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200 Bed Hospital - Competitive Advantage 100617VPF
200 Bed Hospital - Competitive Advantage 100617VPF
Executive Summary 3
Appendices 8
2
Executive Summary
Created based on Kurt Salmon Associates expertise in strategic planning, The New Community Hospi-
tal Imperative: Creating Competitive Advantage to Survive a Changing Market explores the competitive
landscape of todays 200-bed community hospitals. We have distilled our observations of hospital strategy
and present a framework to identify the critical factors for hospital success in a changing health care market.
Numerous environmental factors constrained the performance of hospitals across the U.S. health care
system in recent years, and executives of smaller community hospitals now question the long-term viability
of community acute-care providers.
This paper explores the question of whether or not the 200-bed independent community hospital is viable
over the long term. In response to the question, we provide the following insights:
> Competitive levers. Independent community hospitals can leverage the six key competitive factors that
drive market position: effective geographic barriers, favorable payor mix, strong physician alignment,
significant high-quality asset base, low-cost structure and high-quality care.
> Strategic framework. Our strategic framework helps hospital leaders evaluate and drive opportunities to
improve their competitiveness in the market by focusing on those factors that they can control and that
will create a barrier to competitive entry.
> Physician alignment. We believe strong physician alignment is the most impactful competitive advantage
available to most hospitals, potentially mitigating geographic and payor mix disadvantages while helping
to support quality and cost-structure initiatives.
> Competitive strategy in action. We present three case studies to highlight the competitive factors that
community hospital leaders have leveraged to the benefit of each organizations market position.
Additionally, the appendices include a high-level comparison of 200-bed hospitals along the dimensions
of scope of services, volume and capacity.
3
Creating Competitive Advantage
To remain financially viable, a freestanding 200-bed hospital Exhibit 1: Successful positioning focuses on factors that a hospital can
must secure and maintain a sustainable competitive advantage control and that deter competitors
within its service area. Based on Kurt Salmons consulting
experience, the following six competitive factors are strongly Illustrative 200-Bed Hospital Competitive Advantage Framework
High
correlated with the ability of small, independent hospitals to
achieve long-term financial success: Effective
Geographic
>E
ffective geographic barriers Barriers
>S
ignificant high-quality asset base C B
>L
ow-cost structure Favorable High-
Payor Mix Capital
Assets High
>H
igh-quality care Quality
Low-
Cost
The most successful hospitals achieve competitive advantage Structure
by exploiting at least one, if not more, of these six factors. The
most desirable positioning is to compete on factors that are Low
Ability to Control
High
both within the organizations ability to control and that create
effective barriers to entry against competitors.
Quadrant A:
Strategic Framework High competitive barrier with high ability to control
This following framework illustrates the areas where hospital Competitive factors associated with high barriers to entry that
executives can exercise control and influence over a variety of are within a hospitals control describe Quadrant A. Strong
strategic and operational factors. To obtain a superior market alignment with physicians is the primary competitive advan-
position, hospitals must achieve a competitive advantage on tage in this quadrant and can allow a hospital to overcome
one or more competitive factors. The ability to exert control strategic deficits in geography and/or payor mix (Quadrants
over the factors or use the factors as a barrier to competitor C and D).
entry, however, varies widely.
By ensuring a future stream of patient admissions, a well-
Not all competitive factors are created equal. While some fac- aligned medical staff creates a significant competitive advan-
tors are difficult to control and dont deter competitors (e.g., tage for standalone hospitals. Strong alignment between a
payor mix), others can be leveraged to significantly enhance hospital and its medical staff can serve as an effective barrier
or transform a hospitals strategic position for the better. against a competitor, who may be seeking to poach financially
attractive patients. Recently passed health care reform legisla-
Kurt Salmon has organized the six competitive factors into
tion increases the potential value of close physician-hospital
quadrants (as shown in Exhibit 1). The following sections
alignment, as it will better position hospitals to demonstrate
describe each quadrant by order of its strategic influence
quality and value, with a direct impact on reimbursement.
on a hospitals competitive position.
