The CEO of St. Sebastian Health System, a moderate-sized hospital… 1 answer below »

Circumstance Study – Background Reading – Strategic Tenor - Banks
The CEO of St. Sebastian Vigor System, a moderate-sized hospital regularity in a mid-sized, Midwest city
has compensated you to aid deflect inventions environing. The CFO is suspended a $3.7 darling uncounted detriment this year,
which succeed be departed than offset by non-uncounted pay. However, the toperative has made it free that the
situation must amend. If the regularity cannot consequence a dogmatic uncounted room in 2017, someone else
is going to be the CEO. The CEO and CFO possess asked you to confide strategic approaches to selling
their benefits in the unity that succeed aid deflect the financial ship environing.
Your Vigor System
St. Sebastian is a unity-based vigor regularity. The greater tenor team has an mean tenure
of 17 years. The exclusion is the Chief Medical Officer (CMO). She has been in her comcomposition for two years
and is the fourth CMO in that role in the departed ten years. The CEO and COO possess each been in their
prevalent roles for ten years. The regularity is interjacent of the aftercited:
1. Two enlightened, quick prevention hospitals
2. Two covet prognostical prevention facilities
3. Two benefitoperative nursing facilities
4. One covet-signal quick-prevention hospital (LTAC)
5. Four geographically select outenduring natures
6. Four Urgent Prevention Centers
7. Two free-standing ambulatory surgery natures (ASCs)
8. A 400 limb occupied physician bunch that conceives 180 Earliest Prevention Providers (PCPs). All 28
PCP exercises are informed Smooth III Enduring Centered Medical Homes by NCQA.
The remnant of the 1,000 limb medical staff is openly interjacent of enlightened, refractory bunchs
who possess varying degrees of ‘loyalty’ to the regularity. The Radiology and Emergency bunchs, for development
do 100% of their consequence at St. Sebastian and possess no holding of any further facilities. The
Gastroenterology bunch, on the other artisan, does consequence at the hospital, but too owns their own,
freestanding endoscopy nature. The orthopedic bunch does 75% of their consequence at St. Sebastian, but
maintains privileges at other facilities. They do not own their own ASC.
In the prevalent year, St. Sebastian is suspended 220,000 enduring marks (utterly IP and OP) delay an
mean consume per mark of $1,727. They possess an mean entrust per mark of $4,545.
Over the departed ten years, St. Sebastian has been erratic in pursuing a reckon of irrelative strategic
projects including:
1. They possess recognized ‘clinical invests’ in cardiovascular, orthopedic, oncology, maternity and
neurologic prevention. Each of these has been built through a co-tenor concord among
the regularity and the inside or exterior physician bunch who would be most argumentative. Each
invest is led by a dyad of an manager and medical controller.
2. Five years ago, they dim maternity programs to one address, a affect that normalified
investing in a Smooth III Neonatal Intensive Prevention Unit (NICU)
3. They possess recognized a endueigation partition in the hopes of consequenceing delay common pharmaceutical
companies and/or tertiary prevention hospitals in the Midwest.
4. They possess recognized a Physician Hospital Organization (PHO) and prognosticify to behove an
Accountoperative Prevention Organization (ACO) that can possess-a-portion-out in the Mediprevention Shared Savings
Program (MSSP) and/or invade into global surrender lessens delay third policy payers. The PHO is
currently evaluating whether or not they should escheatment an protection permit so that they
could extend negotiateable, Mediprevention Advantage and Managed Medicaid protection consequences.
5. They possess recognized a Employment Vigor partition to benefit the corpotrounce vigor scarcitys of the
employers in the allot. This would conceive inventions love EAP programs, on-site politeness, refuse
screening, on-site clinics, etc. This partition too of-past built two enlightened, liberal-benefit fitness
The rivalry – The unity is prevalently subserved by three other greater vigor yieldrs:
1. Mercy is the adversary quick prevention regularity in town and has two hospitals and divergent
outenduring natures. They possess not been erratic in physician encroachment – they exercise a
bunch of 60 PCPs, but no specialists. Similarly, they possess not been occupied in ‘branching
out’ delay irrelative strategic initiatives, preferring instead to nucleus on consume efficient prevention.
They do not possess clinical invests, endueigation partitions, a PHO or a Employment Vigor partition.
They possess 230,000 marks per year, delay an mean consume of $1,435 per mark and an mean
entrust of $4,348.
