Edgewood Lake Hospital (ELH) which opened in 1945, is a 30-bed, independent, not-for-profit hospital located in rural northern California. It provides inpatient and outpatient services to the close-knit community that resides within the forested and lakeside town the facility is nestled in. Although it is known for its great track record for quality and is held in high regard by the surrounding community, it has steadily experienced financial losses from 2006 through 2009. These losses can be attributed to factors both internal and external to the facility itself.
Poor executive leadership by the recently replaced CEO, Richard Fuchs, has resulted in great financial losses for ELH. Further paramount financial losses have resulted from extreme budgeting discrepancies, mismanaged funds and failure to identify loss-contributors in time to rectify them. These losses have resulted in a decreased morale of the existing staff and have made recruiting for open positions difficult. The staff’s faith in the facility and its longevity has wavered and diminished as a direct result of mismanagement and the resulting financial instability.
Nearby competition from a newer and better-equipped for-profit hospital that offers specialty care is a direct and impending threat. Increasing billing regulations from Medicare that call for replacing/purchasing new computer systems are sure to add to the surmounting financial pressures. The Board of Directors has hired a new CEO, Shannon Johnson, who comes from serving 5 years as CFO to Rocky Hills Valley Hospital, a critical access facility in rural northern California. She will be faced with the challenge of employing effective leadership in order to make ELH profitable within a 2-year time span.
By examining the current state of the hospital, identifying its key stakeholders and scanning its internal and external environments for contributing factors and possible areas for improvement, strategies aimed at better positioning ELH both competitively as well as financially will be recommended. Key Stakeholders ELH has various stakeholders, each of which has a different relationship with and varying interests in the community hospital. One group of stakeholders would be the close-knit, small community that is offered inpatient/outpatient services by this facility.
This stakeholder group boasts a county-wide population of 5,135 citizens. A more distinctive stakeholder group would be the elderly sector of the population, as they make up 54% of the payer mix that is responsible for all revenue received by ELH. The healthcare costs of these senior citizens are funded by the government through the Medicare program. Another group of stakeholders is the primary care providers within ELH. Although the hospital does afford them a facility to practice medicine in, growing discontent has resulted as of late within this stakeholder group.
Due to the lack of specialty physicians in this facility, these providers have been forced to provide care that is out of their scope of practice and out of their comfort level. Another principal stakeholder is the newly hired CEO of ELH, Shannon Johnson. She is a graduate of a major university and is also a certified public accountant. Her role will be a vital one in whether ELH recovers from its recent history of financial losses as her executive leadership spearheads this effort. She was chosen by the board of directors as she brings with her experience in managing a hospital in a rural setting.
Another stakeholder, as well as direct competitor, for ELH is Creekside Trails Hospital. Although each hospital serves distinct patient populations, a competition for patients in recent years has developed. External Environment In order to arrive at a well-rounded and all-encompassing solution to ELH’s critical state, the external environment must be examined. Looking closely at the environment external to ELH will allow for possible threats to the hospital’s success to be revealed and curtailed if possible.
Upon scanning the external environment, opportunities for improvement should be identified and made an integral part of the final strategy to restore and revitalize ELH to its former glory. Threats The most direct threat to ELH is the strong community competitor, Creekside Trails Hospital. It is a 45-bed, for-profit facility located 35 miles away on the other end of the lake and is 50 years newer than ELH having been opened in 1995. It is a for-profit organization and offers more specialty services, namely cardiology care.
This threatens ELH’s livelihood not only by creating a more appealing alternative for citizen seeking medical attention but also by becoming a viable option for current ELH staff looking for a more stable and promising place of employment. Another threat is the current state of rural hospitals nationwide. According to the case study, about 25% of Americans live in rural areas and only about 10% of physicians actually practice in rural areas. There is a 15% gap in the ratio of rural citizens to available practicing physicians. This is a threat to ELH’s need to attract and hire more physicians.
In relation to rural hospitals, citizens have longer drive times to their medical facilities. This causes them to delay routine visits which subsequently exacerbates illness. National health policy and government reimbursement standards are also threats external to ELH. There are increasing regulations on quality, privacy, efficiency, costs and services while government reimbursement rates are declining. Increasing demands for quality and compliance while funding is steadily declining will lead to a growing gap in healthcare costs and affordability.
