Health Care Strategic Planning

3 page essay from case study

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

COMMUNITY HOSPITAL HEALTHCARE SYSTEM:
A STRATEGIC MANAGEMENT CASE STUDY

Amod Choudhary, City University of New York, Lehman College

CASE DESCRIPTION

The primary subject matter of this case concerns strategic management of community

hospitals in the United States.

This case has a difficulty level of five; appropriate for first year
graduate level students. This case is designed to be taught in four class hours and is expected to
require twenty-four hours of outside preparation for students. For the graduate student, it
should be a half semester long group project with a presentation and report at the end of the
semester.

CASE SYNOPSIS

This case study analyzes the turbulent social, legal and technological issues that are
affecting today’s suburban community hospitals in United States. The soaring health care costs,
increasing number of uninsured or underinsured patients, reduced payments by government
agencies, and increasing number of physician owned ambulatory care centers are squeezing the
lifeline of community hospitals whose traditional mission has been primary care. Furthermore,
with the enactment of Patient Protection and Affordable Care Act in March 2010, community
hospitals are facing new challenges whose full impact is unknown. This case study would help
students learn about Strategy Formulation including Vision and Mission Statements, internal
and external analysis, and generating, evaluating & selecting appropriate strategies for a
healthcare organization.

COMMUNITY HOSPITAL HEALTHCARE SYSTEM

With the enactment of Patient Protection and Affordable Care Act in March 2010 (Health
Act), and President Obama’s professed goal of making heath care in the United States more
accessible and affordable, the next few years are sure to be very turbulent in the healthcare
industry. The Health Act is expected to provide healthcare coverage to 95% of Americans,
which will include an additional 32 million persons nationally (New Jersey Hospital Association,
2010). The Health Act goes into effect in 2010 with many of its requirements not becoming
effective until 2019. Directly because of the enactment of the Health Act, insurance premiums
are expected to increase anywhere from 2% to 9% depending on who is quoting them (Wall
Street Journal, 2010). The Health Act requires children to remain on their parents’ health plans

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

until age 26, eliminates copayment for preventive care, bars insurers from denying coverage to
children and adults (in 2014) with pre-existing conditions, eliminates lifetime caps on insurance
coverage, and requires setting up of insurance exchanges in all states (by 2014) through which
individuals, families and small business can buy coverage (Adamy, 2010; Pear, 2010).
United States spends approximately $2 trillion annually on healthcare expenses
(Underinsured Americans: Cost to you, 2009). This amount is more than any other industrialized
country in the world and counts for 16% of the U.S. GDP. This percentage is higher than any
developed country in the world (Johnson, 2010). Despite the substantial healthcare spending,
access to employer-sponsored insurance has been on the decline among low-income workers,
and health premiums for workers have risen 114% in the last decade (Johnson, 2010).
Furthermore, healthcare is the most expensive benefit paid by U.S. employers (Johnson, 2010).
Despite this outlay, approximately 49 million Americans are uninsured and about 25 million
underinsured–those who incur high out-of-pocket costs, excluding premiums, relative to their
income, despite having coverage all year (Abelson, 2010; Kavilanz, 2009). Overall, the
healthcare industry in America is besieged with high cost, uneven access and quality (Flier,
2009). The intractable issues of high cost, uneven access and quality have made everyone
unhappy from patients, hospitals, doctors to employers.

The American healthcare industry is composed of approximately six major interest
groups: hospitals, insurance companies, professional groups, pharmaceuticals, device makers,
and advocates for poor (Goldhill, 2010) with the Physicians–part of the professional groups–
having the biggest influence on the industry. Although hospitals constitute only 1 percent of all
healthcare establishments–hospitals, nursing and residential care facilities, offices of physicians
& dentists, home healthcare services, office of other healthcare practitioners, and ambulatory
healthcare centers–they employ 35% of all healthcare workers (U.S. Department of Labor,
2010).

Community Hospital Healthcare System

Community Hospital Healthcare System is a not-for-profit organization located in
Monmouth County, New Jersey. With its 282 beds and 2400 employees including 450
physicians, Community Hospital serves approximately 340,000 residents in four suburban
counties of central New Jersey. The Community Hospital Healthcare System is a holding
corporation made up of (i) Community Hospital Medical Center, (ii) Applewood Estates, (iii)
The Manor, (iv) Monmouth Crossing, (v) Community Hospital Healthcare Foundation Inc., and
(vi) Community Hospital Healthcare Services, Inc. (a for-profit-corporation).

