Community hospital facing financial decline and leadership challenges

Hospital

The Facts:

The Community Hospital in the present case study saw its beginnings during the mid-1800s and has come a long way since then serving a population of nearly 13,000 inhabitants. Its location from the nearest large city is 15 miles which itself has four major hospitals and 40 miles from the state capital with more medical conveniences. Apart from that, the Hospital also caters to the medical needs of five very small and nearby rural towns with a net total population which is estimated to be 35,000 inhabitants. It continues to be a general hospital since inception because of the presence of many large hospitals in its vicinity. Although the hospital has good doctors in attendance, majority of them have grown old in their profession and as such the Hospital will be facing a severe shortage of doctors 10-15 years down the line. The Hospital is facing a crunch on the financial front as the minimum occupancy rates have fallen well below the break-even point needed for the Hospital to stay afloat.

With continued below the mark occupancy rates, its operating cash will be wiped out within 4 to 5 years. To make matters worse, both government bodies as well as insurance providers are putting pressure for fee cut while maintaining the same levels of facilities. The Hospital Administrator has almost served his lifetime and due for retirement within 1- 3 years however his activity has been dormant for the last several years. Even though the hospital is running well with an enhanced level of professionalism, it is starting to appear that it has lost its focus and going nowhere. The various Departments have started to show lack of cohesiveness among themselves and trying to corner their share of limited financial resources and to safeguard their own interests. Besides employee turnover, is also turning to be an issue to be dealt with. (Analysis of Case Study)

The Pointers:- i) in terms of numbers of years put in business, the community Hospital has a distinct edge, but it could not utilize its long experience to its advantage. Running a hospital business for such a long period gives certain edge over its competitors who are new to the business due to lower operating costs, economies of scale, enough scope for modernization and offering several other value-added services. (ii) Its target consumers consist of people from the community of 13,000 people and also from the small and rural nearby towns whose total population is estimated to be 35,000. Due to its distance both from the nearby large city as well as the capital city, it cannot compete with the city hospitals as regards reach and availability of superior medical facilities. Besides, being a general hospital and not a multi-specialty one, its growth prospects have also suffered. In the present healthcare scenario, every hospital earns its popularity due to its excellence in a particular sphere of remedial care like cardiac or orthopedic or surgery etc. apart from providing a broad range of normal care services. Being a general hospital since long, it is losing its patients even from its community who might be visiting the city hospitals for specialized care.

A iii) One of the major problem of the Hospital has been ageing doctors who will be retiring within the next 10-15 years and unless replaced will face a critical shortage. This problem has to be addressed seriously as doctors are the backbone of the Hospital system. Young doctors are not forthcoming to initiate their practice in the region. (iv) Low occupancy rates below the breakeven point is another area of concern as continued subdued performance would render staying in business unprofitable in the long run. In that situation the Hospital would be unable to meet its fixed costs which will force itself to close down. (v) a revamping exercise is necessary as the Hospital has lost its sense of direction and just existing which it cannot for long. (Analysis of the Case Study)

Getting the Hospital on Track:

Mission and Vision:-

Midvale will be a regionally recognized health centre of choice for the nearby community. The Hospital will be a compassionate provider of patient-centric health services with importance on tertiary-level and specialty care, mainly for the nearby inhabitants. It has been envisioned that Midvale will be developing, sharing and applying new knowledge and technology in the delivery of patient care. Midvale Hospital will be playing a crucial role in promotion and improvement of health within the community. Midvale will be forging partnership to tackle the needs of the community and to build a robust, integrated system for regional health care delivery. (Vision, Mission, Key Success factors, Core Values)