The Medicare program is increasing its quality and compliance demands putting rural hospitals at a disadvantage to their inner-city counterparts. Reason being that rural hospitals have fewer coders and internal auditors to stay abreast of changing regulations which results in increases in fines and denied claims. Some demographics of Edgewood County are also a threat to the overall welfare of ELH. The following table was created from figures provided within the case study: Table 1 Income and Median Age: Edgewood County versus National Average | Median Household| Median Age| | Income| (Years)| Edgewood County | $ 44,238.00| 40. 8|
National Average| $ 59,948. 00| 33. 3| Table 1 shows that Edgewood County’s median household income is 26. 2% less than the national average median income. This not only provides the population of Edgewood with less disposable income but also results in ELH having a smaller revenue pool than the national average. Another notable difference is that Edgewood County’s median age is 22. 5% higher than the national average median age. This will at some point mean a higher number of elderly patients, who if subsidized by Medicare, will create a need for more billing/coding staff to be hired creating yet another expense.
Opportunities| | ELH and its surrounding community have historically shared a good relationship. When the former CEO proposed and built a wellness center dedicated to enriching the healthcare experience of its patients, the idea garnered much support from the town. The former CEO’s ability to raise $120,000 in community donations alone to fund the construction of the Edgewood Lake Wellness Center demonstrates that there once existed, and can again exist, a viable source of plentiful community support. The customer base was proven to be strong and loyal in favor of and support for the medical facility.
ELH is the sole, or one of very few, healthcare facilities within a commutable distance for citizens of the town. This could provide a competitive advantage above larger hospitals in metropolitan cities which require extensive travel and great expense for citizens to reach. The new CEO, Shannon Johnson, has seen hospitals with bleak outlooks benefit greatly from joining healthcare networks. There are also other designations, such as that of being a Critical Access Hospital (CAH), which could prove helpful in turning ELH into a profitable and successful facility.
Shannon Johnson’s previous place of employment was a CAH and so converting to this designation might be in her prospects for corrective strategies. The reimbursement for CAH’s is cost-based as opposed to the current diagnosis-related reimbursement. To be eligible for designation as a CAH, the facility must be at least 35 miles from next nearest hospital, operate fewer than 25 beds, have an average length of stay less than 96 days and must offer emergency services 24 hours a day 7 days a week. Porter’s Five Forces of Competitive Position: Structure Analysis Issues
After careful review of the external environment, several structural issues were identified related to Porter’s Five Forces of Competitive Position. One is the limited geographical coverage of ELH’s reach. It services a county of just above five thousand residents and also shares that small population size with another competitor. The geographical factors also work against ELH in that it is located in a rural area making it challenging and difficult to attract/hire physicians to fill vacancies on medical staff.
Legislative effects threaten the solvency of ELH’s finances because while regulations are increasing and becoming stricter, funding is being decreased making it difficult for smaller hospitals to remain compliant. Internal Environment An examination of the internal environment of ELH is an equally important aspect of arriving at a solution methodology for this hospital’s current difficulties. The internal scan will be comprised of identifying the strengths and weaknesses of the internal environment as well as revealing any resources, competencies and capabilities of the same.
Strengths Its most notable strength is that ELH is held in high regard by members of the surrounding community. It is one of only 2 healthcare facilities easily accessible to residents of Edgewood County. Of the 2 facilities, it is the only one to have its own dedicated wellness center. Furthermore, ELH has been an integral part of the town for 50 years, a fact that provides an unattainable status by its nearby competitor. In addition, its medical staff has a very low turnover, measuring at 6% in 2008. Despite the misdirection under the previous CEO, ELH has a strong middle management with a significant tenure.
It is this group that is responsible for maintaining morale positive and consistent. Now that Shannon Johnson has been brought on board, she is also a great strength ELH can draw from as the facility can only stand to gain from her bountiful experience with rural hospitals and steering them towards success. The hospital itself has a great track record of quality: it scored 100% for delivering discharge instructions versus national average of 69% and also scored 100% for providing smoking cessation counseling for congestive heart failure cases versus national average of 89%.
Weaknesses Prior to the hiring of the new CEO, lack of executive leadership was possibly the greatest weakness of the internal environment. In order for all the individual parts of any organization to function cohesively and properly, there must be solid and strong support from the top. Executive management holds the power to make or break its organization and when this position is filled by an unqualified weak-minded individual, only failure can result, as it did in the case of ELH and former CEO Richard Fuchs. The facility itself also has structural limitations that create yet another weakness.
With 30 beds and a surrounding population of 5,135, ELH only has resources to service 0. 6% of the population at one time. Its capability to serve in the grand scheme of things is diminutive and very possibly one of the reasons new talent will not join the existing staff. Although the hospital has a history of outstanding quality in service, it also has a standing track record of poor financial performance. This is in large part due to the poor financial decisions made by the former CEO but is also a product of uncontrollable forces.
