Internal and External Assessments for Strategic Planning

STRATEGY CHALLENGE

Alan M. Zuclcerman

What Would You Do?

is it too late to develop a comprehensive community hospital cardiovascular program?

The Problem

Leadership at Southeast Community Hospital

believes that its basic cardiovascular services should

be expanded into a comprehensive cardiovascular

program. The new management team has made this

initiative its No. 1 priority for the next five years, but

medical staff and board opinions are divided about

whether the window of opportunity for broad cardio-

vascular development has closed. How should the

leadership at SCH proceed?

The Situation

Southeast Community Hospital (SCH) is a 175-bed community hospital located in a rapidly growing retirement community in the southeastern United States. The hospital has stagnated for most of the past decade, while growth in the

. region has heen dramatic, as has the increase in the number and size of competitors. SCH's lead- ership has heen extremely conservative and inwardly focused during this period. The hospital has muddled along, providing good, hasic, hut unexceptional care and generating mediocre financial results.

In mid-2oo6, the CEO for most ofthe past decade was terminated. A national recruitment for the next CEO led to the appointment of a dynamic, growth-oriented new leader late in 2006. Among his early priorities was to develop a strategic plan for SCH for the next five years.

A strategic planning committee of the hoard, including medical staff leaders and management, spent the first half of 2007 in an intensive review ofthe hospital's strategic situation and needs. Among the major findings of this effort were:

> The hospital serves a large, growing, relatively elderly, and extremely affluent population that is demanding ahout its healthcare needs.

> The hospital has failed to keep up with the healthcare needs of this population.

> Despite its failings, SCH and its services are viewedpositivelyhy residents ofthe area.

> To truly meet community needs, significant programmatic and facilities development is required.

> The hospital's competitors, although larger, are not too formidable, and many have significant issues of their own to deal with.

Additional findings on the hospital's situation appear in the tahle on the next page.

To hetter determine programmatic needs for the future, the strategic planning committee con- vened four program-specific task forces: cardio- vascular, cancer, women and children, and orthopedics/neurology. These task forces were charged with developing mini-plans in each of the assigned clinical areas to address the commu- nity's health needs and SCH's role in meeting those needs. The strategic planning committee believes that the overwhelming majority of com- munity needs is in these four areas; by defining and heginning to proactively address them, the hospital would he on a track to reestablishing itself as the region's provider of choice.

Unlike the other three clinical areas, SCH's car- diovascular services are extremely hasic com- pared with those ofthe competition. Although the hospital offers only noninvasive cardiology, a number of its competitors have long-estahlished and relatively comprehensive programs.

116 APRIL 2008 healthcare financial management

SOUTHEAST COMMUNITY HOSPITAL SWOT ANALYSIS

Strengths

> Solid set of services for a community hospital > Reasonably good book of business > Favorable community demographic and

socioeconomic characteristics > Excellent payer mix > Large, diversified medical staff

Opportunities

> Leverage location and community's size, grov/th, and socioeconomics

> Markedly improve financial performance > Strengthen physician relationships and medical

center-physician synergies > Develop distinctive position > Cultivate strong community image

Weaknesses

> Poor financial performance > Limited development of clinical programs > Historically, strained relationships among board,

management, and medical staff > Large, fragmented medical staff with divided

loyalties > Capacity constraints

Threats

> Recruitment challenges due to high cost of living > Increasing competition in profitable service lines > Competition for fund-raising dollars > Inability to address financial challenges

However, the market is fragmented, with no particularly strong and distinguished programs, and all the competitors have clear weaknesses in their cardiovascular programs. Also, the regional market, like others in the United States, has been affected dramatically by the growth of angioplasty and the decline in cardiac surgeiy. Finally, many of the cardiologists and vascular physicians in the region are on SCH's active medical staff. Their practices have been limited historically at the hospital, and they are quite vocal in stating their desire to be more active and establish the

> During this period, SCH should develop the fullest scope of cardiovascular services possihle, including prevention, ambulatory care, rehabil- itation, and invasive services—possibly even cardiac surgery as warranted by technological developments.

> Vascular services should be organized into a formal institute as rapidly as possible.

> The cardiovascular program should be distin- guished for its excellent outcomes and high level of patient service.

Finance staff estimated that debt capacity could meet no more than half those capital needs.

The task force had a number of long meetings and animated discussions about what to do in cardiovascular services. The three principal alternatives and accompanying rationales are shown in the table on page 118.

As a result of the task force's deliberations, the following recommendations were made to the hoard's strategic planning committee: > By ?oi2 (the end ofthe strategic plans five-

year planning horizon), SCH should be the first choice for cardiovascular services in the region.

Along with these recommendations, the strategic planning committee received an ambitious pro- gram development agenda from the cancer task force and moderate program development rec- ommendations from the other task forces. A facility master planning process, carried out con- currently with the strategic planning, was also nearing completion. Basic facility needs were estimated to be at least $100 million (for heat- ing/ventilation/air conditioning, parking, other infrastructure), and minimal bed/ancillary expansion and programmatic needs added at least

M m APRIL 2008 117

STRATEGY CHALLENGE

r PROPOSED SCH CARDIOVASCULAR PROGRAM: ALTERNATIVES AND THEIR RATIONALES

Description

Pros

Cons

Status Quo

> Largely maintain current scope of services

> Conserve resources, espe- cially given needs in other programs

> Many competitors; overserved market

> Not responsive to our primary service area's greatest need

> Majority of medical staff think status quo is untenable

Focused CV Program

> Grow selectively, principally in vascu- lar care and possibly diagnostic cardiac cath

> Exploits least com- petitive segments

> Demonstrates com- mitment to meeting primary service area's greatest need

> May not be enough to satisfy area residents

Full CV Program

> Develop as compre- hensive a program as possible

> Most fully addresses primary service area's need

> Supported by medical staff

> Resource-intensive; would limit growth in other areas

> Could create signifi- cant and expensive competitor battles

another $100 million. Finance staff estimated that deht capacity could meet no more than half those capital needs.

So the committee was facing some difficult choices. What do you think the committee's recommendation to the hoard should he?

The committee was deeply concerned about the magnitude of the funding apparently required for facility development.

Ultimately, the committee decided to affirm the cardio-

vascular task force's recommendations and supported

management's view that a comprehensive cardiovas-

cular service line is the top programmatic priority. In

the end, the opinions expressed about the primacy of

high-quality cardiovascular care as a core community

need, especially in a community as affluent and

demanding as this one, car-

ried the day and swayed the

committee (and then the

board) to support the task

force's recommendations.

The Decision

The strategic planning committee decided to review

and prioritize the task forces' recommendations in the

context of anticipated overall capital needs and fund-

ing sources. The pros and cons of the cardiovascular

recommendations essentially paralleled what the task Depending on the outcome of the fund-raising feasibility

force had come up with earlier. Proponents argued study, expansion plans may need to be trimmed, but given

vocally for their position, as did the opposition. Much the high ranking for cardiovascular services, initial

speculation was offered on the impact of technological expansion activities are already under way. m

changes and competitor responses to whatever course —•

The committee was deeply

concerned about the magni-

tude of the funding apparently

required for programmatic and facility development. It

consulted with the hospital's foundation about the like-

lihood of a major capital campaign. Based on these dis-

cussions, leadership believes a $100 million capital

campaign may be feasible, but further testing is needed.

SCH chose. Alan M. Zuckerman, FACHE, FAAHC, is president. Health Strategies & Solutions, Inc., Philadelphia (azucke [email protected]).

118 APRIL 2008 healthcare financial management