provides assisted facility for the elderly
consisting of 76 units. Community Hospital Healthcare Foundation Inc.
seeks and invests funds for the benefit of all components of the
Community Hospital System except for the Community Hospital Healthcare
Services, Inc.
Community Hospital Healthcare Services, Inc. is a for-profit entity
that provides related services or participates in joint ventures of
related services that do not meet criteria for being tax-exempt.
Examples include an ambulatory diagnostic imaging business and a public
fitness club. It also holds certain real estate in support of the
Community Hospital.
Vision--an organization of caring professionals trusted as our
community's healthcare system of choice for clinical excellence.
Mission--to enhance the health and well-being of our communities
through the compassionate delivery of quality healthcare.
Community Hospital's mission and vision is borne out of six
Strategic Imperatives--known as pillars. They are: (i) growth and
development, (ii) community involvement & outreach, (iii) physician
integration, (iv) customer service, (v) high performance and (vi)
renown. According to John Gribbin (personal communication, August 16,
2010), CEO of Community Hospital, use of technology underpins each of
the six strategic imperatives and is used to achieve goals pertaining to
the Strategic Imperatives.
COMMUNITY HOSPITAL DILEMMA
Traditionally community hospitals have defined themselves to be
center of Primary care, i.e., place for general medical and surgical
care. Unfortunately, under the current health care industry practices,
general medical and surgical care which form the core of a community
hospital tend to be less profitable than specialty care--heart, trauma
and, transplant centers. Additionally, while primary care is
increasingly viewed as the long-term solution to U.S. health crisis,
many argue that the Health Act does little to change the economics of
specialty vs. primary care. For community hospitals like Community
Hospital, this is not good news. Community Hospital's mission is
primary care, but it is challenged as to how to develop other services
that which are complementary to its mission of primary care that
effectively subsidize its commitment to primary care.
Based on market share, Community Hospital faces two direct
competitors and other peripheral competitors as it tries to maintain its
position as the community's healthcare system of choice for
clinical excellence and meeting the health delivery needs of residents
in central New Jersey.
Shore University Medical Center (SUMC)
Shore University Medical Center is a 502 bed regional medical
center that specializes as the region's only advanced pediatric
clinical care hospital. SUMC is also a Level II Trauma Center, with an
affiliation with the University of Medicine and Dentistry of New
Jersey--Robert Wood Johnson Medical School. It is located in Neptune, NJ
and competes with Community Hospital in eastern region of Monmouth
County, NJ.
SUMC is part of the three-hospital member Meridian Health Systems.
SUMC has also received the prestigious Magnet award for nursing
excellence three times. It has been designated by J.D. Power and
Associates as a Distinguished Hospital for Inpatient Services (2006) and
received the New Jersey Governor's Award for Performance Excellence
(2005). With their Meridian partner hospitals, SUMC has also received
the following awards: FORTUNE'S "100 Best Companies to Work
For" (2010), Best Places to Work in New Jersey" for five
consecutive years by NJBiz, New Jersey's Outstanding Employer of
the Year in 2003 and 2009, One of the top 100 Most Wired Health Systems
in the United States for 10 consecutive years, and John M. Eisenberg
Award for Patient Safety, one of the highest recognitions in the nation
for hospital quality.
University Hospital (UH)
UH is unique among the three hospitals because of its size and
breadth and depth of medical services provided and specialties offered.
UH is a 610-bed academic medical center and a teaching hospital of
UMDNJ-Robert Wood Johnson Medical School in New Brunswick, NJ. UH
competes with Community Hospital in the northern and western part of
Monmouth County and eastern and northern Middlesex County. Since it is a
teaching hospital, UH provides services and speciality care that
Community Hospital would not be able to provide even it desired to do
so. UH is a Level 1 Trauma Center, with a separate Bristol-Meyers Squibb
Children's Hospital (BMSCH) with research and rehabilitation
facilities. Moreover, UH specializes in cardiac procedures including
heart transplants, has a cancer hospital, offers state of the art
robotic surgery and provides kidney transplant services.
UH is recipient of many awards and recognitions: (i) one of
America's best hospitals according to U.S. News and World report,
(ii) "Hospital of the Year" by NJBiz, (iii) top-ranked cancer
programs, (iii) recognized exceptional U.S. hospitals in quality and
safety, (iv) recipient of Magnet Award for nursing excellence, (v) award
for excellent stroke care by American Heart Association, and (vi) high
patient satisfaction ranking by the patients of BMSCH.
Tables 1 to 5 below provide data that should be used to determine
the competitive advantage/core competencies of Community Hospital. The
tables represent data and ratios about hospital finance (tables 4 &
5), safety and mortality rates (tables 2 & 3), and patient
experience (table 1).