Long-term goals:-

In order to be successful in the present intricate and often unfavorable business setting, Midvale's strategic direction must be evaluated, focused, and financially sustainable. Strategic business planning is an essential instrument to assist organization focus strategic preferences within the financial veracity of their setting. An efficient strategic business planning cycle comprises of performing an assessment, locating business objectives, developing strategy, conducting an impact analysis, and building an implementation plan. Strategic business planning brings into line strategic priorities with the financial realities. This translates into lesser priorities, implementation time frame which will be shorter and higher threshold for returns, or residual benefit in favor of the organization. The important steps in integrated strategic planning comprises of conducting an evaluation, locating business objectives, developing strategy, performing an impact analysis, and building an implementation plan. (Bachrodt; Smyth, 2002) i) Conducting a Market and Competitive Assessment: The sole firmness in the present era's healthcare scenario is a constantly changing set of assumptions regarding the future. The assessment stage sets the basis for planning. The intensity of analysis at the evaluation stage might change. Nevertheless, at least, three important areas of analysis are required which is defining future market scenarios, finding out a financial outlook, and identification of strategic advantages and weaknesses. Answering a few fundamental queries can develop future market scenarios. (a) How the demographic profile of the market of Midvale appear in the forthcoming five to ten years. (b) Will changes in the demographic pattern need our service area to be streamlined identically or differently in the coming years? - Are there going to be changes in the utilization rates for specific services go up, come down or remain unchanged. (d) Will advent of new technology create or alter the demand for specific services. (e) Will the present or anticipated market forces alter the delivery point for particular types of care? Replies to these types of queries can be modeled to set up a baseline and future market scenarios as a basis for planning. (Bachrodt; Smyth, 2002)

The outcomes must show both the market sizes for specific services and the demand forecasts for inpatient as well as outpatient service classes. During this period, market share is normally held fixed as a core planning assumption, with the potential share gains modeled inside specific strategies after sometime in the process. The genesis of strategic business planning is to secure, and if possible enhance, the financial situation of the organization, facilitating it to continue its mission well into the coming years. Midvale must build a macro level financial model connected to its demand forecasts and based on "most likely" supposition for revenue and expense categories. Certain level of capital costs connected to infrastructure and essential equipment replacement shall have to be included in the fundamental model. Including a yardstick component at this stage will assist in the identification of opportunities for improvement and sensitivity analyses for development of assumption.

Since business planning is concentrated on future investments in clinical enterprise, it is important to delve deeper than the income statement to the balance sheet, cash now statement, debt capacity, and availability of capital needed for the planning horizon. Utilizing the help of outside rating agency metrics adds one more layer of reliability. Till the level possible, Midvale must even examine the financial performance of its clinical service lines. This analysis will underline possible operating problems and set up a basis for evaluating future investment potential. The total baseline financial model will assist the organization evaluate its anticipated future position against established performance metrics fixed by the board. (Bachrodt; Smyth, 2002) ii) Performing an Impact Analysis: - Conducting an Impact analysis comprising market testing a financial modeling will assist in ensuring that a strategy posses merit. This analysis might comprise finding out particular capital and resource needs and taking the experience of the people who have pursued identical strategies. A lot of Hospitals take their strategies believing into them in the absence of testing their financial reality of their strategic direction. In case of visionary strategies specifically that might need considerable investment, it is crucial to appreciate the associated extent of risk and reward. Organizations which apply this level of strategy assessment set up further measure of accountability for the success of the strategy. The impact analysis identifies that financial position is dynamic.

Strategies might be restricted by the present financial realities; however they can propel future financial realities. Bedrock and bridge strategies can build the future financial reality which supports the visionary strategy. Short-term initiatives with short-term financial performance targets have the potential to build the resources for long-term initiatives. A deep impact analysis gives insight from two viewpoints: feasibility and desirability. Feasibility refers to whether in the event the strategy is implemented will the organization is viable on an ongoing basis. Besides, there is also the question as to whether the plan will be viable or not. Does it depend on heroic debt issuance or reduction of costs? Desirability: Will the organization be better off compared to what is would have been under the present situation or other options. (Bachrodt; Smyth, 2002)

Dependent on the net present value and internal rate of return estimates, it is important to find out whether incremental cash flows generated by the chosen strategy is better compared to the cash flows produced by the options. The impact analysis entails building a complete set of financial projections - income statements, balance sheet and cash flow statements in case of present situation and also for the alternative strategy. The financial return linked to the incremental pre-debt cash flows generated by strategy over the baseline is gauged. At times a strategy might have a lower financial return compared to the present set up or other options. Nevertheless, the organization might continue to go with the strategy in case it is achievable and sustainable. The time span covered by the financial projections must be 10 years at the minimum, especially in case important capital expenditures are envisaged.

