Case study Questions
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IN T R O D U C T I O N This comprehensive case study serves as a basis for the exercises included throughout the book.
Coastal Medical Center (CMC) is a licensed, 450-bed regional referral hospital providing a full range of services. The primary service area is a coastal city and three coun- ties, with a total population greater than 995,000, located in the Sunbelt. This tricounty area has had one of the fastest population growth rates in the country for the past five years. According to the local health planning council, the tricounty population is projected to increase by 15 percent from 2015 to 2020. Appendix A, at the end of this case study, provides detailed population statistics for the city and tricounty area.
The population growth rate for households (families) has been 1 to 2 percentage points higher than the overall population growth. The growth rate of the population under age 44 shows a young and growing community. Per capita (i.e., per person) income in the tricounty area is high and increasing. As the population of the tricounty area increases, the need for healthcare services is anticipated to increase. The area’s economy is largely supported by manufacturing, with service companies and agriculture accounting for another 35 percent. Unemployment is typically 6 percent. The overall poverty rate is 12.4 percent. A recent study revealed that 40,000 city residents are below 125 percent of the established federal poverty level.
HE A LT H C A R E CO S T S Healthcare costs in the region are high in comparison to healthcare costs in most other areas in the state. In response to what they feel are excessively high healthcare costs, county
C O A S TA L M E D I C A L C E N T E R C O M P R E H E N S I V E C A S E S T U D Y
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businesses recently formed a business coalition, hired a full-time executive, and publicly stated their intent to achieve reduction in healthcare costs. The local press has expressed its concern about the high cost of healthcare in the local community and consistently bashes the area’s hospitals and physicians. The coalition refused to allow the three major medical centers in the area to join, despite the fact that each is a major employer.
TH E CO M P E T I T I O N CMC has two major competitors. Johnson Medical Center (JMC) is the larger of a two- hospital for-profit healthcare system, and Lutheran Medical Center (LMC) is the larger of a two-hospital, faith-based not-for-profit healthcare system.
JMC is located less than two miles from CMC and is a 430-bed tertiary care facility. JMC owns four nursing homes, two assisted living facilities, a durable medical equipment company, a wellness center, an ambulance service, and an industrial medicine business. These facilities are located in the tricounty area and are within a 30-minute drive of the main CMC facility. JMC’s parent company, Johnson Health System, also owns one small hospital in the region.
JMC has 1,920 full-time equivalents (FTEs), which translates to 5.2 FTEs per adjusted occupied bed. JMC recently used a consultant to reduce its FTEs, flatten its structure, broaden its control, and improve its operations in general.
JMC has been averaging an occupancy rate of 74 percent. Outpatient revenues are 40 percent of total revenues and have grown about 6 percent per year for the past two years. JMC had a bottom line (i.e., net income) of $15 million last year. Bottom lines for the two previous years were $11 million and $14 million. Profit margins have exceeded 5 percent for the past three years. In essence, JMC is a major strong competitor for CMC. The organization is reported to have a “war chest” of reserves exceeding $70 million.
LMC is a 310-bed acute care hospital located outside the city limits but within the tricounty area. It does not offer tertiary, intensive services to the extent that CMC and JMC do, but it is a highly regarded general hospital that enjoys an occupancy rate of 75 percent. It is especially strong in obstetrics, pediatrics, general medicine, and ambulatory care. It attracts well-insured patients from the affluent suburban area.
LMC has 1,180 FTEs and typically operates at 6.1 FTEs per adjusted occupied bed. LMC provides a great deal of indigent care and, in accordance with the philosophy of the church, its budgets are set to generate only a 2 percent annual profit margin.
HI G H L I G H T S O F CO A S TA L ME D I C A L CE N T E R As a referral center, CMC offers almost every level of care, including a number of tertiary care services, with the exception of neonatology and severe burn–unit services. Many of its patients require high-intensity services. For this reason, its costs are the second highest
Full-time equivalent
(FTE)
Total number of full-
time and part-time
employees, which
is expressed as an
equivalent number of
full-time employees.
Adjusted occupied bed
Number of inpatient
occupied beds,
adjusted (increased)
to account for the bed
occupancy attributed
to outpatient services,
partial hospitalization,
and home services.
Profit margin
Difference between
how much money the
hospital brings in and
how much it spends.
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in the entire state. The average length of stay of a patient at CMC is 9.2 days, compared to a statewide average of 6.4 days at hospitals of similar size and services. This difference is probably attributable to the intensity of services CMC offers. CMC’s expenses per patient day are also the highest in the state, with the exception of two large university-affiliated teaching medical centers. Its FTEs per adjusted occupied bed (7.5), paid hours per adjusted patient day (35.2), and paid hours per patient discharge (238.5) all greatly exceed those of competitors and the norms of comparable facilities. CMC is currently authorized for 2,240 positions but actually employs 2,259 FTEs. Salary expenses per adjusted discharge and adjusted patient day are $2,760 and $491, respectively.
A recent one-year market share analysis for the broader eight-county region revealed the data presented in Exhibit Case.1.
CMC has market advantage in substance abuse, psychiatrics, pediatrics, and obstet- rics. JMC has market advantage in adult medical and surgical care. At a recent administrative meeting, the following CMC utilization figures for the year were reviewed:
◆ Admissions are down 14 percent.
◆ Medicaid admissions are up 11 percent.
◆ Ambulatory care visits are down 10 percent.
◆ Surgical admissions are down 6.7 percent.
A recent auditor’s report included the following notes:
◆ A significant adjustment was required at year-end to correctly reflect contractual allowance expense (i.e., the amount of money spent in hiring
EXHIBIT CASE.1 One-Year Market Share Analysis Facility Discharges Percentage of Total
CMC 7,819 18
JMC 8,989 21
LMC 6,820 16
All others 19,546 45
Total 43,174 100
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outside contractors). The data used at the beginning of the year to estimate contractual allowance expense were grossly inaccurate.
◆ Insurers were not billed for services by certain hospital-based employed specialists ($7 million for the past year) as a result of neglect on the part of the hospital billing staff.
◆ A total of $1.7 million in Medicaid reimbursement was not authorized. No follow-ups were done, and no claims were resubmitted.
HI S T O R I C A L PE R S P E C T I V E CMC was founded just after World War II using a Hill-Burton grant (see Highlight Case.1) and funds raised locally. From a modest beginning with 100 beds and a limited range of acute care service offerings, the medical center has grown to its present size of 450 beds and now offers a full range of services. Credit for the major growth and past success of CMC has been given to Don Wilson, who served as chief executive officer (CEO) from 1990 until his retirement in early 2012. Mr. Wilson was a visionary and successfully transformed the medical center to its present status as a tertiary care facility offering high-intensity care, including open-heart surgery and liver and kidney transplantation.
HIGHLIGHT CASE.1 Hill-Burton Act
In the mid-1940s, many hospitals in the United States were becoming obsolete because
they did not have money to invest in their facilities after the Great Depression and World
War II. To combat this lack of capital and help states meet the healthcare needs of their
populations, Senators Lister Hill and Harold Burton proposed the Hospital Survey and
Construction Act, also known as the Hill-Burton Act. This act provided federal grant
money to build or modernize healthcare facilities. In exchange, hospitals receiving the
grant were obligated to provide uncompensated (free) care to those who needed care
but could not pay for it.
The Hill-Burton Act expired in 1974, but in 1975 Congress passed Title XVI of the
Public Health Service Act. Title XVI continues the Hill-Burton program by providing fed-
eral grant money for healthcare facility construction and renovation but more clearly
defines the requirements for the facilities. For example, facilities receiving grant money
must prove they are providing a certain amount of uncompensated care to populations
that meet particular eligibility requirements.