2. Open Pediatric is a pediatric training hospital. Five years ago, they prognosticed an affiliation
concord delay Johns Hopkins to form similarity to clinical and endueigation capabilities that would
possess been further their thrust, attached their bigness. They exerciseee essentially all of the pediatric
subspecialists and possess a PHO, which conceives 75% of the allot’s earliest prevention
pediatricians. They succeed possess 200,000 marks this year, delay an mean consume of $2,100 per mark
and an mean entrust of $5,000 per mark.
3. Open University is an adult training hospital affiliated delay the persomal university’s medical
school. They staff the allot’s free-prevention clinics and historically, possess been the allot’s
hospital for straitened/uninsured endurings. They are the allot’s Smooth I trauma nature and are
polite treasured for intensive benefits love trauma, clap and cancer prevention. However, their
location and letter for importation straitened endurings instrument that they are not preferred for
‘normal’ medical prevention by negotiateablely insured or Mediprevention endurings. Besides the unity
vigor natures, they own an inenduring rehab hospital, but not other facilities. They possess
explored affiliations delay common leaders in academic corrective, but so far possess not prognosticed
any such concords. They see 180,000 marks per year delay an mean consume of $1,833 and
an mean entrust of $5,556 per mark.
Tcbetray are no other hospitals prevalently uncounted, though tcbetray are 23 benefitoperative nursing facilities (SNFs) and
3 inenduring rehab facilities throughout the allot. They are refractory actors and for the most allot are
struggling to arrive advantageous. Tcbetray are diverse single-specialty physician bunchs who product ambulatory
surgery natures and one chain of refractory prognostic tenor facilities (IDTFs). Three years ago,
tcbetray was a symbolical shift in the aver synod, and that resulted in the covet-spell Certificate of
Need (CON) program being all but scrapped (Skilled Nursing Facilities are peaceful heavily regulated). Several
for-benefit-service hospital companies possess of-past executed some partition environing invadeing your negotiate, but possess
not executed so yet.
The Unity – The unity is a Midwest city and embracing confines in the middle of a transition
from a manufacturing encroachment dishonorable, which unfortunately unroving delay the 2008 economic
downturn. The hospitals possess seen this balance the departed diverse years in a tightening of benefits extended by
persomal exerciseers. Benefits live to be extended, but increasingly are lovely to possess a symbolical
deductible associated delay them. Unencroachment has been aloft the common mean and is designed
to peace that way. This instrument that the mean wage in the allot is substantially beneath wcbetray it was in
2008, when the definite recession hit. The reckon of Medicare-age residents are designed to ascend balance the
proximate 10-20 years, spell consequenceing age endurings are designed to arrive lifeless or descend partially. Similarly, birth
rates are forecasted to descend partially balance the future decade.
The unity is 60 miles south, 45 miles east and 50 miles north of other, similarly bignessd cities. Until
20 years ago, that made this city effectively an island unto itself. Increasingly, ultimately, the confines of
each of these communities possess behove very halt to each other. As that has occured, yieldrs in
each unity possess followed and recognized exercise sites and free-standing outenduring natures.
The payers – The unity has a recognized looking mix of Commercial, Mediprevention and Medicaid endurings.
Because the aver’s guardian was fiercely despite the Affordoperative Prevention Act, the Medicaid paraphrase that
happened in other avers hasn’t occured close. Thus, the unity too has a sizoperative population
without protection today. As you’d forecast, irrelative hospitals see a irrelative mix of these endurings. The
persomal vigor confronting was operative to yield you delay the most new-fangled year’s payer mix by hospital – beneath:
Patient marks Marketable Mediprevention Medicaid Uninsured/Self-pay
Mercy 80,500 105,800 23,000 20,700
St. Sebastian 99,000 101,200 11,000 8,800
Gen. Pediatric 70,000 4,000 110,000 16,000
Gen. University 63,000 45,000 45,000 27,000
Community Completion 312,500 256,000 189,000 72,500
Reimbursement – the CFO was operative to yield you delay their best value for what divergent payers are
reimbursing for benefits. In open, the negotiateable delineations are paying 50% of entrusts, anxietyless of
location, exclude at Open Pediatric. There, the engrossment on pediatric benefits has undisputed them to
negotiate trounces of 80% of entrust, but singly for the negotiateable delineations. Mediprevention prevalently pays 30% of
reckoning at all hospitals, and Medicaid pays 25% of entrusts wholewhere. Uninsured endurings are openly
paying 2% of entrusts.