Community Hospital Medical Center (Community Hospital) is a general, medical and
surgical community hospital offering an array of primary and secondary services, including:
cardiology services, magnetic resonance imaging (MRI), diabetes services through Novo
Nordisk Diabetes Center, emergency services, endovascular surgery, inpatient psychiatric

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

services, maternity care (single room) and special care nursery, oncology, radiation oncology,
rehabilitation, short stay unit, Sleep Disorders Center, Women’s Health Center, and dialysis unit.
Community Hospital Medical Center operates a Family Medicine Residency program in
affiliation with the Robert Wood Johnson/UMDNJ Medical School.

Community Hospital has been selected as one of the best places to work in New Jersey
by NJBiz–a business publication–and landed at 20th place among 100 best places to work in
healthcare by Modern Healthcare magazine in 2009. The American Nurses Credentialing Center
has re-designated Community Hospital Medical Center a magnet status for excellence in nursing
and patient care in 2010 (Community Hospital Healthcare System, 2009 Annual Report). Only
6% of hospitals in U.S. hold Magnet designation and only 3% have earned re-designation one or
more times (Community Hospital Healthcare System, 2009 Annual Report). Community
Hospital is also a designated Primary Stroke Center. Finally, a nationally recognized firm has
ranked Community Hospital among the top 5% of hospitals in the U.S. for patient satisfaction
(Community Hospital Healthcare System, 2009 Annual Report).

Applewood Estates is a continuing care retirement community with 290 apartments, 20
cottages, 40 residential health care units, and 60 bed skilled nursing facility.

The Manor provides nursing services for 123 elderly residential units including sub-
acute, rehabilitation and intravenous therapy.

Monmouth Crossing provides assisted facility for the elderly consisting of 76 units.
Community Hospital Healthcare Foundation Inc. seeks and invests funds for the benefit of all
components of the Community Hospital System except for the Community Hospital Healthcare
Services, Inc.

Community Hospital Healthcare Services, Inc. is a for-profit entity that provides related
services or participates in joint ventures of related services that do not meet criteria for being tax-
exempt. Examples include an ambulatory diagnostic imaging business and a public fitness club.
It also holds certain real estate in support of the Community Hospital.

Vision–an organization of caring professionals trusted as our community’s healthcare
system of choice for clinical excellence.

Mission–to enhance the health and well-being of our communities through the
compassionate delivery of quality healthcare.

Community Hospital’s mission and vision is borne out of six Strategic Imperatives–
known as pillars. They are: (i) growth and development, (ii) community involvement &
outreach, (iii) physician integration, (iv) customer service, (v) high performance and (vi) renown.
According to John Gribbin (personal communication, August 16, 2010), CEO of Community
Hospital, use of technology underpins each of the six strategic imperatives and is used to achieve
goals pertaining to the Strategic Imperatives.

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

COMMUNITY HOSPITAL DILEMMA

Traditionally community hospitals have defined themselves to be center of Primary care,
i.e., place for general medical and surgical care. Unfortunately, under the current health care
industry practices, general medical and surgical care which form the core of a community
hospital tend to be less profitable than specialty care–heart, trauma and, transplant centers.
Additionally, while primary care is increasingly viewed as the long-term solution to U.S. health
crisis, many argue that the Health Act does little to change the economics of specialty vs.
primary care. For community hospitals like Community Hospital, this is not good news.
Community Hospital’s mission is primary care, but it is challenged as to how to develop other
services that which are complementary to its mission of primary care that effectively subsidize
its commitment to primary care.

Based on market share, Community Hospital faces two direct competitors and other
peripheral competitors as it tries to maintain its position as the community’s healthcare system of
choice for clinical excellence and meeting the health delivery needs of residents in central New
Jersey.

Shore University Medical Center (SUMC)

Shore University Medical Center is a 502 bed regional medical center that specializes as
the region’s only advanced pediatric clinical care hospital. SUMC is also a Level II Trauma
Center, with an affiliation with the University of Medicine and Dentistry of New Jersey —
Robert Wood Johnson Medical School. It is located in Neptune, NJ and competes with
Community Hospital in eastern region of Monmouth County, NJ.