*
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Mr. Wilson’s successor was Ron Henderson. For three years, Mr. Henderson practiced a loose, informal style of management. He seemed to sit back and enjoy himself while others ran the medical center. He was often characterized as a caretaker. The medical center made $52.5 million in 2012 following Mr. Wilson’s retirement (the result of an excellent revenue stream and a strong balance sheet), so Mr. Henderson was not pressed to make major changes. He encouraged the board of trustees, the medical staff, and his administrative staff to submit new ideas for improving community healthcare services using CMC as the focal point for delivery. An avalanche of ideas was submitted during the first two years of Mr. Henderson’s tenure. He moved quickly on these ideas and established himself as a person who made swift decisions on new ventures and kept things rolling. He simply let other executives “do their thing” and neither discouraged nor evaluated their work. His strategy was apparently rapid growth and diversity in new businesses. He made major fund commitments to new ideas but did little to evaluate the compatibility of those ideas with CMC’s mission and its strategic direction, and he usually did not consider the financial implications of these ventures. His approach was simply “let’s do it.”
Before 2012, CMC was in excellent financial shape and faced few financial problems. By 2015, expenses began to skyrocket while utilization and revenues failed to keep pace. In addition, a hospital census indicated that, on average, 58 percent of CMC’s patients were Medicare patients and 18 percent were Medicaid patients. As a result, the medical center suffered from reductions in reimbursement. Notable among CMC’s excessive costs were labor, material, and purchased services. The chief financial officer (CFO) was convinced that a major part of this problem was the presence of three unions, including unionized employees in support services and unionized nursing services. Added to this cost burden was the more than $5 million being transferred to subsidize other CMC subsidiary companies.
During the second year of his tenure, Mr. Henderson began to receive criticism from the board of trustees. He had added 127 new positions despite solid evidence that utiliza- tion was experiencing a steep decline. His reasoning was that the declines were temporary and that business would soon be back to normal.
In 2015, the medical center suffered a net loss of $16 million (see Appendix B). Surprised by this major loss, the board of trustees fired Mr. Henderson. They contended that he should have informed them of these serious problems. They felt that a better strategic planning process should have been in place for the selection of projects, on which millions of dollars had been spent. The board of trustees could not understand how overall corporate net income could drop to a loss of $16 million when $7.3 million in profit had been made the previous year.
BO A R D O F TR U S T E E S CMC’s governing board has 27 members. All of its trustees are prominent, influential, and generally wealthy members of the community. The board is self-perpetuating, meaning its members have continued their positions beyond the normal limits without any external intervention. The same chair has served for ten years. Average tenure on the board is 17 years. Committees of the board are detailed in Exhibit Case.2.
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One physician-at-large is included on the board. The chief of staff and the CEO attend all board meetings but are not allowed to vote on board decisions. There are no minority members despite the fact that racial minorities account for 12 percent of the service area population. Only one of the 27 members of the board is a woman. The average age of the trustees is 66.
PA R E N T CO R P O R AT I O N The parent corporation of CMC is Coastal Healthcare Incorporated. A parent board was created through corporate restructuring several years ago, but its role has never been clear. This board is made up of friends of the most powerful trustees of the CMC board. In essence, when corporate restructuring was the “in” thing to do, this holding company was formed. By appointing a few CMC trustees to also sit on the parent board and by appoint- ing friends of present CMC trustees, it was believed the two boards would function as one
EXHIBIT CASE.2 Committees of the
Coastal Medical Center Board
Committee Size Meeting Frequency
Ambulatory care 11 Monthly
Audit 9 Quarterly
Budget 18 Quarterly
Construction 13 Monthly
Executive 16 Monthly
Executive compensation 9 Annually
Finance 13 Monthly
Joint conference 24 Monthly
Material and equipment 11 Monthly
Patient care 11 Monthly
Personnel 11 Monthly
Public relations 9 Monthly
Quality assurance 9 Monthly
Strategic planning 16 Monthly
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happy family. However, there has been constant conflict from the beginning regarding the relative powers and roles of the two boards.
The parent board has 19 members, all of whom are white and male. The backgrounds of the parent board trustees mirror those of the CMC trustees in that they are prominent and mostly wealthy. Membership includes bankers, attorneys, business executives, business owners, developers, and prominent retired people.
Committees of the Coastal Healthcare Inc. (parent) board are detailed in Exhibit Case.3.
The following are some of the conflicts that have occurred between these two boards over the years:
◆ The parent board refused to approve the appointment of a new hospital CEO selected by the CMC board.
◆ In 2013, the two boards hired separate consultants to develop a long-range strategic plan. Two plans were produced but were never integrated and never really implemented.
◆ Committees from the parent board often request information about functions of the medical center, creating conflict because the parent board has a tendency to micromanage CMC’s routine operations.
◆ Separate committees of both boards spent more than two years trying to revise CMC’s mission statement.
ME D I C A L STA F F The medical staff at CMC has historically had difficulty cooperating with the board and administration. Patient length of stay is excessively high in most specialties, yet the physicians refuse to be educated on reimbursement and the need to reduce length of stay, excessive
EXHIBIT CASE.3 Committees of the Coastal Healthcare Inc. (Parent) Board
Committee Size Meeting Frequency
Executive 11 Monthly
Finance 11 Monthly
Strategic planning 11 Quarterly
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tests, and so on. Approximately 90 percent of the medical staff also has privileges at one or more competing hospitals in town. Further, medical staff members have set up their own diagnostic services, especially the radiologists and neurologists, despite the fact that they were granted exclusive service contracts at CMC.
In recent years, the specialists, who represent the majority of the medical staff, have been increasingly dissatisfied. They complain that their referrals are decreasing or remaining flat and that CMC is not doing enough to help them establish and maintain a sufficient number. Hospital admissions for specialty services are declining drastically. To compound the problem, the competing medical centers are courting these specialists aggressively with attractive offers, such as priority scheduling in surgery and other special arrangements, all of which are legal.
The medical staff also rated various aspects of medical center operations as unsat- isfactory in a recent survey. The subjects of their complaints ran the gamut and included the following:
◆ Nursing services, and especially the nurses’ attitudes, are not satisfactory. Nurses have formed themselves into shared governance councils and are taking issue with both physicians and administration regarding their autonomy.
◆ Excessive delays exist in every aspect of operations. Surgical procedures start late, supplies or equipment are lacking when needed, and processes for admitting patients take too long.
◆ CMC’s recent Hospital Consumer Assessment of Healthcare Providers and Systems (HCAHPS) scores confirm doctors’ perception, with satisfaction with nurses’ communication rated only 74 percent (Appendix C). Patient satisfaction with physicians’ communication was even lower at 72 percent.
◆ Medical staff members think they should have more voice in both financial and operational matters, especially in capital budgeting. They believe they are asked to provide free services too frequently (e.g., by committees), and many have refused to serve without compensation to offset the practice income they have lost.
There are also quality problems. Two physicians should probably have their privileges revoked, three apparently have substance abuse problems, and several have not kept up with current practices and should be asked to retire. Persuading physicians to hold elected offices and accept committee responsibility has also been difficult. Payment of honoraria has helped, but few are still willing to serve. More than $200,000 has already been paid out to entice doctors to serve on committees.
