Survival Tactics for the Independent Rural Hospital

Rural Health Care Leadership Conference

February 12, 2013

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Presenter

Mike Williams, president & CEO

Community Hospital Corporation

Please note that the views expressed by the conference speakers do not necessarily reflect

the views of the American Hospital Association and Health Forum.

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Perspective

Total Number of All U.S. Registered Hospitals 5,754

Community Hospitals 4,985

Rural Community Hospitals 1,987

Critical Access Hospitals* 1,325

Urban Community Hospitals 2,998

Community Hospitals in a System 2,941

Community Hospitals in a Network 1,508

American Hospital Association’s Hospital Statistics, 2012 edition, data from 2010 annual survey.

* American Hospital Association Trend Watch (April 2011)

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Community Hospital Opportunities

• Community commitment

• Do what you do well

• Clinical integration

• Operational efficiency

• Advances in technology

• Meaningful use/financial improvement

• Strategic alternatives to preserve independence

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Challenges

• Growing number of uninsured

• Recruitment of physicians/specialists

• Physician alignment

• Policy and market changes

• Medicare and Medicaid cuts

• Economic downturn pressures

• Access to capital

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Partnership Conversations

• Community need

• Clinical service breadth

• Physician alignment and strength

• Revenue, sustainability

• Managed care leverage

• Compatibility of purpose

• Reputation

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Partnership Considerations

The more $$$ you need, the less control you will

have in your local governance.

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Partnership Considerations

Responsible action is more favorable than the last possible moment.

• Think proactively

• Board dynamic is critical

• Define your optimal terms

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Partnership Options

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Partnership Options

Among a continuum of options, each is unique:

• Clinical affiliation

• Joint venture relationship

• Lease relationship

• Merger

• Sale

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First, Get Your ‘House’ in Order

• Assess market position: know your market clout; it provides a position of strength during conversations with potential partners and physicians.

• Assess finances, profits: know operational areas of challenge and profitability.

• Industry transformation: educate the local board and hospital management about inevitable industry changes such as increased regulatory scrutiny and declining reimbursement rates.

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Next, Understand Your Strategy

• Clinical services: understand the hospital’s clinical

strengths, areas that can be expanded, and what is

lacking to appropriately serve area populations.

• Infrastructure: explore shared infrastructure and

areas where the hospital needs guidance

• Know what you are willing to give up.

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Potential “For Sale”

Where’s the fruit? Characteristics of a targeted community hospital: • Likely to target non-performing organizations

– Room for quick fiscal improvement – Stable demographics (but not as significant a factor) – Physician recruitment opportunity – Limited available capital for improvements

• In addition, look for: – Minimal managed care – Niche player – sole community provider – Opportunity for higher margins – Control Issues

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Tactics

• Target indirect stakeholders – Commissioners

– Physicians

– Former Board members

• Promise of $$$ – Can be very “promising”, particularly to a city or

county commissioner struggling with funding

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Case Study: St. Mark’s Medical Center

• Community-based acute care hospital built

in 2005 in Central Texas – 45 beds

– 2,280 annual admissions

– 10,050 ER visits

– 213 Employees

• Financial losses two years in row

• Looking for strategic partner – Operational and financial turnaround

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The Process

• Operational Assessment – Productivity, supply chain, clinical quality analysis

• Financial Analysis

• Medical Staff and Leadership Interviews

• Market Analysis – Demographics, market share

• Findings & Recommendations – Partnering opportunities

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Market Share by Facility

Source: St. Mark’s Medical Center (SMMC) facility inpatient discharges; Thomson Reuters, State Data Analyst; THCIC data inpatient discharges; April 2007 – March 2008; Normal Newborns excluded; SMMC does not report to THCIC

