case study 448

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HCA448Case1_finaldraftfor092020181.pdf

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HCA 448 Case 1 for 09/20/2018

This case has been adapted from the works of

Anthony R. Kovner

Jason Grant, the current CEO of Summit Regional Hospital (which is located in Denver

Colorado) rubbed his eyes and looked again at the budget worksheet. The more he played with

the figures, the more pessimistic he became. Summit Regional’s financial health was not good;

it suffered from rising costs, static revenue, and declining quality of care. When the board hired

Grant one year ago, the mandate had been clear: improve the quality of care and set the financial

house in order.

Grant had less than a week to finalize his $70 million budget for approval by the hospital’s

board. As he considered his choices, one issue, the future of six off-site clinics, commanded

special attention. Grant’s predecessor had set up the clinics five years earlier to provide primary

health care to residents of the poorer neighbourhoods; they were generally considered a model

of community-based care. However, although they provided a valuable service for the city’s

poor, the clinics also diverted funds away from Summit Regional’s in-house services, many of

which were underfunded.

As he worked on the budget, Grant’s thoughts drifted back to his first visit to the housing

project in early March, just two weeks into his tenure as CEO.

The clinic was not much to look at. A small graffiti-covered sign in the courtyard pointed

the way to the basement entrance of an aging six-story apartment building. Grant pulled open

the heavy metal door and entered the small waiting room. Two of the seven chairs were

occupied, in one, a pregnant teenage girl listened to an iPod and tapped her foot. In the other,

a man in his mid–thirties sat with eyes closed, resting his head against the wall.

The meeting had to be brief, Brett Dawson (the clinic doctor and practice administrator)

apologized, because the nurse had not yet arrived and she had patients to see. As they marched

down to her office, she filled Grant in on the waiting patients: the girl was 14 years old, in for

a routine prenatal check-up, and the man, a heroin addict recently diagnosed as HIV positive,

was in for a follow-up visit and blood tests.

On his hurried tour, Grant noted the dilapidated condition of the cramped facility. The

paint was peeling everywhere, and, in one examining room, he had to step around a bucket

strategically placed to catch a drip from a leaking overhead pipe. After 15 years as a university

hospital administrator, Grant felt unprepared for this kind of medicine.

The conditions were appalling, he told Dawson, and were contrary to the image of the

high-quality medical care he wanted Summit Regional to project. When he asked her how she

put up with it, Dawson just started at him. “What are my options?” she finally asked.

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Grant looked again at the clinic figures from last year: collectively they cost $1.1

million to operate, at a loss of $256,000. What Summit Regional needed, Grant told himself,

were fewer services that sapped resources and more revenue-generating services that would

make the hospital more competitive. The clinics were most definitely a drain.

Of course, there was a surfeit of “competitive” projects in search of funding. Summit

Regional needed to expand its neonatal ward; the chief of surgery wanted another operating

theatre; the chief of radiology was demanding a magnetic resonance imaging (MRI) unit; the

business office wanted to upgrade its computer system; and the emergency department

desperately needed another full-time physician—and that was just scratching the surface.

Without some of these investments, Summit Regional’s ability to attract paying

patients and top-grade doctors would deteriorate. As it was, the hospital’s location on the

poorer, east side of Denver was a strike against it. Summit Regional had a high percentage of

Medicaid patients, but the payments were never sufficient to cover costs. The result was an

ever-rising annual operating loss.

Grant was constantly reminded of the hospital’s uncompetitive position by his chief

of surgery, Dr. Winston Lee. “If Summit Regional wants more paying patients—and, for that

matter, good department chiefs—it at least has to keep up with St. Johns,” Dr. Lee had warned

Grant a few days ago.