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SU B S I D I A RY CO M PA N I E S Including CMC, Coastal Healthcare Inc. comprises 24 subsidiary corporations:
◆ Medical Enterprises is a for-profit joint venture with physicians. The company is developing computers that enhance imaging services. Thus far, CMC has invested $18 million in this company. No cash flow is expected for three to four years.
◆ Three nursing homes. These long-term care facilities are collectively losing almost $1 million annually. Debt service on two of them is very high. Only one is within patient transfer distance of CMC. The second is 70 miles away, and the third is 82 miles away. All three have unions. Almost all of the residents of the two facilities losing the greatest amount are Medicaid patients; there are only a few self-pay patients.
◆ CMC Management Services was formed to sell management and consulting services. The company lost $360,000 last year, which was its third year of operation.
◆ Regional Neuroimaging is a joint venture with physicians. The company lost $920,000 in its first year of operation. Capital invested by the hospital to date totals $9 million.
◆ American Ambulance is a local ambulance company. Financially, it just breaks even, but it does increase admissions to CMC, especially through trauma pickups.
◆ Home Health Inc. provides home health care services in an eight-county area. Its operating loss last year was $290,000. The company has considerable difficulty attracting and retaining professional personnel, especially nurses and physical therapists.
◆ Industrial Services Inc. provides health services to industrial companies throughout the state. Only one of the six operating locations is close enough to CMC to generate referrals. None of the operating sites is making a profit, though the company is five years old.
◆ MRI Enterprises is a successful mobile magnetic resonance imaging joint venture with a physician group. It has a consistently positive bottom line.
◆ Textile Enterprises is a large, high-tech laundry completed three years ago. It was intended to serve the medical center and many other companies in the region. Because of its debt service, union wages, and remote location, the
Debt service
Cash required over a
given period for the
repayment of interest
and principal on a debt.
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laundry has yet to break even. After three years, it still does not have its first non-CMC service contract.
◆ Caroleen Hospital (60 beds), Grant Hospital (74 beds), and Ellenboro Hospital (90 beds) are all small, rural hospitals purchased to feed patients to CMC. All are unprofitable. Collectively, the three require $2.5 million in subsidies annually.
◆ HMO Care is a health maintenance organization joint venture with 20,000 subscribers. After three years of operation, its costs are still rising. Last year, it required $2 million in subsidies.
◆ Northeast Clinic is a large multispecialty group of 11 physicians who were fed up with government red tape and sold out to CMC last year. CMC now employs these physicians and is responsible for all medical group operations. It is too early to determine whether this venture will succeed.
◆ Imaging Venture is a recently formed radiology joint venture. Until it becomes successful—if it does—it will cost just under $1 million in debt service annually.
◆ North Rehabilitation, a 60-bed inpatient rehabilitation facility, was just opened. It is expected to succeed because CMC will refer all of its rehabilitation patients here, and there is no other rehabilitation facility in the region.
◆ Center for Pain has been a successful outpatient facility and is expected to remain successful. Its space is leased, overhead is kept low, and the physicians are salaried.
◆ Coastal Wellness, a fitness and wellness center, was developed five years ago at a cost of $10 million. It is located in a coastal community and is intended to attract those from wealthy areas. A significant number of CMC employees and their family members use Coastal Wellness at a lower monthly rate, with the rest subsidized by CMC. Coastal Wellness is currently underutilized, so CMC subsidizes it with $220,000 annually.
◆ Central Billing was formed to attract patient billing contracts from health facilities and physician groups. It has been moderately successful and reached the break-even point this past year.
◆ City Contractors, a separate, small general contracting company, was just formed. It will require about $200,000 annually in subsidy.
◆ Bay Enterprises is a land acquisition and holding company.
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EX E C U T I V E S A N D MI D D L E MA N A G E M E N T CMC employs 20 executives (defined as positions above the administrative director level). Total annual executive compensation is $6.2 million. Each executive has an executive secretary whose average compensation is $35,000, which amounts to an executive-level support cost of $700,000.
Each of the other 23 subsidiary companies employs executives and executive support personnel in addition to regular employees. This executive overhead is a drain on CMC because many of the subsidiary companies do not break even and thus must be subsidized.
CMC employs 15 administrative directors, who function in the hierarchy between department vice presidents and department directors. Their principal purpose is to handle problems at the department level so that these problems do not escalate to the department vice president.
There are 67 director-level positions in the organization. Directors are responsible for a particular department or function. Managers are the next level down the line of supervision. There are 31 managers. Collectively, these managers have 68 supervisors working for them.
The compensation and benefits policy of CMC deviates substantially from industry norms in terms of range. For example, the directors’ annual salaries range from $85,000 to more than $170,000. Annual salaries for directors in the United States typically fall between $115,000 and $140,000.1
CO R P O R AT E STA F F Coastal Healthcare Inc. consists of the following offices:
◆ Office of the CEO, who has five assistants to the president (i.e., administration, board, ethics, community, and staff assistants)
◆ Office of the senior vice president for finance (three people)
◆ Office of the senior vice president for corporate affairs (four people)
◆ Office of the senior vice president for corporate development (three people)
◆ Office of the vice president for legal affairs (five people)
◆ Office of the vice president for medical affairs (two people)
◆ Office of the vice president for marketing (two people)
◆ Office of the vice president for strategic planning (two people)
These corporate staff members serve as advisers and coordinators; oversee their functional areas at CMC; and, where needed, oversee the various subsidiary companies.
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The parent company corporate staff comprises 26 total FTEs. The total costs of cor- porate overhead are $2.3 million annually. In addition, during the past year, the corporate officers purchased the consulting services listed in Exhibit Case.4.
DU P L I C AT I O N O F FU N C T I O N S Throughout CMC, functions have been duplicated as the organization has grown. For example, there are three education departments and three transportation departments. There is both an inpatient and an outpatient pharmacy, each with its own director. CMC and 12 of the larger subsidiary companies have separate human resources management functions.
There are 24 boards, one for each subsidiary company, and each board has a large number of committees. Executives from CMC and the parent corporation sit on these boards and their committees.
SE R V I C E A N D PR O F E S S I O N A L CO N T R A C T S CMC contracts with many service providers. Service contracts include housekeeping, food service, record transcription, biomedical maintenance, security, and many others. These contracts are renewed regularly with the same firms. CMC also contracts with countless health professionals. For example, CMC contracts with two physicians to cover CMC’s pediatrics clinic at an annual cost of $380,000, and CMC furnishes the facilities as well as
EXHIBIT CASE.4 Consulting
Services Purchased by the Parent Corporation
Consultant Purpose Cost Conduct board retreat $35,000
Prepare restructuring recommendations $65,000
Write organization history $60,000
Provide policy advice $25,000
Lobby $50,000
Undertake compensation $72,000 (wage/salary) study
Conduct labor negotiations $120,000
Advise on management development $90,000
Conduct managed care study $47,000
Total $564,000
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professional and support personnel. Numerous physicians have negotiated arrangements through which they regularly receive checks for committee service, advice, and so on. Many of these negotiations are not documented in written contracts.
The hospital-based specialists’ contracts are based on a percentage of gross earn- ings, with no provision for any type of adjustments to the gross amount. Several of these arrangements are long-standing but not documented in writing.
MAT E R I A L S MA N A G E M E N T CMC is organized traditionally, meaning there is no centralized materials management function. Purchasing is done throughout the organization from a large number of vendors. The pharmacy, laboratory, and other services do their own ordering, arrange contracts, and handle other supply and equipment matters. For example, the laboratory recently purchased a large computer software package without the knowledge of the purchasing agent or the information services department.