Outlook
The population of Monmouth County, NJ is set to increase from
646,088 to 657,798 from 2009 to 2014. The median age will also increase
from 40 to 41, and per capita income will increase from $40,189 to
$42,166 during the same period (North Carolina Department of Commerce,
2008). The CEO of Community Hospital worries that with each passing day
the continued viability of his hospital becomes difficult. Moreover, he
believes that the Health Act will hurt Community Hospital's bottom
line by about a $1 million per year. However, the CEO believes that
Community Hospital is well positioned to meet its challenges and will
succeed, albeit with hard work, talented employees and some luck.
Federal government through Medicare and Medicaid provides Community
Hospital's revenue of about 45%. Generally, Medicare and Medicaid
payments to hospitals are approximately 20% less than the actual cost
(Arnst, 2010). Remaining revenue of Community Hospital comes mainly from
insured patients. Community Hospital, like most hospitals across the
country receives most revenue from treating complex health care diseases
such as surgeries and procedures that require hospital stay and care.
Ominously for Community Hospital, due to diffusion of health care
technologies, services with most revenues are moving away to private
surgery centers owned by physician groups. Additionally, the enactment
of the Health Act will lead to reduction of approximately $1 million to
Community Hospital's bottom line. The challenge for strategists at
Community Hospital is to provide primary care and charity care (NJ law
requires every hospital to medically stabilize anyone--regardless of
insurance or ability to pay--and treat those patients to the full extent
of services offered by the hospital) in a weakened economy with
increasing charity care expenses and rising bad debt. The strategists
must find new sources of revenue to allow Community Hospital to support
its mission while secure enough funds to meet its commitments to primary
and uncompensated care.
CONCLUSION
Community Hospital is in a challenging environment due to changing
demographics, highly regulated health care industry and having an uneven
playing field compared with physician owned surgery centers. Matter of
fact, one-third of the nation's community hospitals had operating
losses in 2008 (Nussbaum & Tirrell, 2010). Patients with good jobs
and appropriate health insurance are leaving the region, while
physicians are taking high revenue procedures to privately owned surgery
centers. Additionally, with the reduced Medicare and Medicaid
reimbursements and increasing charity care/bad debt cost; Community
Hospital needs to create a new sustainable business model. Please
prepare a strategic plan that will steer Community Hospital through the
turbulent times ahead.
REFERENCES
Abelson, R. (2010). Bills Stalled, Hospitals Fear Rising Unpaid
Care. Retrieved February 9, 2010, from
http://www.nytimes.com/2010/02/09/health/policy/09hospital.html?emc=
eta1&pagewanted
Adamy, J. (2010). Health Insurers Plan Hikes. Retrieved September
7, 2010, from www.wsj.com.
Arnst, C. (2010, January 18). Radical Surgery. Bloomberg
Businessweek, p. 40. Community Hospital Health Care System. 2009, 2008,
2007 Annual Reports. Freehold, NJ.
Flier, J. (2009). Health 'Reform' Gets a Failing Grade.
Retrieved November 17, 2010, from www.wsj.com/.../SB1000142405274870443
Goldhill, D. (2009). How American Health Care Killed My Father.
Retrieved January 20, 2010, from
www.theatlantic.com/doc/print./health-care
Johnson, T. (2010). Healthcare Costs and U.S. Competitiveness.
Retrieved January 31, 2010, from
www.cfr.org/.../healthcare_costs_and_us_co...
Kavilanz, P. (2009). Underinsured Americans: Cost to You.
CNNMoney.com. Retrieved January 31, 2010, from http://CNNMoney.com
North Carolina Department of Commerce. (2010). Monmouth County (NJ)
January 2010. Retrieved January 31, 2010, from
https://edis.commerce.state.nc.us/docs/countyProfile/NJ/34025.pdf
New Jersey Hospital Association. (2010). FAST Reports. Princeton,
NJ.
New Jersey Hospital Association. (2010). Memorandum to Chief
Executive Officers. Princeton, NJ.
Nussbaum, A., & Tirrell, M. (2010). Health Reform is Dead.
Let's go Shopping. Bloomberg Businessweek, p.49.
Pear, R. (2010). Health Plan Won't Fuel Big Spending, Report
Says. Retrieved September 9, 2010, from
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New Jersey Department of Health and Senior Services. (2010).
Hospital Performance Report. Retrieved August 13, 2010, from
http://web.doh.state.nj.us/./scores.aspx?list.
U.S. Department of Labor, Bureau of Labor Statistics. Career Guide
to Industries: 2010-2011 Edition. Retrieved January 31, 2010, from
http://www.bls.gov
Wall Street Journal (2010). Sebelius has a List. Retrieved
September 13, 2010, from www.wsj.com
Amod Choudhary, City University of New York, Lehman College
Table 1: Hospital Experience Survey (%)
CMC SUMC UH NJ Avg.
Patients who reported that their nurses 74 75 73 72
"Always" communicated well.
