case study 448qy1y00
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.
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
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
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.
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
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.
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
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
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
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?
1. Grant 's list of possible cuts and savings
Internal cuts Savings
Cut 2% from nursing staff
Cut 2% from support and ancillary staff
Cut maximum of 3% from business office staff $50,000
Freeze all wages and salaries at current level
Eliminate weekly in-house clinics
External cuts Savings
Eliminate all off-site clinics