Large stores of inventory can be found throughout the facility. CMC also owns excessive and obsolete equipment. Central storage occupies a huge amount of space and carries what appears to be an overabundance of many items.
SP E C I A L PR O J E C T S Fifty-three “special projects” at various stages of progress are under way at CMC, ranging from the addition of a new education center to renovation of the food service department. A large number of start-ups are also under development. For example, CMC is considering a joint venture with physicians to build an ambulatory surgery center offering the latest robotic surgery technology. Analysis of the projected costs of these projects, and of the working capital many of them will need before they become profitable (if they ever do), has revealed that the organization will suffer severe financial distress if these projects continue. Moreover, the financial feasibility of many of them is uncertain. Finally, these projects have not been centrally coordinated, nor has their potential impact on the organization’s mis- sion and strategic direction been discussed. These projects were simply developed on the basis of individual interests of various executives and managers. By his inaction and lack of leadership, Mr. Henderson gave everyone free rein to do their own thing—and they did.
NE W CEO CMC hired an executive search firm specializing in healthcare to look for a new CEO. After a nationwide search, the board of trustees decided to hire Richard Reynolds. Mr. Reynolds appeared to be a no-nonsense CEO who had the knowledge and skills needed to determine the problems at CMC and resolve them. During his first few weeks in the new position, he did an exhaustive analysis of CMC with the assistance of a transition consultant and the executives and managers of the organization. The following list highlights his findings:
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◆ Compared to national personnel standards, many of the departments at CMC are grossly overstaffed. More than 100 new positions were added during the most recent fiscal year, despite the fact that utilization did not justify these positions. The overall administrative structure is top-heavy.
◆ CMC has 58 general contracts, many of which are standing contracts with consultants who appear to be receiving large monthly retainers but are not providing services. In addition, CMC has 121 contracts with physicians. Again, these physicians appear to be providing few services. The previous CEO apparently made numerous agreements to subsidize various physicians and pay them large sums for performing administrative services that are normally done on a voluntary basis by members of the medical staff.
◆ CMC has 53 major new service projects in the planning or construction phase. The analysis indicated they will require more than $100 million in future commitments, and Mr. Reynolds is not sure that CMC will be able to service the necessary debt. No project priorities exist and no feasibility studies have been done for most of the projects, so there is no way to forecast the financial impact of these “innovative ideas” on the organization.
◆ CMC has a large number of duplicate departments. Mr. Reynolds pinpointed many departments and services that could be consolidated.
◆ CMC has 66 “special” programs, collectively accounting for a $6 million outflow of cash. These programs are not directly related to CMC’s tertiary care mission. CMC seems to have developed every type of program conceivable, from one end of the care continuum to the other, without considering whether the programs support its mission or generate a positive cash flow.
◆ In materials management, Mr. Reynolds found nearly $8 million in “unofficial” inventory stored throughout various facilities of the medical center and a declining inventory turnover rate of 42 percent. There is no centralized materials management system for the purchasing, storage, distribution, and accountability of materials.
◆ While the median operating margin for medical centers of similar size and service was about 2.5 percent during the past year, CMC experienced a multimillion-dollar loss and a –13.6 percent operating margin. In addition, the medical center’s return on equity was a major problem. The number of days accounts receivable in other medical centers averaged 48 days during the past year; CMC’s days accounts receivable were far greater at 58 days. Most alarming, CMC’s cash on hand at any given time represented only 17.2 operating days. Finally, the hospital’s major bond issue has been recently
Days accounts
receivable
Average number of
days an organization
takes to collect
payments on goods
sold and services
provided, calculated
as follows: Average
accounts payable (in
dollars)×365 (days per year)÷Sales revenue.
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 e
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downgraded to the lowest credit rating, and the age of CMC’s physical plant is 13 years, which is older than the average not-for-profit facility age of 11 years and the average for-profit facility of 7 years. (Days accounts receivable is the average number of days it takes to collect payments that clients owe to the organization The “normal” range is 40 to 50 days. A number significantly greater than 50 indicates the organization is having difficulty collecting payments from its clients; a number significantly lower than 40 indicates that the organization has overly strict credit policies that might be preventing it from taking in higher sales revenue.)
◆ Medicare has just notified the CFO that recovery of $4 million is forthcoming as a result of past errors in the Medicare cost report.
◆ The business coalition is becoming well established and intends to aggressively pursue discounted services through direct contracting.
◆ Coastal Healthcare Inc. is neither structured nor functions as a local healthcare system. Clinical services and administrative support are not integrated. For this reason, Coastal Healthcare Inc. does not meet the classic definition of a healthcare system provider.
◆ Nationally, capitation payment arrangements have not been successful for many hospitals. CMC is not in a favorable position to become an accountable care organization. To become an accountable health plan, CMC would have to partner with primary care and specialty physicians to meet the total healthcare needs of a defined patient population.
◆ No value-oriented efforts (e.g., continuous quality improvement, benchmarking) have been initiated at CMC.
◆ No leadership development is available for the board of trustees, medical staff, and administration.
◆ No formal strategic planning process is in place at either the CMC or the Coastal Healthcare Inc. level.
◆ No physician–hospital organizational arrangements exist.
GE N E R A L CO N D I T I O N S Mr. Reynolds quickly learned that he had taken a position in an organization with a govern- ing board that is generally content to approve anything the CEO recommends. The medical staff appears no better in that they were principally focused on their own self-interest and show little interest in the affairs of the medical center.
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Control systems are lacking, and CMC does not have a comprehensive information system. Moreover, the quality of care appears low, and a large number of legal cases against the medical center are pending. With respect to materials management, several suppliers have refused to deliver supplies because of delays in accounts payable.
Mr. Reynolds summed up the medical center’s situation to the board by reporting that there is an immediate cash flow problem, people-related expenses are far too high, material-related expenses are well above those expected, plant-related expenses are excessive, contract amounts are excessive, and accounts receivable are too high. He also remarked that CMC seems to have no sense of direction or overall corporate strategy.
With the help of his transition consultant, Mr. Reynolds surveyed and interviewed his department heads. Given the financial situation and the results of the survey, Mr. Reynolds knows he faces a difficult challenge.
Mr. Reynolds concluded that the prior CEO had followed the one-man rule con- cept and had failed to build necessary knowledge and management skills among the vice presidents. Thus, when difficulties occurred in the organization, inertia set in. The reactions of his executives and managers are characterized by indecisiveness and unwillingness to take risks for fear of compromising their job security. In addition, he found an excessive number of administrative positions.
An examination of CMC’s balance sheet (see Appendix D), financial ratios (Appen- dix E), and structure led Mr. Reynolds to conclude that the corporation is overexpanded, overleveraged, and overdependent on a narrow market. The organization is too expensive to operate, bloated with bureaucracy, inefficient in its services, and unimaginative in its approach to strategic planning and change.
From his discussion with the leadership team and other hospital staff, Mr. Reyn- olds believed CMC’s leaders are considerably dissatisfied. To confirm his beliefs, he had the transition consultant administer a brief leadership survey, which included detailed questions about corporate culture and job satisfaction (Appendix F). Mr. Reynolds has decided to do a similar survey of all hospital staff within the next six months to obtain more baseline data on the organization’s corporate culture and its ability to deal with the changes he knows are coming.
NE W BU S I N E S S IN I T I AT I V E S To expand its physician staff, CMC has constructed a hospital-owned medical office building in a growing community five miles from the hospital. This effort has been successful and has attracted a prominent group of orthopedic physicians who now refer their surgical procedures to the hospital. As part of this expansion, and because the orthopedic workload has grown, CMC is exploring the financial feasibility of opening a physical therapy clinic at this new location. On the basis of current physician referral patterns, CMC anticipates $250,000 in outpatient physical therapy net income at the new location during the upcoming 12 months.