Hospitals in Quadrant A are well-positioned to pursue com-
petitive factors in Quadrants B, C and D.
4
A favorable payor mix does not provide a barrier to competitive entry, and may, in fact,
provide an incentive for entry for hospitals seeking better-insured patients. While hospital
leaders can design strategies to attract commercially insured patients, the underlying
socioeconomic status of the hospitals geographic area largely determines its payor mix.
Quadrant B:
Low competitive barrier with high ability to control
Competitive factors that do not create a barrier to entry yet are hospitals seeking better-insured patients. While hospital
fully within the control of the hospital describe Quadrant B. leaders can design strategies to attract commercially insured
The factors associated with this quadrant relate to the hospital patients, the underlying socioeconomic status of the hospitals
cost structure, clinical quality and the capital asset basein- geographic area largely determines its payor mix. Hospitals in
ternal, operationally focused initiatives that are central to the Quadrant C must implement strategies to defend their well-
viability of the hospital enterprise. These are factors that all insured-patient base.
hospitals must continuously work to improve.
Quadrant D:
Quadrants A, C and D describe strategic factors that are High competitive barrier with low ability to control
focused on improving a hospitals position in the external Competitive factors that exhibit high barriers to entry with
environment. However, operational and management perfor- limited ability to control describe Quadrant D. Geography
mance factors in Quadrant B can hurt, or enhance, a hospitals is the most relevant competitive advantage in this quadrant.
strategic position. Examples of poor performance in Quadrant Barriers limiting patient migration can include natural bodies
B factors include a high-cost structure, below-average clinical of water and dispersed populations with limited road access.
quality or facilities in need of significant improvement. Hos- Geographic barriers make it difficult for patients to migrate
pitals in Quadrant B will be well-served to focus on creating and switch organizations and lead to dominant market posi-
strategic competitive advantages in Quadrants A, C and D. tions for those hospitals that reap these geographic benefits.
Quadrant C: In extreme cases, geography prohibits competitor entry,
Low competitive barrier with low ability to control making that hospital the areas sole provider, which enables
Competitive factors that do not create a barrier to entry and increased reimbursement rates. Hospitals have minimal abil-
are difficult for a hospital to control describe Quadrant C. ity to change their geography, and those without advantageous
A favorable payor mix is the primary competitive advantage geography must create alternative competitive advantages.
for this quadrant. A favorable payor mix drives increased
HOSPITAL CASE EXAMPLES
profitability and excess cash flow. This, in turn, provides the
Kurt Salmon assessed three independent (non-system) com-
possibility of reinvestment in clinical programs and facilities,
munity hospitals ranging between 150 and 235 beds. Each is
enhancing a hospitals competitive position.
financially successful but derives its competitive advantage
A favorable payor mix does not provide a barrier to competi- from different factors. These cases illustrate how these factors
tive entry, and may, in fact, provide an incentive for entry for can be translated into above-average financial performance.
5
HOSPITAL A HOSPITAL B
Geography has provided a barrier to entry Strong physician alignment through an employment
against competitors model has created a competitive advantage
> Among strongest financial performers in the state > Employed medical staff of 150 physicians
6
Creating alignment among the medical staff is the most impactful competitive
advantage available to most hospitals. Alignment of the medical staff can potentially
mitigate geographic and payor mix disadvantages, while helping to support quality
and cost-structure initiatives.
HOSPITAL C CONCLUSION
Geographic barriers and a favorable payor mix Yes, it is possible for an independent 200-bed community
provide a competitive advantage hospital to remain viable over the long term. However, to
do so requires the development of at least one sustainable
Key Hospital Performance Statistics
competitive advantage. Hospital executives must clearly
> Historically profitable understand the competitive advantages that are currently
and potentially available to them and their associated
>U
naligned medical staff with current focus strategic trade-offs.
on creating alignment
Hospitals that fail to develop a single sustainable competitive
>4
0% commercial, 45% Medicare, 10% Medicaid, advantage cannot remain financially viable. Eventually these
5% other organizations will be forced to seek out affiliation opportuni-
ties with stronger hospitals or systems, or worse yet, consider
> Limited focus on Quadrant B competitive factors
closing their doors.