Dr. Lee complained that St. Johns, the only other acute care hospital in city, was a for-

profit hospital that had both superior facilities and better technology. Its financial condition

was better than Summit Regional’s, in part because it was located on the west side of the city,

in a more affluent neighbourhood. St. Johns had also been savvier in its business ventures; it

owned a 50% share in an MRI unit operated by a private medical practice. The unit was

reportedly generating revenue, and St. Johns had plans for other such investments, Dr. Lee had

said.

Although Grant agreed that Summit Regional needed more high-technology services,

he was also concerned about duplication of services; the population of the greater metropolitan

area, including suburban and rural residents, was about 700,000. When he questioned Richard

Tuttle, St. John’s CEO, about the possibility of joint ventures, however, he received a very cold

response, “Competition is the only way to survive,” Tuttle had said.

Tuttle’s actions were consistent with his words. Two months ago, St. Johns allegedly

had offered financial incentives to some of Denver’s physicians in exchange for patient

referrals. Although the rumour had never been substantiated, it had left a bad taste in Grant’s

mouth.

Grant knew he could either borrow or cut costs, but the hospital’s ability to borrow

was limited as a result of an already high debt burden. His only real alternative, therefore, was

to cut costs.

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Grant reasoned that the internal cuts would help Summit Regional become a learner

organization. With 1,400 full-time equivalent (FTE) employees and 350 beds, there was room

for some cost cutting. Grant’s previous hospital had 400 beds and only 1,300 FTE employee.

Grant recognized, however, that cutting personnel could affect Summit Regional’s quality of

care. As it was, patient perception of Summit Regional’s quality had been slipping during the

last few years, according to the monthly public relations office survey, and quality was an issue

that the board was particularly sensitive to these days. Eliminating the clinics, conversely,

would not compromise Summit Regional’s internal operations.

Everyone knew the clinics would never generate profit. In fact, the annual loss was

expected to continue to climb. Part of the reason was rising costs, but another factor was the

city of Denver’s ballooning budget deficit. The city contributed $100,000 to the program and

provided the apace in the housing projects free of charge. Grant had heard from two city

councilmen, however, that funding would likely be cut in the coming year.

Less city money and a higher net loss for the clinic program would only add to the

strain on Summit Regional’s internal services.

Grant had to weigh this against the political consequences of closing the clinics. He

was well aware of the possible ramifications from his regular dealings with Clara Bryant, the

recently appointed commissioner of Denver’s health services. Bryant repeatedly argued that

the clinics were an essential service for Denver’s low-income residents.

“You know how the mayor feels about the clinics,” Bryant had said at a recent

breakfast meeting. “He was a strong supporter when they first opened. He fought hard in City

Hall to get Summit Regional the funding. Closing the clinics would be a personal blow to

him.”

Grant understood the significance of Bryant’s veiled threat. If he closed the clinics, he

would lose an ally in the mayor’s office, which could jeopardize Summit Regional’s access to

city funds in the future or have even worse consequences. Grant had heard through the City

Hall rumour mill that Bryant had privately threatened to refer Summit Regional to Denver’s

chief counsel for tax status review if he closed the clinics. He took this seriously; he knew of

a handful of hospitals facing similar actions from their local governments.

When Grant tried to explain to Bryant that closing the clinics would improve Summit

Regional’s financial condition, which, in turn, would lead to better quality of care for all

patients, her response had been unsympathetic: “You don’t measure the community’s health

on an income statement.”

Bryant was not the only clinic supporter with whom Grant had to reckon. Dr. Susan

Russell, Summit Regional’s director of clinics, was equally vocal about the responsibility of

the hospital to the community. In a recent senior staff meeting, Grant sat stunned while Dr.

Dr. Lee exchanged barbs with Russell. Dr. Lee argued that the off-site clinics competed

against the weekly in-house clinics that Summit Regional offered under- and uninsured

patients. He proposed closing the off-site clinics.