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 e
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VA L U E-BA S E D PU R C H A S I N G Medicare value-based purchasing is a combined effect of efficiency and quality metrics. Value-based performance metrics have been identified at CMC in areas such as clinical processes; patient satisfaction; outcomes; readmission rates for heart attack, heart failure, pneumonia, chronic obstructive pulmonary disease, and hip or knee surgery; and hospital- acquired infections and conditions (Appendix G). The fact that CMC has a negative payment adjustment following each of these value-based purchasing metrics reflects the percentage reduction in Medicare reimbursement for the most current year.
IN PAT I E N T DATA A N D CA S E-MI X IN D E X CMC had a case-mix index of 1.666 in 2015 (Appendix H). This index, which reflects the level of complexity for inpatient services, declined significantly since 2012, when it was 1.729. Given that the average case-mix index for an acute care hospital in the United States was 1.32 in 2015, CMC is more clinically complex than the average acute care hospital in the United States, but the level of complexity declined over the past four years. A major reason for this decline was the changing medical/surgical mix of the inpatients at CMC from 2012 to 2015 (Appendix H). Specifically, CMC’s medical volume increased from 65 percent in 2012 to 66.26 percent in 2015. Conversely, CMC’s surgical volume decreased from 35 percent in 2012 to 33.74 percent in 2015. This decline in surgical volume led to a reduction in volume in the overall case mix as well as an overall decline in profitability.
CO N C L U S I O N As Mr. Reynolds now ponders the many problems he has uncovered at CMC, he wonders what other problems lie beneath the surface. Every day he encounters additional major problems. At this point, Mr. Reynolds is so overwhelmed that he is unsure how to proceed. He does know, however, that priorities need to be set, the deteriorating situation needs to be turned around, and a strategic plan needs to be developed to chart the future of the organization.
EX E R C I S E S Assume you are Mr. Reynolds. Being new to the position, you are faced with major chal- lenges. The questions and exercises at the end of each chapter in this book provide an opportunity to gain leadership experience in managing change in a healthcare organization. Most important, you will gain experience in developing a strategic plan.
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EN D N O T E 1. Annual salary statistics found at salary.com, 2015, “Critical Care Director
Salaries,” accessed August 2, www1.salary.com/Critical-Care-Director-Salary. html; salary.com, 2015, “Emergency Services Director Salaries,” accessed August 2, www1.salary.com/Emergency-Services-Director-Salary.html.
AP P E N D I X A. PO P U L AT I O N A N D HO U S E H O L D DATA
Riverside County Metro City Rural County Ocean County
POPULATION AND HOUSEHOLD
Square miles 609 775 601 485
Population density per square mile 214 1,028 245 111
Population 2010 83,829 672,971 105,986 28,701
Population 2015 129,832 794,569 146,739 53,506
Population 2020 (forecast) 148,289 842,179 163,082 63,543
% Population growth 2010–2015 54.88% 18.08% 38.45% 86.43%
% Population growth forecast 2015–2020 14.22% 5.10% 11.14% 18.76%
Households 2010 33,431 256,772 36,664 11,882
No. of households 2015 52,322 310,603 52,448 22,904
No. of households 2020 (forecast) 59,895 331,539 58,623 27,305
% Household growth 2010–2015 56.5% 20.97% 43.05% 92.76%
% Household growth forecast 2015–2020 14.5% 6.75% 11.77% 19.21%
Average household size 2.48 2.57 2.80 2.34
No. of families 35,793 205,123 40,907 16,766
% Urban population 56.5% 98.7% 59.6% 59.9%
% Rural population 43.5% 1.5% 40.4% 40.1%
% Female population 51.2% 51.5% 50.7% 51.5%
% Male population 48.8% 48.7% 49.3% 48.5%
% White population 91.1% 67.4% 88.6% 87.9%
% Black population 6.5% 28.5% 7.3% 9.5%
% Asian population 1.4% 3.8% 3.0% 1.6%
% Hispanic origin population 2.7% 4.3% 4.4% 5.2%
% Other population 1.4% 2.1% 3.1% 2.3%
% Population aged 0–5 years 6.5% 8.7% 8.0% 4.9%
% Population aged 6–11 years 8.1% 9.1% 9.6% 6.0%
% Population aged 12–17 years 8.2% 8.7% 10.2% 6.7%
% Population aged 18–24 years 6.4% 8.9% 7.2% 4.4%
% Population aged 25–34 years 9.7% 14.4% 11.6% 7.3%
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 e
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1 9 C o a s t a l M e d i c a l C e n t e r C o m p r e h e n s i v e C a s e S t u d y
% Population aged 35–44 years 17.8% 18.1% 18.7% 12.9%
% Population aged 45–54 years 17.0% 14.6% 15.9% 14.3%
% Population aged 55–64 years 10.2% 7.7% 8.9% 14.4%
% Population aged 65–74 years 8.8% 5.7% 5.6% 17.2%
% Population aged 75 years or older 7.3% 5.1% 4.3% 11.9%
Median age 41.3 35.5 36.8 50.5
INCOME AND EDUCATION
Total household income $5,145,536,895 $20,994,962,608 $3,656,788,183 $1,650,526,132
Median household income $49,103 $41,410 $49,270 $42,975
Per capita income $39,632 $26,423 $24,920 $30,847
Average income>$200,00 $474,930 $430,207 $348,177 $450,993
Education—% less than high school (age 25+)
11.2% 13.6% 11.5% 12.6%
Education—% high school graduate (age 25+)
31.6% 33.9% 35.4% 36.6%
Education—% some college (age 25+) 25.5% 26.9% 29.9% 27.1%
Education—% college graduate (age 25+) 22.1% 19.3% 16.8% 15.4%
Education—% graduate degree (age 25+) 9.6% 6.4% 6.5% 8.3%
EMPLOYMENT AND OCCUPATION
Males employed (age 16+) 35,604 201,461 40,722 12,093
Females employed (age 16+) 29,337 169,863 30,949 9,654
Total employees (age 16+) 64,941 371,324 71,671 21,747
% White-collar occupations 62.9% 63.1% 61.8% 57.3%
% Blue-collar occupations 22.8% 23.6% 25.9% 27.5%
% Service occupations 14.3% 13.3% 12.4% 15.2%
% Local government workers 7.6% 7.0% 7.4% 7.7%
% State government workers 3.2% 2.4% 2.2% 1.6%
% Federal government workers 1.8% 3.5% 6.3% 0.9%
% Self-employed workers 9.0% 5.2% 6.3% 9.2%
CONSUMER EXPENDITURES
Annual expenditures per capita ($US) $18,211.60 $16,580.10 $16,226.00 $18,322.00
Healthcare expenditures per capita ($US) $2,347.20 $2,183.90 $2,105.70 $2,390.30
Healthcare insurance expenditures per capita ($US)
$428.00 $385.00 $370.00 $482.20
COST OF LIVING
Consumer Price Index 147.1 147.1 147.1 147.1
Medical care Consumer Price Index 211.3 211.3 211.3 211.3
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AP P E N D I X B. CO A S TA L ME D I C A L CE N T E R: IN C O M E STAT E M E N T B Y CA L E N D A R YE A R (JA N U A RY 1–DE C E M B E R 31)
2015 2014 2013 2012
Inpatient revenue 719,329,916 755,618,849 784,412,051 827,231,608
Outpatient revenue 476,770,514 557,698,826 598,747,225 625,466,528
Total patient revenue 1,196,100,430 1,313,317,675 1,383,159,276 1,452,698,136
Contractual allowance (discounts) 809,575,220 912,970,880 970,156,446 1,062,616,080
Net patient revenues 386,525,210 400,346,795 413,002,830 390,082,056
Operating expense 416,531,087 421,383,586 411,066,597 356,255,182
Depreciation expense 22,616,659 17,701,123 21,479,371 21,412,330
Operating income –52,622,536 –38,737,914 –19,543,138 12,414,544
Other income (contributions, bequests, other) 0 0 0 0
Income from investments 0 0 0 0
Governmental appropriations 0 0 0 0
Miscellaneous nonpatient revenue 36,527,105 47,063,315 37,025,334 40,113,376
Total nonpatient revenue 36,527,105 47,063,315 37,025,334 40,113,376
Total other expenses 0 944,991 0 0
Net income (loss) –16,095,431 7,380,410 17,482,196 52,527,920
Note: Data are annualized for periods other than 12 months.