7
Appendices
Appendices Overview APPENDIX A: SCOPE OF SERVICES
The following appendices provide snapshots of programs and Generally, 200-bed hospital facilities offer a major array of
volumes common to community hospitals. Leveraging client inpatient clinical services. These hospitals have achieved a
examples and experience, Kurt Salmon identified a sample critical mass of patients to support bread and butter inpa-
of 14 hospital clients ranging in size from 150 to 235 beds. tient services such as cardiovascular, neurosciences, oncology,
Organizations included in this study are considered to be com- orthopedics and womens services. Similarly, comprehensive
munity hospitals and represent a cross-section of geographic diagnostic imaging, including CT and MRI, is provided by the
regions in the United States. About 65% of the hospitals stud- hospitals, along with emergency and surgical care.
ied are part of health systems, with the balance of hospitals
operating as independent, single-facility providers. None of However, on closer observation it is clear that differences exist,
the hospitals included in the study are affiliated with academic raising questions about the appropriate scope and depth of
medical centers. clinical services smaller community hospitals provide. The
following section assesses the service offerings of a select
group of 200-bed community hospitals.
More than 50% of Between 25% and 50% Fewer than 25% of
Clinical Area/Criteria sample hospitals of sample hospitals sample hospitals
offer service offer service offer service
Emergency Trauma Level IV or higher (basic) Trauma Level II or III Trauma Level I*
Womens Health Labor and delivery, special needs nursery Intermediate NICU (Level II) Tertiary NICU (Level III)
* None of the hospitals Kurt Salmon studied are Level Idesignated trauma centers.
8
Comparator Reviews
Exhibit 1 illustrates the variation of services available among hospitals do not have to compete with neighboring hospitals
hospitals sampled in the major program areas of emergency for community physicians.
services, cardiovascular, neurosciences, oncology, orthopedics
Cardiovascular. Cardiac Catheterization Is Bread & Butter
and womens health.
for 200-Bed Hospitals, Not Open-Heart Surgery
While these hospitals provide an extensive breadth of clinical Fewer than half of the 200-bed hospitals studied perform
services, the degree of subspecialty care provided varies widely. cardiac surgery. Catheterization labs are present in more than
A discussion of the factors that may limit the breadth, depth and 80% of the hospitals sampled, while only half of these hospitals
complexity of care provided at 200-bed hospitals follows. offer cardiac surgery.
Emergency Services. Very Few 200-Bed Hospitals
Achieve Level II Trauma Center Designation
The majority of 200-bed hospitals lack comprehensive, high- Exhibit 2: Level I and Level II Trauma Center
acuity (Level I and II) trauma services. All hospitals sampled Physician Specialists
offer emergency medical services, but only 43% (six of 14 hos-
Anesthesiology Ophthalmology
pitals) were designated trauma centers, with half being Level
III and half being Level II. None of the hospitals sampled had Cardiac Surgery Oral Surgery
a Level I designation. Critical Care Medicine Orthopedic Surgery
In comparison, fewer than 10% of hospitals in the United
Emergency Medicine Pediatric Surgery
States have some type of trauma center.1 This can be attributed
to the wide variety of ancillary, medical and surgical specialists Hand Surgery Plastic Surgery
required in-house to provide the highest level of trauma care.2 Micro Surgery Radiology
A 200-bed hospital is likely to have some degree of subspe-
Neurosurgery Thoracic Surgery
cialty capability but is likely unable to fulfill the requirements
necessary to achieve the designation. Ob/Gyn Surgery Trauma Surgery
9
The ACC recommends providers perform a minimum of 400 Extensive technical and physician requirements may limit a
open-heart cases to maintain sufficient skill and competency. hospitals ability to support integrated cancer services (e.g.,
The number of open-heart surgeries performed at a hospital is surgical oncologists, medical oncologists, dosimetrists, radia-
strongly related to the number of interventional catheteriza- tion oncologists and specialty-trained nurses). Geographic
tions provided. On average, every three interventions will drive factorsincluding the size of the patient population to be
one open-heart case, suggesting that 1,200 interventions are served and competitive dynamicsand physician alignment
needed to drive 400 open-heart cases. That volume threshold issues appear to limit the scope of services 200-bed hospitals
will challenge many 200-bed hospitals. can provide.