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The four in-house clinics – surgery, pediatrics, gynecology, and internal medicine –

cost Summit Regional $200,000 a year in physician fees alone, Dr. Lee said. And because

Medicaid was not adequately covering the costs of these services, the hospital lost about

$100,000 a year from the in-house clinics. Furthermore, in-house clinic visits were down

10% so far this year. A choice had to be made, Dr. Lee concluded, and the reasonable choice

to eliminate the off-site clinics and bolster services within the hospital’s four walls. “Instead

of clinics, we should have a shuttle bus from the projects to the hospital,” he proposed.

Russell’s reaction had been almost violent. “Most of the clinics’ patients wouldn’t

come to the hospital even if there was a bus running every five minutes, “ she snapped back.

“I’m talking about pregnant teenage girls who need someone in their community they

recognize and trust, not some nameless doctor in a big, unfamiliar hospital.”

Russell’s ideas about what a hospital were radical, Grant though, but he had to admit

they did have a certain logic. She espoused an entirely new way of delivering health care that

involved the mobilization of many of Summit Regional’s services. “A hospital is not a

building, it’s a service. And wherever the service is most needed, that is where the hospital

should be,” she had said.

In Summit Regional’s case, that meant funding more neighbourhood clinics, not

cutting back on them. Russell spoke of creating a network of neighbourhood-based

preventive health care centers for all of East Denver’s communities, including both the low-

income housing projects and the pockets of middle-income neighbourhoods. Besides

improving health care, the network would act as an inpatient referral system for hospital

services.

Dr. Lee had rolled his eyes at the suggestions, but Grant had not been so quick to

dismiss Russell’s ideas. If a clinic network could tap the paying public and generate more

inpatient business, it might be worth looking into, he though. Besides, St. Johns was not

doing anything like this.

At the end of the staff meeting, Grant asked Russell to give him some data on the

performance of the clinics. He requested number of inpatient referrals, birth weight data, and

the number of patients seen per month by type of visit – routine, substance abuse, prenatal

visits, PEDS visits, violence-related injury, and HIV.

Russell’s report had arrived the previous day, and Grant was flipping through the

results. He had hoped it would provide some answers; instead it only raised more questions.

The number of prenatal visits had been declining for 16 months. This was significant

because prenatal care accounted for more than 60% of the clinics’ business. Other types of

visits, however, were holding steady. In fact, substance abusers had been coming in record

numbers since the clinics began participating in the mayor’s needle exchange program 3

months ago.

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Russell placed the blame for the prenatal decline squarely on the city. “Two years

ago, Denver cut funding for prenatal outreach and advocacy programs to low income

communities. Without supplementary outreach, pregnant women are less inclined to visit the

clinics,” she wrote. The birth weight data were inconclusive. There was no difference

between birth weights for clinic patients and birth weights for non-clinic patients from similar

backgrounds. In fact, average birth weights were actually lower among clinic patients.

Russell had concluded that the clinic program was too new to produce meaningful

improvements.

On the positive side, inpatient referrals from the clinics had risen in the last few years.

But Russell’s comments about the reasons for the rise were speculative at best. HIV-related

illnesses and violence-related injuries were a large part of the increase, but so were early

detection of ailments such as cataracts and cancer. Grant made a note to ask for a follow-up

study on this.

He put the report down and stared out his window. Summit Regional had a

responsibility to serve the uninsured, but it also had a responsibility to remain viable and self-

sustaining. Which was the stronger force? It came down to finding the best way to provide

high-quality care to the community and save the hospital from financial difficulties. The

consequences of his decision ranged from another year of status quo management to totally

redefining the role of the hospital in the community. He had less than a week to decide. What

should Grant cut, and what should he keep?

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Table

1. Grant 's list of possible cuts and savings

Internal cuts Savings

Cut 2% from nursing staff

$340,00

0

Cut 2% from support and ancillary staff

$290,00

0

Cut maximum of 3% from business office staff $50,000

Freeze all wages and salaries at current level

$1.5

million

Eliminate weekly in-house clinics

$100,00

0

External cuts Savings

Eliminate all off-site clinics

$256,00

0