AP P E N D I X C. CO A S TA L ME D I C A L CE N T E R: HO S P I TA L CO N S U M E R AS S E S S M E N T O F HE A LT H C A R E PR O V I D E R S A N D SY S T E M S SC O R E S
CMC JMC LMC State
Average National Average
HCAHPS scores
Patientswhoreportedthatnurses“Always”communicatedwell 74% 76% 83% 75% 79%
Patientswhoreportedthatdoctors“Always”communicatedwell 72% 76% 85% 78% 82%
Patients“Always”receivedhelpassoonastheywanted 55% 63% 71% 62% 68%
Patientswhoreportedthattheirpainwas“Always”wellcontrolled 66% 69% 75% 68% 71%
Staff“Always”explainedaboutmedicinebeforegivingittothem 56% 60% 67% 60% 64%
Patientsreportedtheirroomandbathroomwere“Always”clean 65% 72% 80% 70% 74%
Reportedareaaroundtheirroomwas“Always”quietatnight 57% 60% 70% 58% 61%
Giveninfoaboutwhattododuringtheirrecoveryathome 83% 85% 90% 83% 86%
“StronglyAgree”theyunderstoodtheircarewhentheyleftthehospital 43% 51% 65% 48% 51%
Gavetheirhospitalaratingof9or10(0[lowest]to10[highest]) 62% 74% 90% 67% 71%
PatientsreportedYES,definitelyrecommendthehospital 63% 80% 92% 69% 71%
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 e
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AP P E N D I X D. CO A S TA L ME D I C A L CE N T E R: BA L A N C E SH E E T
2015 2014 2013 2012
Assets 339,055,010 347,278,187 384,551,932 403,459,670
Current assets 110,521,790 118,237,279 113,813,971 92,255,629
Fixed assets 143,848,624 132,031,268 141,037,047 130,904,980
Other assets 84,684,596 97,009,640 129,700,914 180,299,061
Liabilities and fund balances 339,055,010 347,278,187 384,551,932 403,459,670
Liabilities 289,863,632 268,244,657 296,496,775 295,606,794
Current liabilities 48,603,946 72,234,880 75,507,585 53,932,358
Long-term liabilities 241,259,686 196,009,777 220,989,190 241,674,436
Fund balances 49,191,378 79,033,530 88,055,157 107,852,876
AP P E N D I X E. CO A S TA L ME D I C A L CE N T E R: FI N A N C I A L RAT I O S 2015 2014 2013 2012
PROFITABILITY RATIOS
EBITDAR (earnings before interest, taxes, depreciation, amortization, and rent)
$6,521,228 $30,150,947 $38,961,567 $73,940,250
Definition: Net income + Interest + Depreciation and amortization + Lease cost
Net income (before taxes) –$16,095,431.00 $7,380,410.00 $17,482,196.00 $52,527,920.00
Interest expense $0.00 $5,069,414.00 $0.00 $0.00
Depreciation and amortization expense
$22,616,659.00 $17,701,123.00 $21,479,371.00 $21,412,330.00
Lease cost $0.00 $0.00 $0.00 $0.00
Operating margin –13.60% –9.70% –4.70% 3.20%
Definition: (Total operating revenue – Total operating expense) / Total operating revenue * 100
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Total operating expense $439,147,746.00 $439,084,709.00 $432,545,968.00 $377,667,512.00
Excess margin –3.80% 1.90% 3.90% 12.20%
Definition: (Total operating revenue – Total operating expenses + Nonoperating revenue) / (Total operating revenue + Nonoperating revenue) * 100
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Total operating expense $439,147,746.00 $439,084,709.00 $432,545,968.00 $377,667,512.00
Nonoperating revenue (nonpatient revenue)
$36,527,105.00 $47,063,315.00 $37,025,334.00 $40,113,376.00
Return on equity –32.70% 9.30% 19.90% 48.70%
Definition: (Total assets – Total liabilities) * 100
Net income (before taxes) –$16,095,431.00 $7,380,410.00 $17,482,196.00 $52,527,920.00
(continued)
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Total assets (general fund only) $339,055,010.00 $347,278,187.00 $384,551,932.00 $403,459,670.00
Total liabilities (general fund only) $289,863,632.00 $268,244,657.00 $296,496,775.00 $295,606,794.00
Return on assets (ROA) –4.70% 2.10% 4.50% 13.00%
Definition: Net income / Total assets * 100
Net income (before taxes) –$16,095,431.00 $7,380,410.00 $17,482,196.00 $52,527,920.00
Total assets (general fund only) $339,055,010.00 $347,278,187.00 $384,551,932.00 $403,459,670.00
LIQUIDITY RATIOS
Current ratio 2.3 1.6 1.5 1.7
Definition: Total current assets / Total current liabilities
Total current assets (general fund only)
$110,521,790.00 $118,237,279.00 $113,813,971.00 $92,255,629.00
Total current liabilities (general fund only)
$48,603,946.00 $72,234,880.00 $75,507,585.00 $53,932,358.00
Quick ratio 2.1 1.5 1.4 1.6
Definition: (Total current assets – Inventory) / Total current liabilities
Total current assets (general fund only)
$110,521,790.00 $118,237,279.00 $113,813,971.00 $92,255,629.00
Inventory (general fund only) $10,018,876.00 $6,729,591.00 $6,962,951.00 $7,474,424.00
Total current liabilities (general fund only)
$48,603,946.00 $72,234,880.00 $75,507,585.00 $53,932,358.00
Days cash on hand 17.2 27.9 15.6 7.1
Definition: (Cash on hand + Market securities) / (Total operating expenses – Depreciation ) / 365
Cash on hand (general fund only) $19,681,648.00 $32,156,613.00 $17,610,303.00 $6,918,137.00
Market securities (temporary investments) (general fund only)
$0.00 $0.00 $0.00 $0.00
Total operating expense $439,147,746.00 $439,084,709.00 $432,545,968.00 $377,667,512.00
Depreciation expense $22,616,659.00 $17,701,123.00 $21,479,371.00 $21,412,330.00
Days cash on hand, all sources 63.4 81.3 101.7 160.0
Definition: (Cash on hand + Market securities + Investments) / (Total operating expenses – depreciation expenses) / 365
Cash on hand (general fund only) $19,681,648.00 $32,156,613.00 $17,610,303.00 $6,918,137.00
Market securities (temporary investments) (general fund only)
$0.00 $0.00 $0.00 $0.00
Investments (general fund only) $52,629,288.00 $61,748,147.00 $96,899,834.00 $149,230,656.00
Total operating expense $439,147,746.00 $439,084,709.00 $432,545,968.00 $377,667,512.00
Depreciation expense $22,616,659.00 $17,701,123.00 $21,479,371.00 $21,412,330.00
Days in net patient accounts receivable 47.6 41.7 48.2 44.6
Definition: (Accounts receivable – Allowances for uncollectible) / (Total operating revenue / 365)
Accounts receivable (general fund only)
$183,116,459.00 $208,154,053.00 $234,270,934.00 $221,427,548.00
(continued from previous page)