SUMC is part of the three-hospital member Meridian Health Systems. SUMC has also
received the prestigious Magnet award for nursing excellence three times. It has been designated
by J.D. Power and Associates as a Distinguished Hospital for Inpatient
Services (2006) and received the New Jersey Governor’s Award for Performance Excellence
(2005). With their Meridian partner hospitals, SUMC has also received the following awards:
FORTUNE’S “100 Best Companies to Work For” (2010), Best Places to Work in New Jersey”
for five consecutive years by NJBiz, New Jersey’s Outstanding Employer of the Year in 2003 and
2009, One of the top 100 Most Wired Health Systems in the United States for 10 consecutive
years, and John M. Eisenberg Award for Patient Safety, one of the highest recognitions in the
nation for hospital quality.

University Hospital (UH)

UH is unique among the three hospitals because of its size and breadth and depth of
medical services provided and specialties offered. UH is a 610-bed academic medical center and

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

a teaching hospital of UMDNJ-Robert Wood Johnson Medical School in New Brunswick, NJ.
UH competes with Community Hospital in the northern and western part of Monmouth County
and eastern and northern Middlesex County. Since it is a teaching hospital, UH provides
services and speciality care that Community Hospital would not be able to provide even it
desired to do so. UH is a Level 1 Trauma Center, with a separate Bristol-Meyers Squibb
Children’s Hospital (BMSCH) with research and rehabilitation facilities. Moreover, UH
specializes in cardiac procedures including heart transplants, has a cancer hospital, offers state of
the art robotic surgery and provides kidney transplant services.

UH is recipient of many awards and recognitions: (i) one of America’s best hospitals
according to U.S. News and World report, (ii) “Hospital of the Year” by NJBiz, (iii) top-ranked
cancer programs, (iii) recognized exceptional U.S. hospitals in quality and safety, (iv) recipient
of Magnet Award for nursing excellence, (v) award for excellent stroke care by American Heart
Association, and (vi) high patient satisfaction ranking by the patients of BMSCH.
Tables 1 to 5 below provide data that should be used to determine the competitive
advantage/core competencies of Community Hospital. The tables represent data and ratios about
hospital finance (tables 4 & 5), safety and mortality rates (tables 2 & 3), and patient experience
(table 1).

Table 1: Hospital Experience Survey (%)
CMC SUMC UH NJ Avg.
Patients who reported that their nurses “Always” communicated well. 74 75 73 72
Patients who reported that their doctors “Always” communicated well. 78 75 76 76
Patients who reported that they “Always” received help as soon as they
wanted.

60 59 59 56

Patients who reported that their pain was “Always” well controlled. 69 69 67 66
Patients who reported that staff “Always” explained about medicines
before giving it to them.

59 57 58 55

Patients who reported that their room and bathroom were “Always” clean. 64 62 64 66
Patients who reported that the area around their room was “Always” quiet
at night.

48 49 49 50

Patients at each hospital who reported that YES, they were given
information about what to do during their recovery at home.

77 76 81 77

Patients who gave their hospital a rating of 9 or 10 on a scale from 0
(lowest) to 10 (highest).

68 62 66 60

Patients who reported YES, they would definitely recommend the hospital. 69 68 74 64
This table provides data from a survey that asks patients about their experience during a recent
hospital stay. http://www.hospitalcompare.hhs.gov/ August 11, 2010.

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

Table 2: Hospital Mortality Rates Outcomes of Care Measures
CMC SUMC UH

Death Rate for Heart Attack Patients
No different

than

U.S. National Rate

No different than

U.S.

National Rate
No different than

U.S. National Rate

Death Rate for Heart Failure Patients
Better than U.S.
National Rate

Better than U.S.
National Rate

No different than
U.S. National Rate

Death Rate for Pneumonia Patients
No different than
U.S. National rate

No different than
U.S. National Rate
No different than
U.S. National Rate

Rate of Readmission for Heart Attack Patients
No different than
U.S. National rate

No different than
U.S. National Rate
No different than
U.S. National Rate

Rate of Readmission for Heart Failure Patients
Worse than U.S.

National Rate
No different than

U.S. National Rate
No different than
U.S. National rate

Rate of Readmission for Pneumonia Patients
Worse than U.S.

National Rate
No different than

U.S. National Rate
Worse than U.S.