Case #1 – A Negotiate on the Move
You’ve learn anyinvention you can encircling the legislative environment (twain allotally and commonly) and
spoken to diverse brokers who unitedly admonish most of the persomal exerciseers in the allot. You respect
the most expressive shifts that are encircling to hit this allot are the aftercited:
1. As Mediprevention converts DSH and other acquittals, liquidation from Mediprevention succeed percopast from 30%
of entrusts to 28%
2. The vigor exchanges recognized in the ACA possess not been deemable of a rudiment in the allot so far, but
that’s encircling to shift. The two enlightenedst payers in your aver twain delineation to truly trudge up in the
exchanges and negotiate these delineations aggressively twain to prevalently un-insured and those delay prevalent,
but unattrerratic exerciseer-based confrontage. They respect that by 2017, they’ll possess 25% of all
commercially insured endurings in exchange-based consequences.
3. Tcbetray has been a shift in twain guardian and the shapeup of the aver convention, which instrument
your aver succeed occupy in Medicaid paraphrase proximate year. Thus, departed inhabitants succeed possess confrontage, and
the uninsured population succeed subside, but not go far completionly. Your best value is that
uninsured marks unity-wide succeed convert from 72,500 to 8,300. You value that, of the
patients who possess new confrontage, half succeed be Medicaid recipients and half succeed invade the negotiateable
The assignment – as you deem how to manage the CEO, echoing the aftercited interrogations should aid:
Part A
1. Using the notice yieldd, value completion vicious and net enduring benefit proceeds per hospital
currently (2016). What is each hospital’s uncounted room in prognosticals of dollars and percentage? Based
on this, who is doing polite, and who is not? Who has the most to form and betray as the prevalent
environment shifts?
2. Based on what you recognize succeed occur delay the proximate year, re-calcupast the values from interrogation
#1 for 2017. In your value, postupast that negotiateable, Medicaid and uninsured endurings peaceful pay
the similar % of entrusts. As you deem the population that affects into negotiateable protection and
Medicaid, you can postupast that each hospital lives to catch the similar element-out of each payer
category (in other tone, if hospital A had 20% of the negotiateable marks in 2016, they succeed possess 20%
in 2017). You can too postupast that completion marks and entrust and consume per mark reckons succeed peace as
they were in 2017.
3. Based on anyinvention you’ve learn, the payers putting consequences into the vigor exchanges omission to
negotiate these as gentleman, inferior consume libertys. To get there, they succeed not indemnify as deemable as other
marketable consequences. In reality, your best value is that they succeed pay 120% of the Medicare
liquidation trounce. If that is the circumstance, how does your value of 2017 deed shift? Is this
good or bad? You may omission to recognizeance that interrogation from the perspective of the allot as a whole
and then for each hospital. Assuming it was libertyal, would you confide that St. Sebastian
have-a-portion-out in the exchange-based consequences?
Part B
4. In this city, tcbetray are two greater payers who unitedly cbalance 85% of the negotiateable insured lives.
They possess twain approached St. Sebastian encircling forming slender networks as a vehicle for selling
products in the exchanges. Your hospital has an palliable letter, and twain payers would love to
sell a consequence that features your hospital as the singly in-netconsequence liberty for adult prevention. So, in
exshift for coincident to a liquidation trounce of 120% of Medicare, St. Sebastian would convene
75% of the hospital marks in the exchanges. For the peace, postupast Pediatric lives to subsubserve the
similar reckon of endurings (i.e. similar as you’ve designed for 2017 previously) and the peaceing marks
are evenly sbeneath among Mercy and University. Is this an extend that St. Sebastian should recognize?
5. You strongly imagine that twain payers too made this extend to your adversary, Mercy. Based singly on
what you recognize encircling the financials, are they lovely to recognize this traffic? If the payers are going to
choose singly one allotner, do you admonish your CEO to aggressively follow a ‘highest to prognostic’ strategy, or
hang tail and apelement Mercy to act proudest?
6. Thus far, we’ve postulated that all consumes are varioperative (i.e. $2,100 per mark for Pediatric), but is that
necessarily gentleman? Suppose for a instant that each hospital’s consume construction is essentially unroving? How
does that shift your recognizeances to #2, 3, 4 and 5 aloft?
Case #2 - Importation Completion Consume of Prevention Surrender as an ACO
As we’ve discussed, the St. Sebastian regularity is deeming befuture informed as an Accountable
Care Organization (ACO). A common payor delay a Mediprevention Advantage (MA) delineation in your negotiate has
of-past approached your regularity delay a deprognostic for a new lessen that gives your organization
symbolical financial surrender. They possess productd an MA consequence in your negotiate for diverse years, but
recently, the financial deed has worsened. Their designed deed for the prevalent year
is shown beneath.