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Allowances for uncollectible (general fund only)
$132,664,535.00 $162,430,546.00 $179,696,832.00 $173,782,393.00
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Days in net total receivable 58.8 51.4 57.1 50.2
Definition: (Accounts receivable + Notes receivable + Other receivables – Allowances for uncollectible) / (Total operating revenue / 365)
Accounts receivable (general fund only)
$183,116,459.00 $208,154,053.00 $234,270,934.00 $221,427,548.00
Notes receivable (general fund only)
$0.00 $0.00 $0.00 $0.00
Other receivables (general fund only)
$11,846,498.00 $10,605,372.00 $10,022,079.00 $6,055,862.00
Allowances for uncollectible (general fund only)
$132,664,535.00 $162,430,546.00 $179,696,832.00 $173,782,393.00
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Average payment period (days) 42.6 62.4 67.0 55.3
Definition: Total current liabilities / (Total operating expenses + Total other expenses – Depreciation) / 365
Total current liabilities (general fund only)
$48,603,946.00 $72,234,880.00 $75,507,585.00 $53,932,358.00
Total operating expense $439,147,746.00 $439,084,709.00 $432,545,968.00 $377,667,512.00
Total other expense $0.00 $944,991.00 $0.00 $0.00
Depreciation expense $22,616,659.00 $17,701,123.00 $21,479,371.00 $21,412,330.00
ACTIVITY RATIOS
Inventory turnover 42.2 66.5 64.6 57.6
Definition: (Total operating revenue + Nonoperating revenue) / Inventory
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Nonoperating revenue (nonpatient revenue)
$36,527,105.00 $47,063,315.00 $37,025,334.00 $40,113,376.00
Inventory (general fund only) $10,018,876.00 $6,729,591.00 $6,962,951.00 $7,474,424.00
Total asset turnover 1.2 1.3 1.2 1.1
Definition: (Total operating revenue + Nonoperating revenue) / Total assets
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
Nonoperating revenue (nonpatient revenue)
$36,527,105.00 $47,063,315.00 $37,025,334.00 $40,113,376.00
Total assets (general fund only) $339,055,010.00 $347,278,187.00 $384,551,932.00 $403,459,670.00
Average age of plant 13.8 18.3 15.5 6.6
Definition: Accumulated depreciation / Depreciation expense
Accumulated depreciation $312,510,684.00 $323,110,889.00 $333,323,022.00 $141,225,357.00
(continued)
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Depreciation expense $22,616,659.00 $17,701,123.00 $21,479,371.00 $21,412,330.00
Personnel expense as a percent of total operating revenue
41.90% 42.30% 39.90% 45.80%
Definition: (Salary expense + Contract labor + Fringe benefits) / Total operating revenue * 100
Salary expense $116,760,383.00 $117,450,538.00 $116,029,482.00 $114,008,926.00
Contract labor $37,853,003.00 $42,326,811.00 $45,261,139.00 $56,208,185.00
Fringe benefits $7,444,288.00 $9,742,577.00 $3,653,311.00 $8,620,180.00
Total operating revenue (net patient revenue)
$386,525,210.00 $400,346,795.00 $413,002,830.00 $390,082,056.00
CAPITAL RATIOS
Long-term debt to net assets 4.90 2.48 2.51 2.24
Definition: Total long-term liabilities / (Total assets – Total liabilities)
Total long-term liabilities (general fund only)
$241,259,686.00 $196,009,777.00 $220,989,190.00 $241,674,436.00
Total assets (general fund only) $339,055,010.00 $347,278,187.00 $384,551,932.00 $403,459,670.00
Total liabilities (general fund only) $289,863,632.00 $268,244,657.00 $296,496,775.00 $295,606,794.00
Total debt to net assets 5.89 3.39 3.37 2.74
Definition: Total liabilities / (Total assets – Total liabilities)
Total assets (general fund only) $339,055,010.00 $347,278,187.00 $384,551,932.00 $403,459,670.00
Total liabilities (general fund only) $289,863,632.00 $268,244,657.00 $296,496,775.00 $295,606,794.00
AP P E N D I X F. CO A S TA L ME D I C A L CE N T E R: LE A D E R S H I P SU R V E Y P E R C E I V E D C O R P O R AT E C U LT U R E Item Positive % Neutral % Negative % 1. Leadership 28 9 63 2. Structure 22 14 64 3. Control 66 20 14 4. Accountability 20 7 73 5. Teamwork 26 7 67 6. Organization identity 31 17 52 7. Work climate 17 17 66 8. Risk taking 15 9 76 9. Conflict management 24 24 52 10. Perceived autonomy 51 12 37 11. Results oriented 29 20 51 12. Mutual trust 36 8 56 13. Communication 24 7 69 14. Team spirit 7 21 72 15. Attitudes 21 22 57 16. Vision 19 5 76 17. Reward system 36 27 37 18. Group interaction 20 45 35 19. Value of meetings 26 7 67 20. Faith in organization 28 6 66
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S E L F -E VA L U AT I O N O F P O S I T I O N Item True % Partly True % Not True % 1. Sufficient decision-making authority 34 50 16 2. Clear understanding of role 43 30 27 3. Clear understanding of performance expectations 26 44 30 4. Fully use training and experience 27 33 40 5. Mix of management and routine is correct 33 30 37 6. Amount of work is reasonable 28 32 40 7. Work offers challenge, satisfaction, and growth 30 30 40 8. Performance is recognized 38 32 30 9. Compensation is satisfactory 45 35 20 10. Quality work is recognized and rewarded 29 41 30 11. Upward communication is effective 21 40 39 12. Downward communication is effective 17 50 33 13. Cross communication is effective 15 55 30 14. Operations problem solving is timely and thorough 17 43 40 15. Strategic decisions are timely and effective 26 30 44
AP P E N D I X G. CO A S TA L ME D I C A L CE N T E R: VA L U E-BA S E D PU R C H A S I N G
CMC JMC LMC State
Average National Average
Accreditation Yes Yes Yes
EmergencyService Yes Yes Yes
EmergencyVolume High Very high Medium
AverageTimePatientsSpentinEDBeforeAdmitted asInpatient
624 min. 338 min. 247 min. 282 min. 272 min.
AverageTimePatientsSpentinEDAfterAdmitOrder BeforeinaBed
277 min. 132 min. 92 min. 108 min. 97 min.
AverageTimePatientsSpentinEDBeforeBeingSent Home
226 min. 151 min. 145 min. 143 min. 133 min.
AverageTimePatientsSpentinEDBeforeSeenby HealthProfessional
55 min. 35 min. 33 min. 23 min. 24 min.
AverageTimePatientsSpentinEDWithBrokenBones BeforePainMed
84 min. 72 min. 57 min. 56 min. 55 min.