Neurosciences. Primary Stroke Center Designation Is Fewer than half of the hospitals offer surgical oncology ser-
a Distinguisher among 200-Bed Hospitals vices. It should be noted that hospitals that lack distinct surgi-
Hospitals in the 200-bed cohort appear to provide an assort- cal oncology programs may have other non-oncology specialty
ment of neurology and neurosurgery services. Procedures to surgeons (e.g., GI, urology) who perform oncologic surgical
treat neurological and spinal disordersprocedures that treat resections.
degenerative disorders, herniated discs and spinal stenosis
have become commonplace due in part to their profitability. Orthopedics. Coordinated Program Delivery Is a
Neurological and neurosurgical procedures of higher com- Distinguisher, Not Clinical Capability
plexity, however, do not appear to be widely practiced at Two hundredbed hospitals have embraced orthopedic care,
200-bed hospitals. with nearly all hospitals offering orthopedic medical and surgi-
cal services to serve growing community needs and enhance
While virtually every hospital included in the study sample
overall hospital profitability. Defined programs that utilize
offered some degree of stroke care, only two of 14 hospitals are
subspecialty physiciansspine, joint replacement, shoulder,
Joint Commissionaccredited advanced primary stroke cen-
foot/ankle, hand and sports medicineare well-developed in
ters. The Joint Commission requires coordination of resources
the 200-bed hospital study sample.
and protocols with EMS, nurses and physicians across a region
to provide patient-focused care. Geographic and physician Hospitals, however, face numerous competitive threats, both
alignment factors may limit the ability of 200-bed hospitals from other acute care facilities and from physician-owned
to provide the extensive multidisciplinary subspecialty care outpatient surgery centers. Two hundredbed hospitals must
necessary to achieve the Joint Commission Advanced Stroke distinguish themselves from other hospitals, as well as physi-
Care designation. cian practices, based on the service and patient experience
they provide. For most hospitals, the ability to effectively com-
Similarly, brain surgery is provided in only a small number of pete in the orthopedic market by offering a unique resource or
the hospitals studied. This is likely due to a limited supply of asset is no longer a reality. Under this model, many hospitals
neurosurgeons and related recruiting challenges. are being out-competed by aggressive physician groups today.
Oncology. Two HundredBed Hospitals Challenged Hospitals must develop competitive advantages by deploying
to Create Integrated Programs strategies that strengthen and grow primary care physician
The scope of oncology services provided by 200-bed hospitals relationships. In addition, 200-bed hospitals must effectively
is generally focused on chemotherapy and radiation oncology coordinate subspecialty care, managing and streamlining the
services. A small number of hospitals facilitate participation in care delivery process from injury to recovery.
clinical trials through affiliations with academic medical cen-
ters or National Cancer Institutedesignated cancer centers.
10
Obstetrics and Neonatology. Potential for Level II NICU a NICU. Given the size of communities that 200-bed hospitals
Services; Level III Unlikely often serve, that threshold is not always obtainable.