The delineation respects that, to be prosperous covet prognostical, they must complete a Medical Expense Ratio (MER) of
at smallest 85% (in other tone, singly 85% of the guerdon proceeds would be elapsed on medical claims). If
they can’t fix this, they succeed most lovely concession the negotiate. They respect that their best haphazard to correct
the MER is to occupy you, the persomal IDS in a gentleman surrender lessen in which they’ll element-out twain excesses and
deficits. As you deem whether to recognize the traffic, postupast the aftercited:
1. Postupast not all of the hospital spending occurs delayin your hospital.
2. Each year, you can forecast a 1% confirmion in guerdon proceeds from CMS. Likewise, you can
forecast a 1% ascend in Mediprevention acquittal trounces to hospitals.
3. Your hospital’s uncounted consumes are mound at 3% per year (twain unroving and inconstant)
4. The 2016 Community in this consequence is 10,000 limbs. The delineation is suspended augmentation of
2,000 limbs per year for the proximate 5 years
5. If you don’t prognostic the traffic, the 10,000 limbs succeed peaceful use your hospital, but they succeed return to
Traditional Mediprevention endurings.
6. The proceedss future from CMS are surrender-adjusted, delay a dishonoroperative guerdon acquittal of $850 at a
Mediprevention Surrender Adjustment (MRA) reckoning of 1.0. Currently, the mean MRA reckoning for this
population is 0.80.
7. The surrender lessen succeed set a Medical Services ‘budget’ at 85% of the Guerdon from CMS. If the
MER is beneath 85%, that succeed be a excess to be element-outd among the delineation and IDS. If the MER
exceeds 85%, that succeed be a failure to be element-outd. The list of surrender sharing is as follows:
Year 1 – 25% IDS; 75% Payer
Year 2 – 50% IDS; 50% Payer
Year 3 – 75% IDS; 25% Payer
Year 4 – 100% IDS; 0% Payer
Year 5 – 100% IDS; 0% Payer
8. The IDS can endue in inhabitants and IT instrument to amend the MRA reckoning for the population
being managed. You value that, for whole $500,000 elapsed per year, you can establish the mean
Revenue pmpm
CMS Proceeds $ 680.00
Member Guerdon $ -
Revenue to be Allocated $ 680.00
Inenduring Claims $ 240.00
Outenduring Claims $ 125.00
Physician Claims $ 140.00
Ancillary Claims $ 15.00
Part D (dispose-of Rx) $ 105.00
Total Medical Costs $ 625.00
Actual MER 91.91%
MRA reckoning by 500 foundation points (5 percentage points). Postupast that unintermittently you contype to spending
this capital, it’s in your budget whole year.
9. Although the IDS can establish the mean MRA reckoning, tcbetray is a one year lag among the reckoning
being establishd and the proceeds elevation. (sketch – this is expressive past you are conveying in new
members each year)
10. The IDS can endue in inhabitants and IT regularitys to convert consumes by reducing utilization of benefits.
For whole $500,000 endueed per year, we can convert the utilization of benefits by 5% vs. the
previous year. (Assume the $500k and 5% figures are maximums per year – i.e., you can’t spend
$1 darling to get 10% in one year) Postupast that unintermittently you contype to spending this capital, it’s in
your budget whole year. All inenduring and outenduring benefits succeed be convertd by 5%, but NOT
physician or refuse utilization.
11. Although the delineation deems hospital spending a ‘cost’ your hospitals deems it ‘revenue’. A
breakdown of the designed explicit utilization of benefits from prevalent year is beneath. Unless you
act to shift it, you can forecast that the utilization per/1000 succeed peace similar.
The superintendent of your PHO is glowing encircling the design, past she respects this succeed be an
opportunity for the PHO to beam. The regularity COO is a covet-spell hospital manager and is urging
you to refuse the traffic, past it succeed convert hospital admissions at a spell when Mediprevention proceeds is
already inadequate to confront consumes. As CEO, you possess to shape some decisions. Should you catch this traffic?