%ofPatientsLeftWithoutBeingSeen 8% 4% 1% 2% 2%
HeartAttackPatientsGivenAspirinatDischarge 99% 99% 100% 99% 99%
HeartAttackPatientsGivenStatinPrescriptionat Discharge
97% 99% 100% 99% 98%
HeartAttackPatientsGivenPCIWithin90Minutesof Arrival
88% 95% 95% 97% 96%
HeartFailurePatientsGivenACEInhibitororARBfor LeftVentric
95% 96% 98% 98% 97%
HeartFailurePatientsGivenanEvaluationofLVS Function
99% 100% 100% 100% 99%
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HeartFailurePatientsGivenDischargeInstructions 80% 92% 94% 96% 95%
PneumoniaPatientsGiventheMostAppropriateInitial Antibiotic
90% 95% 92% 98% 96%
SurgeryPatientsWhoReceivedPreventative AntibioticsOneHou
97% 99% 99% 99% 99%
SurgeryPatientsWhosePreventativeAntibioticsare StoppedWi
92% 98% 98% 99% 98%
SurgeryPatientsTakingBetaBlockersRemainon BetaBlockers
98% 98% 98% 99% 98%
SurgeryPatientsGiventheRightAntibioticAfter Surgery
96% 98% 99% 99% 99%
HeartSurgeryPatientsWhoseBloodSugarKeptin Control24H
90% 98% 100% 96% 94%
SurgeryPatientsWhoseUrinaryCathetersRemoved FirstorSecondDay
93% 95% 98% 98% 98%
PatientsHavingSurgeryWarmedinORorNormal TempatEndofSurg
99% 100% 100% 100% 100%
IschemicStrokePatientsWhoReceivedMedtoBreak UpClotsWi3Hrs
N/A 62% 89% 81% 73%
IschemicStrokePatientsWhoReceivedMedtoPrevent ComplicWi2Da
95% 98% 100% 98% 98%
StrokePatientsReceivingBloodThinnersWi2Days 95% 99% 99% 97% 95%
Healthcare-Associated Infections Comparison to National Benchmark
CMC JMC LMC
Central line–associated bloodstream infections No different No different Better
Catheter-associated urinary tract infections Worse Worse No different
Surgical-site infections from colon surgery No different No different Better
Surgical site infections from hysterectomy Worse No different No different
Methicillin-resistant Staph. aureus (MRSA) Worse No different No different
Clostridium difficile (C.diff.) Worse No different Better
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AP P E N D I X H. CO A S TA L ME D I C A L CE N T E R: IN PAT I E N T DATA
Trend Report
Inpatient Utilization Statistics 2015 2014 2013 2012
Case-mix index 1.666 1.692 1.713 1.729
Medical MS-DRGs 66.26% 65.57% 65.00% 65.38%
Surgical MS-DRGs 33.74% 34.43% 35.00% 34.62%
Routine discharges to home 5,729 5,343 5,110 5,092
Discharges to other acute care hospitals 85 94 94 81
Discharges to skilled nursing facilities 1,360 1,346 1,238 1,305
Deaths 404 289 330 314
Other discharges 2,120 2,171 1,962 1,661
Total discharges 9,698 9,243 8,734 8,453
Psychiatric discharges (DPU, included in total) 493 508 451 443
Rehabilitation discharges (DPU, included in total) 139 171 141 166
Medicare Advantage (HMO) discharges (not included in total)
942 1,872 2,308 2,518
2015 Statistics for the Top 20 Base MS-DRGs
Base MS-DRG Description Base
MS-DRG IPPS
Cases ALOS Average
Charges ($) Average
Payment ($) Average Cost ($)
Case-Mix Index
CC/MCC Rate (%)
MCC Rate (%)
Percutaneous cardiovascular proc with drug-eluting stent
247-246 625 2.5 74,651 15,101 18,173 2.181 16.3 16.3
Septicemia or severe sepsis without MV, 96+ hours
872-871 372 5.7 37,703 12,184 10,773 1.750 83.3 83.3
Circulatory disorders except AMI, with cardiac catheter
287-286 369 2.9 29,818 8,016 6,933 1.192 12.2 0.1
Psychoses 885 358 11.4 32,643 9,090 15,899 .954 0.0 0.0
Major joint replacement or reattachment of lower extremity
470-469 341 2.7 51,019 15,705 14,908 2.165 5.3 5.3
Heart failure and shock 293-292-291 321 4.9 22,240 8,064 7,189 1.161 84.7 40.5
Cardiac arrhythmia and conduction disorders
310-309-308 235 3.8 18,250 5,860 5,572 .846 66.8 28.9
Simple pneumonia and pleurisy 195-194-193 201 4.3 21,561 8,363 6,482 1.171 88.6 41.8
Renal failure 684-683-682 195 4.7 26,116 8,336 7,983 1.192 90.3 39.0
Chronic obstructive pulmonary disease
192-191-190 194 4.0 19,327 7,055 5,795 1.020 82.0 47.9
Intracranial hemorrhage or cerebral infarction
066-065-064 175 4.2 27,743 9,202 8,564 1.333 80.0 37.1
Rehabilitation 946-945 161 12.5 58,027 18,985 25,646 1.302 73.3 0.0
Chest pain 313 151 2.0 13,040 3,075 3,498 .562 0.0 0.0
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Esophagitis, gastroenterological, and miscellaneous digestive disorders
392-391 143 3.7 22,967 5,629 6,152 .839 22.4 22.4
Gastrointestinal hemorrhage 379-378-377 130 4.1 27,877 8,333 8,311 1.202 95.4 26.2
Extracranial procedures 039-038-037 127 2.1 37,900 9,886 8,455 1.315 29.1 7.9
Kidney and urinary tract infections
690-689 114 4.2 20,054 6,347 6,036 .945 41.2 41.2
Other vascular procedures 254-253-252 113 5.0 63,355 17,428 16,646 2.342 62.8 31.0
Permanent cardiac pacemaker implant
244-243-242 108 4.2 62,635 19,251 13,980 2.681 61.1 25.0
Acute myocardial infarction, discharged alive
282-281-280 105 4.8 37,112 10,517 10,275 1.422 84.8 53.3
All other base MS-DRGs 3,915 5.4 54,080 14,658 14,758 2.058
TOTAL 8,453 5.0 45,557 12,506 12,827 1.729
2015 Statistics by Medical Service
Number Medicare Inpatients
Average Length of
Stay Average
Charges ($) Average Cost ($)
Medicare CMI
CMI-Adjusted Average Cost ($)
Cardiology 1,513 3.6 23,498 6,550 1.030 6,362
Cardiovascular surgery 1,123 3.9 86,224 21,103 2.909 7,255
Gynecology 38 2.1 36,756 8,613 1.084 7,944
Medicine 1,691 5.3 33,073 10,221 1.283 7,967
Neurology 502 4.3 27,248 8,378 1.200 6,982
Neurosurgery 42 9.5 114,058 30,272 3.492 8,669
Obstetrics 12 5.2 20,415 9,146 .687 13,324
Oncology 101 5.5 39,450 11,021 1.638 6,729
Orthopedic surgery 795 3.8 61,015 17,228 2.369 7,271
Orthopedics 145 4.1 23,034 7,127 1.060 6,725
Psychiatry 459 10.5 30,824 14,766 .924 15,989
Pulmonology 796 4.9 32,695 9,258 1.419 6,522
Surgery 513 8.8 100,849 27,114 3.858 7,027
Surgery for malignancy 37 6.9 89,678 22,285 2.138 10,425
Urology 420 4.5 27,637 8,082 1.199 6,742
Vascular surgery 265 3.7 52,825 13,205 1.886 7,002
TOTAL 8,453 4.98 45,557 12,827 1.729 7,421
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