Though nearly all of the hospitals offer obstetric (OB) services,
fewer than half of the hospitals in the study sample had neona- APPENDIX B: VOLUME AND CAPACITY PROFILE
tal intensive care units (NICUs), with these hospitals having Using the 14 comparator hospitals from the scope of services
intermediate (Level II) capabilities. None of the 200-bed assessment, Kurt Salmon reviewed available data to create a
hospitals sampled had tertiary (Level III) NICU capabilities. utilization and capacity profile for the typical 200-bed hos-
pital. The analysis presented in this study represents clinical
The disconnect between NICU and OB service offerings at
services, average annual hospital utilization and capacity data
200-bed hospitals may be reflective of long-term trends in
collected between 2005 and 2010; in select cases, individual
regionalization and, over the last 20 years, deregionalization
hospital data reflects future planning projections. On average,
of NICU services. In the 1970s, high-acuity NICU services
the 200-bed hospitals sampled had an average of 186 acute
were established at tertiary medical centers, most of which
beds and 10,575 acute inpatient discharges.
had affiliations with academic medical centers. In the 1980s,
a number of factors propelled community hospitals to estab- Medical serviceswhich include endocrinology, gastroen-
lish NICUs, including community access, physicians desire terology, infectious disease and pulmonologyhad the high-
to enter private practice and profitability of services. Today, est proportion of discharge volumes, at nearly 33%. Among
NICUs that service low-birth-weight infants are still primar- specialties, cardiovascular (18%), womens health (17%) and
ily located in tertiary medical centers due, in part, to better general surgery (15%) had the highest proportions of discharge
mortality rates. volumes. Hospitals had an average of 7,400 surgical cases, with
In our experience, at a minimum, a hospital must deliver 61% of surgical care provided on an outpatient basis. (Exhibits
2,000 babies annually to provide enough volume to support 3 and 4.)
45,000
Inpatient Volume
40,178
40,000 Surgical Volume
Other Services
35,000
30,000
25,000
20,000
15,000
10,719
10,000 7,419
5,000 3,485 4,533
1,876 1,435 1,550 2,886
637 315 1,005 416 1,125
0
CV Neuro Oncology Ortho Obstetrics Neo- Other Other Total Out- Inpatient Total ED Cardiac
natology Surgical Medical Acute patient Surgery Visits Cath
Services Services Volume
Percent of Total 18% 6% 3% 9% 13% 4% 14% 33% 100% 61% 39% 100%
n 14 13 13 14 12 7 14 14 14 14 14 14 13 14
11
Exhibit 4: Hospital Capacity Profile
200 199
Acute Beds
Other Facilities
150
129
100
50
25 25
22 15
8 8 2
0
Med/Surg ICU OB (PP, NICU Peds/ Total Operating Cath ED Bays
LDRP) PICU Acute Beds Rooms Labs
1
National Foundation for Trauma Care
2
Guidelines for Field Triage of Injured Patients: Recommendations of the National Expert Panel on Field Triage, Centers for Disease Control and Prevention, 2009
3
Thrombolytic Therapy vs. Primary Percutaneous Coronary Intervention for Myocardial Infarction in Patients Presenting to Hospitals without On-Site Cardiac Surgery,
The Journal of the American Medical Association, 2002
4
Deregionalization of Neonatal Intensive Care Units, American Journal of Public Health, 2002
5
The Evolution of Neonatology, Pediatric Research, 2005
6
Level and Volume of Neonatal Intensive Care and Mortality in Very-Low-Birth-Weight Infants, The New England Journal of Medicine, 2007
12
Kurt Salmon Associates
Kurt Salmon Associates is the premier
management consulting firm for todays
leading hospitals and health systems.
We work closely with our clients to create
tailored solutions for their strategic and
finance, facility development and perfor-
mance, operational and information
technology needs.
Authors
Darin Morgan, manager, and Cleo Burtley,
senior consultant, are in the Strategy Prac-
tice; together they have more than 10 years
of experience advising community hospital
leaders. For more information, contact them
at darin.morgan@kurtsalmon.com or
cleo.burtley@kurtsalmon.com.
Contact
Kurt Salmon Associates
1250 Bayhill Drive, Suite 315
San Bruno, California 94066
650.616.7200
www.kurtsalmon.com