For example, declining reimbursement by Medicare has resulted in extensive losses on Medicare patients. As seen in the case study’s Exhibit 1, which charts the various parties contributing to ELH’s payer mix, more than half of the patients are Medicare beneficiaries. Further financial weakness is identified in the steadily increasing operating costs. A collective bargaining agreement with a local union resulted in higher salaries for RN’s. Also, the inability to permanently fill physician vacancies has resulted in having to pay higher costs to temporary physicians.
Low physician recruitment is a weakness that not only affects the bottom line but also the quality and continuity of healthcare offered to ELH patients. The areas that are most affected by this are that of general surgery and primary care. Resources, Competencies and Capabilities ELH has a variety of resources at its disposal. Careful identification and scrutiny of them will allow them to be called upon during the initiative to restore financial stability. The previously mentioned positive relationship that exists between the facility and its surrounding community leads to one very valuable resource.
Garnering support from the surrounding community it serves, both in terms of financial contributions and in terms of building loyalty, is an existing and proximal resource. The reputation enjoyed by ELH of having superior quality of care is a resource that should be placed at the forefront of the efforts to attract new physicians and new patients. The newly hired CEO, Shannon Johnson, will be an invaluable resource based on her previous experience and her CPA license signifying her great understanding of finance.
Another resource, that currently seems to be the reason for the financial turmoil being faced by ELH, is the Edgewood Lake Wellness Center. This facility has already been constructed and paid for. It could prove to be a great resource if its use were maximized to provide a competitive advantage over Creekside Trails. A final resource and competency housed within the walls of ELH is the existing staff that has a proven record for performing quality service and whose ability to excel in healthcare as well as contribute in community service certainly provides a differentiation between ELH and its competitors.
Not only is the staff capable of meeting and surpassing the expectations of quality held by the surrounding community, but ELH goes above and beyond to offer value-added services. The hospital created the Mobile Health Service Unit (MHSU), a large utility vehicle servicing residents at the perimeter of the county. It is equipped to perform physical assessments and other primary care services. Strategies and Recommendations.
In order to make recommendations on how to make ELH profitable, secure fiscal solvency, address the physician recruitment problems, increase staff productivity/performance and stabilize the executive leadership team, environmental scanning was performed. The importance of environmental scanning is that it will reveal the strengths, weaknesses, opportunities and threats of the entity. Identifying these characteristics will assist in creating a strategic plan meant to help the facility reach the aforementioned short-term and long-term goals.
ELH should implement a new marketing strategy while maintaining its core competencies that have awarded the facility recognition and customer loyalty. The first strategy to be recommended is one of concentric diversification. ELH will not only serve as a medical facility like its competitor, but will also open up its wellness center to host community fitness events/initiatives, intramural sports activities of local youth and informative seminars open to the public. Another strategy is one of branding. The Mobile Health Service Unit seems to be one of its kind in the area – taking health to homes.
The great service it offers to residents at the perimeter of the county should be marketed as a backdrop of care, concern and initiative by ELH for its patients, all patients, not only the ones who are able to commute to the facility. This existing resource could possibly be turned into a mode of offering transportation services to and from ELH for needy patients with scarce resources. A strategy that could be used as a last resort would be one of divestiture whereby ELH could be purchased by or integrate on some level with its competitor, Creekside Trails.
A less drastic and very feasible strategy would be to change the designation of ELH to one of a critical access hospital. The new CEO has full working knowledge of how to obtain this designation, and the current size and location of the hospital make it a possible alternative as it would be easy to reduce number of beds from 30 (current) to 24 or less (required) and meets the requirement of being at least 35 miles away from nearest hospital, which it is. An aggressive proactive strategy for filling physician openings has been developed. A team must be created that is dedicated to attracting and recruiting specialty physicians.
This team should at minimum include the Human Resources Director, middle management (who is tenured and can offer valuable insight into why ELH is a great place to practice), current over-worked caregivers as well as a representative from the town’s visitor center who can in collaboration create an attractive portfolio of the town itself and the quality of life it offers to its inhabitants, a listing of the quality recognitions and resulting loyalty ELH has acquired, a commentary of the excellent environment ELH provides for its staff as well as its plans for the future and growth prospects.
Critical success factors have been identified to be the dire need for top management support, funding whether it be from local community or government, employee buy-in which middle management could easily obtain with their tenure and strong impact on internal culture and time efficiency which has been mandated by the board of directors to be 2 years to reach profitability and meet physician staffing needs. With strong leadership from Shannon Johnson and buy-in via employee involvement from existing staff, it is not only possibly but highly likely ELH will differentiate itself enough to regain its competitive advantage and dominant position in the healthcare of Edgewood County.