Patients who reported that their doctors 78 75 76 76
"Always" communicated well.
Patients who reported that they "Always" 60 59 59 56
received help as soon as they wanted.
Patients who reported that their pain 69 69 67 66
was "Always" well controlled.
Patients who reported that staff 59 57 58 55
"Always" explained about medicines
before giving it to them.
Patients who reported that their room 64 62 64 66
and bathroom were "Always" clean.
Patients who reported that the area 48 49 49 50
around their room was "Always" quiet at
night.
Patients at each hospital who reported 77 76 81 77
that YES, they were given information
about what to do during their recovery
at home.
Patients who gave their hospital a 68 62 66 60
rating of 9 or 10 on a scale from 0
(lowest) to 10 (highest).
Patients who reported YES, they would 69 68 74 64
definitely recommend the hospital.
This table provides data from a survey that asks patients about
their experience during a recent hospital stay.
http://www.hospitalcompare.hhs.gov/ August 11, 2010.
Table 2: Hospital Mortality Rates Outcomes of Care Measures
CMC SUMC UH
Death Rate for No different No different No different
Heart Attack than U.S. than U.S. than U.S.
Patients National Rate National Rate National Rate
Death Rate for Better than Better than No different
Heart Failure U.S. National U.S. National than U.S.
Patients Rate Rate National Rate
Death Rate for No different No different No different
Pneumonia than U.S. than U.S. than U.S.
Patients National rate National Rate National Rate
Rate of No different No different No different
Readmission for than U.S. than U.S. than U.S.
Heart Attack National rate National Rate National Rate
Patients
Rate of Worse than U.S. No different No different
Readmission for National Rate than U.S. than U.S.
Heart Failure National Rate National rate
Patients
Rate of Worse than U.S. No different Worse than U.S.
Readmission for National Rate than U.S. National Rate
Pneumonia National Rate
Patients
This table measures the hospital mortality rates for the three
hospitals and compares those results with U.S. National Mortality
Rates. http://www.hospitalcompare.hhs.gov/ August 11, 2010.
Table 3: Recommended Care-Process of Care: Hospital Overall Scores
(%--higher score is better)
CMC SUMC UH
Heart Attack Overall Score 96 99 98
Pneumonia Overall Score 93 96 83
Surgical Care Improvement Overall Score 90 97 95
Heart Failure Overall Score 89 97 91
Top 10% of Top 50% of
Hospitals Hospitals
scored equal scored equal
to or higher to or higher
than than
Heart Attack Overall Score 100 97
Pneumonia Overall Score 99 96
Surgical Care Improvement Overall Score 98 95
Heart Failure Overall Score 100 96
This table compares Heart Attack, Pneumonia, Surgical Care and Heart
Failure Care among the three Hospitals and other hospitals in State
of NJ. New Jersey Department of Health and Senior Services,
Web.doh.nj.us/.../scores.aspx?list ..., downloaded August 13, 2010
Table 4: Ratios and Indicators
CMC SUMC UH
Average Length of Stay (days) 3.6 4.6 5.0
Medicare Average Length of Stay (days) 4.7 5.7 6.5
Occupancy Rate for Maintained Beds (%) 78.8 77.7 82.1
Operating Margin Ratio (%) 2.4 2.9 0.1
Total Margin Ratio (%) 8.7 9.3 8.6
Current Ratio 3.97 2.23 1.51
Modified Days Cash on Hand Ratio 241.6 194.4 250.2
Net Patient Service Revenue 6,206 7,287 8,653
Total Expenses per Adjusted Admission 6,286 7,405 8,783
Charity Care Charges as percentage of 4.0 4.4 5.0
total Gross Charges
Provision for Bad Debt as Percentage 1.9 4.3 5.0
of Net Patient Service Revenue
This table provides ratios for Utilization, Financial Health and
Operational Performance for three hospitals. FAST Reports, New
Jersey Hospital Association.
Table 5: Key Statistics for Community Hospital
2007 2008 2009
Beds 271 276 282
Births 2,026 1,869 1,749
Emergency Department Visits 60,344 60,828 64,460
Family Medicine Center 18,424 20,046 19,482
Visits
Health Promotion Visits 53,291 51,072 50,880
Patient days (including 83,968 82,533 76,635
same-day surgeries)
Physical/Occupational 92,911 106,856 122,871
Therapy Treatments
Radiology/Imaging 125,117 130,108 127,913
Procedures
Surgeries 15,092 14,033 13,309
Employees 1,664 1,743 1,770
Uncompensated Healthcare 10,537,747 10,885,754 10,390
Bad Debt 2,750,418 2,930,189 3,561,270
Senior Living Communities 90.5 91.4 89.3
Occupancy Rates (avg. in %)
This table provides key statistics for Community Hospital for past
three years. 2007-2009 Community Hospital Healthcare System Annual
Reports.