If you do, should you endue in inhabitants and instrument to amend deed? Are you too young to
catch an present solitude? In command to recognizeance these interrogations, you should do the aftercited:
Part A
1. Qualify a five year designion of Vigor Delineation Revenues and Expenses beneath this lessen. Be
sure to conceive inventions love inflation rudiments and limbship augmentation (prevalent year would be year
2. Qualify a 5-year designion (normal Hospital) that postulates you do not prognostic this lessen. (Hint –
because you’re seeking an apples/apples similarity, the best way to do this is to postupast the
initial limbship of 10,000 grows to 20,000 balance 5 years)
Part B
3. Qualify irrelative scenarios that postupast that you endue in measures to amend proceedss and
convert utilization (qualify one that shows you reducing utilization, one that shows you
improving proceeds, and a third that shows amendment in twain
4. Qualify a five year designion of your Hospital inside Revenues and Expenses (aform importation
into recital inflation and limbship augmentation) that postulates you do catch the traffic and shape
improvements. As you development ways to amend Delineation deed by reducing utilization, be sure
that your hospital proceeds/expense development reflects the convertd utilization.
Assuming that the ‘right’ recognizeance is the one that maximizes net proceeds to the IDS, what should you do?
Explain why that is your confideation. Are tcbetray any of the self-assertions that were made acovet the
way that you’d perceive misdeed delay? What occurs to your developmenting if those are crime?
Svc Line Cases Days Reckoning Payments
Costs Unroving Costs
IP Completion 1,585 7,376 $ 50,400,000 $ 14,400,000 $ 8,594,479 $ 9,772,546
OP Completion 30,800 $ 26,250,000 $ 7,500,000 $ 4,085,687 $ 6,484,893
Total MA $ 76,650,000 $ 21,900,000 $ 12,680,166 $ 16,257,438
Case #3 Importation Surrender as Providers – Completion Joint Circumstance Rate
Your persomal BC/BS delineation has accustomed proud consumes and unpredictoperative consume confirmions for completion joint
replacement circumstances in new-fangled years. They possess approached three competing hospital regularitys encircling
importation a circumstance trounce for completion elbow replacements. The ‘circumstance trounce’ succeed cbalance all prognostic consequence, the
surgery itself and all rehabilitation scarcityed to get the enduring tail to liberal functionality. Definite year,
BC/BS remunerated for 1000 completion elbow replacements in this allot, and they detype the similar body proximate
year. The consequenceing self-assertion cbetray is that the ‘winning’ bidder succeed get 100% of that body proximate
The prevalent breakdown of BC/BS employment at these three facilities is as follows:
Mercy St. Sebastian University
Total Elbow Procedures/ year 500 350 150
Current BC/BS hospital
$22,000 $21,000 $24,500
Allocated balancehead consume/circumstance $7,500 $8,500 $9,000
Implantoperative cognizance consume/circumstance $5,000 $5,000 $4,500
Other varioperative consumes/circumstance $2,500 $2,400 $2,300
In importation to the hospital consume for these procedures, you can postupast that BC/BS has too remunerated the
aftercited on mean per circumstance:
- Diagnostics (all) - $1,000
- Professional (all) - $2,000
- 30% of endurings succeed claim post-quick prevention at a rehab. address at a consume of $15,000/case
- 70% of endurings succeed go abode delay abode prevention and other follow-up at a consume of $1,000/case
Case Questions:
A. Assuming that the consume/circumstance figures aloft peace invariable, what would be the minimum that each
regularity could bid to convene the BC/BS employment such that its consumes would be confronted (i.e., this would
not be a capital losing chance). What occurs to each hospital’s completion benefit-service if the alluring bidder is
awarded 100% of the body?
B. The economic prognostical, “contribution” represents the element of sales proceeds that is not consumed by
varioperative consumes and so contributes to the confrontage of unroving consumes. As an development, a movie ticket consumes
$10, and we determine that $2 of that goes to varioperative consume confrontage, $6 to unroving consume confrontage and
$2 to benefit-service. $8, then, would be the ‘contribution’ towards confrontage of non-varioperative consumes. Using the
notion of ‘contribution’, is tcbetray a circumstance to be made for one or departed of the hospitals to inferior their
offered worth to a smooth at which they’d confirm disclaiming completion room? Thinking in prognosticals of roomal
body formed, what is the smallest each hospital could bid in this scenario?
C. Suppose that a new entrant comes past to the rule course, and delineations a super competitive bid of
$13,900 per circumstance. This is a new orthopedic invest that is made up of diverse orthopedic surgical
groups. They possess their own prognostic facilities and can convey all of the rehabilitation effects that
they’ll scarcity. They too possess a trodden homogeneity delay a cognizance manufacturer and respect they can
cut the consume of cognizances used down to $2,500 per circumstance. They singly invention they failure are the explicit
surgical facilities. They extend to lease OR spell from each of the hospitals at $2,400 per circumstance. Are the
hospitals lovely to recognize that extend? What occurs to the economic benefit-service of each hospital if they
do/ do not recognize the extend?