Even though uncertainties mount with a longer time horizon, a well developed financial projection that must be 10 years at the minimum, especially in case substantial capital expenditures are visualized. Even though fears increased with a greater time horizon, a properly developed financial projection which distinctly relates the underlying movers with financial performance gives a basis on which to gauge success and gives signs when the adjustments must be made to the strategic plan. The strategic plan and the supporting financial plan are considered to be live documents which need adjustments with the changing situation. A long-term financial plan which is linked to the strategic plan shall let Midvale to appreciate whether it is on target and the positions where there might be shortfall of being able to finance its longer term strategies. The financial plan must be refreshed as an element of strategic planning cycle. (Bachrodt; Smyth, 2002)

Detailed Implementation Strategy:

First of all, Midvale must undertake the challenge of to offer revenue earning services which persuade present as well as prospective consumers that the hospital facility is uniquely made to fulfill their requirements. It will be the need of the hour to differentiate the services offered by Midvale through product lines. This can be done through capital investment and marketing activities which create value for their brand of care. Strategic market planning is described as the process of weighing the potential of the hospital with the opportunities available in its area and subsequently finding out the manner in which to best allocate resources. It is pertinent to find out areas wherein it surpasses competitors and take benefit of those strengths. But the important point lies in choosing product lines which are able to contribute to the hospital totally instead of benefiting a single discipline or service. (Martin; Kazemek; Worthy, 1991)

The starting point will be to undertake a severe market and financial assessment of present and proposed product lines, facilitating the CFO of a hospital and other planners to take decisions on allocating resources planned to generate long-term success. Team members of strategic planning will be developing forecasts to find out in case a product line will practically support a hospital's mission and its strategic plan. One method to fuse strategic planning and financial planning is to find out the admission rate per 1,000 people by age cohort in the hospital primary service area. Through observing the present admission rate and projecting the decision in admission rate per 1,000, Midvale Hospital will be able to find out where the trend of admission are in future. Thereafter the hospital should observe at the various product lines to note in case they are rising or plummeting and examine the product line costing. This will assist Midvale find out which markets will generate the strongest financial influence. (Martin; Kazemek; Worthy, 1991)

Together with finding out target markets, Midvale's strategic planning team must look at the interests and strengths of its medical personnel. This is important because it is widely seen that hospitals plan revolving their own activities and future and lose the sight of physicians. Nevertheless, as the doctors are the gatekeepers who have the initial contact with the potential patients, it is extremely important to have knowledge regarding their historical admission rate, and their future admission rate. After Midvale has found out the product lines offering potential growth, it must delve into the demand for these services. Information regarding consumers, their health status, and usage rates can help in finding out opportunities and challenges. Information on patient discharges can be used, to project future use of services.

The patients who are more than 65 years of age receiving Medicare benefits coming under diagnosis related groups show a high correlation with a necessity for skilled nursing care. The sample size of patients those who are suitable for skilled nursing care are found out by extracting records from the database of patients by age, by doctors attending, by their period of stay, and by structure of the charge. This process of filtration finds out the total number of patients during the last year that needed skilled nursing care. Besides data is required to be gathered on patients who stay longer than normal hospital stays. A survey of social workers can be made to get more information regarding the reasons why patients exceeded normal discharge expectations. It might be such that the patients were not in acute care but rather needed help with daily routines. (Martin; Kazemek; Worthy, 1991)