41.1%

10.8%12.0%

7.5%

28.6%

System Market Share

SMMC

Hospital B

System D

System C

All Others

Hospital Name

Market

Patients % Down

St. Mark's Medical Center 1,690 41.1%

Hospital B 443 10.8%

Hospital C 288 7.0%

Hospital D 247 6.0%

Hospital E 190 4.6%

Hospital F 170 4.1%

Hospital G 142 3.5%

Hospital H 94 2.3%

Hospital I 74 1.8%

Hospital J 73 1.8%

Hospital K 59 1.4%

Hospital L 51 1.2%

Hospital M 46 1.1%

Hospital N 46 1.1%

All Others 497 12.1%

Total Discharges 4,110 100.0%

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PSA Discharges

Source: SMMC facility inpatient discharges; Thomson Reuters, State Data Analyst; THCIC data inpatient discharges; April 2007 – March 2008; Normal Newborns excluded; SMMC does not report to THCIC

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PSA Discharges SMMC

System

D

Hospital

B

System

C

Hospital

E

Hospital

F

All

Others

Total

Market

Patients

General Medicine 399 44 123 38 1 32 112 749

Orthopedics 109 52 24 36 31 166 418

Pulmonary Medical 202 25 126 25 11 25 78 492

Cardiovascular Diseases 156 50 74 26 62 8 55 431

Cardio\Vasc\Thor Surgery 7 58 3 31 104 8 61 272

General Surgery 146 44 17 32 6 20 101 366

Obstetrics Del 251 70 33 5 39 398

Neuro Sciences 55 28 15 18 19 46 181

Nephrology/Urology 85 26 40 11 6 8 33 209

Normal Newborns 198 49 1 21 2 28 299

Oncology 20 23 8 25 1 29 106

Neonatology 64 38 1 11 4 17 135

Gynecology 55 16 8 15 25 119

ENT 9 3 2 6 5 12 37

Psychiatry 6 2 1 1 19 29

Rehabilitation 88 3 0 16 107

Obstetrics ND 35 11 1 3 4 54

Ophthalmology 0 1 0 1 2 4

Alcohol & Drug Abuse 3 0 3

Grand Total 1,888 542 444 330 190 172 843 4,409

Total Excl NN 1,690 493 443 309 190 170 815 4,110

Outmigration by Facility

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Source: SMMC facility inpatient discharges; Thomson Reuters, State Data Analyst; THCIC data inpatient discharges; April 2007 – March 2008; Normal Newborns excluded; SMMC does not report to THCIC; Outmigration does not include SMMC or Hospital B

Hospital Name

Market

Patients % Down

System D 52 12.4%

Hospital L 44 10.5%

System C 36 8.6%

Hospital F 31 7.4%

Hospital I 13 3.1%

Hospital K 12 2.9%

All Others (<12 Discharges) 97 23.2%

Total 285 68.2%

Orthopedic Outmigration

Hospital Name

Market

Patients % Down

Hospital E 62 14.4%

System D 50 11.6%

System C 26 6.0%

Hospital F 8 1.9%

All Others (<8 Discharges) 55 12.8%

Total 201 46.6%

Cardiovascular Diseases Outmigration

Hospital Name

Market

Patients % Down

System D 70 17.6%

System C 33 8.3%

Hospital K 10 2.5%

All Others (<10 Discharges) 34 8.5%

Total 147 36.9%

Obstetrics Delivery Outmigration

Hospital Name

Market

Patients % Down

System D 44 12.0%

System C 32 8.7%

Hospital F 20 5.5%

Hospital O 10 2.7%

All Others (<10 Discharges) 97 26.5%

Total 203 55.5%

General Surgery Outmigration

Recommendations & Outcome

• Become part of CHC

– Agreement to manage St. Mark’s

• Affiliate with System D (St. David’s/HCA)

– Clinical affiliation

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Summary

• Assess the future

• Be optimally efficient, clinically sound, geographically essential and mission-focused

• Community hospitals are an essential provider in the continuum of healthcare services

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Questions & Answers

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Thank You!

Community Hospital Corporation

5801 Tennyson Parkway, Suite 550

Plano, Texas 75024

972.943.6400

www.communityhospitalcorp.com

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