National Rate
This table measures the hospital mortality rates for the three hospitals and compares those results with
U.S. National Mortality Rates. http://www.hospitalcompare.hhs.gov/ August 11, 2010.

Table 3: Recommended Care/Process of Care: Hospital Overall Scores (%–higher score is better)
CMC SUMC UH Top 10% of

Hospitals scored
equal to or higher

than

Top 50% of
Hospitals scored

equal to or higher
than

Heart Attack Overall Score 96 99 98 100 97
Pneumonia Overall Score 93 96 83 99 96
Surgical Care Improvement
Overall Score

90 97 95 98 95

Heart Failure Overall Score 89 97 91 100 96
This table compares Heart Attack, Pneumonia, Surgical Care and Heart Failure Care among the three
Hospitals and other hospitals in State of NJ. New Jersey Department of Health and Senior
Services, Web.doh.nj.us/…/scores.aspx?list…, downloaded August 13, 2010

.

Table 4: Ratios and Indicators
CMC SUMC UH
Average Length of Stay (days) 3.6 4.6 5.0
Medicare Average Length of Stay (days) 4.7 5.7 6.5
Occupancy Rate for Maintained Beds (%) 78.8 77.7 82.1
Operating Margin Ratio (%) 2.4 2.9 0.1
Total Margin Ratio (%) 8.7 9.3 8.6
Current Ratio 3.97 2.23 1.51
Modified Days Cash on Hand Ratio 241.6 194.4 250.2
Net Patient Service Revenue 6,206 7,287 8,653
Total Expenses per Adjusted Admission 6,286 7,405 8,783
Charity Care Charges as percentage of total Gross Charges 4.0 4.4 5.0
Provision for Bad Debt as Percentage of Net Patient Service Revenue 1.9 4.3 5.0
This table provides ratios for Utilization, Financial Health and Operational Performance for three hospitals.
FAST Reports, New Jersey Hospital Association.

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

Table 5: Key Statistics for Community Hospital
2007 2008 2009
Beds 271 276 282
Births 2,026 1,869 1,749
Emergency Department Visits 60,344 60,828 64,460
Family Medicine Center Visits 18,424 20,046 19,482
Health Promotion Visits 53,291 51,072 50,880
Patient days (including same-day surgeries) 83,968 82,533 76,635
Physical/ Occupational Therapy Treatments 92,911 106,856 122,871
Radiology/Imaging Procedures 125,117 130,108 127,913
Surgeries 15,092 14,033 13,309
Employees 1,664 1,743 1,770
Uncompensated Healthcare 10,537,747 10,885,754 10,390
Bad Debt 2,750,418 2,930,189 3,561,270
Senior Living Communities Occupancy Rates (avg. in %) 90.5 91.4 89.3
This table provides key statistics for Community Hospital for past three years. 2007- 2009 Community
Hospital Healthcare System Annual Reports.

Outlook

The population of Monmouth County, NJ is set to increase from 646,088 to 657,798 from
2009 to 2014. The median age will also increase from 40 to 41, and per capita income will
increase from $40,189 to $42,166 during the same period (North Carolina Department of
Commerce, 2008). The CEO of Community Hospital worries that with each passing day the
continued viability of his hospital becomes difficult. Moreover, he believes that the Health Act
will hurt Community Hospital’s bottom line by about a $1 million per year. However, the CEO
believes that Community Hospital is well positioned to meet its challenges and will succeed,
albeit with hard work, talented employees and some luck.

Federal government through Medicare and Medicaid provides Community Hospital’s
revenue of about 45%. Generally, Medicare and Medicaid payments to hospitals are
approximately 20% less than the actual cost (Arnst, 2010). Remaining revenue of Community
Hospital comes mainly from insured patients. Community Hospital, like most hospitals across
the country receives most revenue from treating complex health care diseases such as surgeries
and procedures that require hospital stay and care. Ominously for Community Hospital, due to
diffusion of health care technologies, services with most revenues are moving away to private
surgery centers owned by physician groups. Additionally, the enactment of the Health Act will
lead to reduction of approximately $1 million to Community Hospital’s bottom line. The
challenge for strategists at Community Hospital is to provide primary care and charity care (NJ
law requires every hospital to medically stabilize anyone–regardless of insurance or ability to
pay–and treat those patients to the full extent of services offered by the hospital) in a weakened
economy with increasing charity care expenses and rising bad debt. The strategists must find

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Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012

new sources of revenue to allow Community Hospital to support its mission while secure enough
funds to meet its commitments to primary and uncompensated care.

CONCLUSION

Community Hospital is in a challenging environment due to changing demographics,
highly regulated health care industry and having an uneven playing field compared with
physician owned surgery centers. Matter of fact, one-third of the nation’s community hospitals
had operating losses in 2008 (Nussbaum & Tirrell, 2010). Patients with good jobs and
appropriate health insurance are leaving the region, while physicians are taking high revenue
procedures to privately owned surgery centers. Additionally, with the reduced Medicare and
Medicaid reimbursements and increasing charity care/bad debt cost; Community Hospital needs
to create a new sustainable business model. Please prepare a strategic plan that will steer
Community Hospital through the turbulent times ahead.

REFERENCES

Abelson, R. (2010). Bills Stalled, Hospitals Fear Rising Unpaid Care. Retrieved February 9, 2010, from

http://www.nytimes.com/2010/02/09/health/policy/09hospital.html?emc=eta1&pagewanted
Adamy, J. (2010). Health Insurers Plan Hikes. Retrieved September 7, 2010, from www.wsj.com.
Arnst, C. (2010, January 18). Radical Surgery. Bloomberg Businessweek, p. 40.
Community Hospital Health Care System. 2009, 2008, 2007 Annual Reports. Freehold, NJ.
Flier, J. (2009). Health ‘Reform’ Gets a Failing Grade. Retrieved November 17, 2010, from

www.wsj.com/…/SB1000142405274870443
Goldhill, D. (2009). How American Health Care Killed My Father. Retrieved January 20, 2010, from

www.theatlantic.com/doc/print…/health-care
Johnson, T. (2010). Healthcare Costs and U.S. Competitiveness. Retrieved January 31, 2010, from

www.cfr.org/…/healthcare_costs_and_us_co…
Kavilanz, P. (2009). Underinsured Americans: Cost to You. CNNMoney.com. Retrieved January 31, 2010, from

http://CNNMoney.com
North Carolina Department of Commerce. (2010). Monmouth County (NJ) January 2010. Retrieved January 31,

2010, from https://edis.commerce.state.nc.us/docs/countyProfile/NJ/34025
New Jersey Hospital Association. (2010). FAST Reports. Princeton, NJ.
New Jersey Hospital Association. (2010). Memorandum to Chief Executive Officers. Princeton, NJ.
Nussbaum, A., & Tirrell, M. (2010). Health Reform is Dead. Let’s go Shopping. Bloomberg Businessweek, p.49.
Pear, R. (2010). Health Plan Won’t Fuel Big Spending, Report Says. Retrieved September 9, 2010, from

www.nytimes.com/2010/09/../09health.html…
New Jersey Department of Health and Senior Services. (2010). Hospital Performance Report. Retrieved August 13,

2010, from http://web.doh.state.nj.us/…/scores.aspx?list…
U.S. Department of Labor, Bureau of Labor Statistics. Career Guide to Industries:
2010-2011 Edition. Retrieved January 31, 2010, from http://www.bls.gov
Wall Street Journal (2010). Sebelius has a List. Retrieved September 13, 2010, from www.wsj.com

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Assessment 1 Overview of Strategic Plan

Preparations

Prepare a 3 page overview of the strategic planning process that identifies the strategic planning outcomes, describes the key components of the planning process, defines the planning schedule, and analyzes past strategies to determine reasons for success or failure.

What are the components of a strategic plan?

Why is each component important to the success of the overall plan?

Assessment Instructions

Your overview should address the following:

1. Identify the strategic planning outcomes. Keep in mind that the outcomes should be specific and measurable.

2. Describe the key components of the strategic planning process.

3. Define the strategic planning schedule.

4. Analyze past strategies to determine the reasons for their successes and failures. *Explain the strategies used in the past.

5. Identify the factors that contributed to the success or failure of the strategies.

6. Explain how this information can be used to improve your process as you complete the assessments in this course.

Additional Requirements

Include a title page and reference page.

Number of pages: 3, not including title page and reference page.

Number of resources: At least 3.

APA format for citations and references.

Font and spacing: Times New Roman, 12 point; double-spaced