Case Study: East Chestnut Regional Health System Sample Paper
Within the last ten years, East Chestnut Regional Health System (ECRH) was formed by merging three organizations: East River Medical Center, Northern Mountain Hospital Consortium, and Archway Hospital.
East River Medical Center (ERMC)
ERMC is the anchor hospital for the system. The medical center resides along the east side of the Chestnut River. Historically, ERMC was recognized as the location of choice for medical care. However, this reputation has deteriorated over the last 3 to 5 years. As the city of Chestnut has grown, ERMC has found itself on the edge of an urban blight.
Safety concerns patients, visitors, and physicians who use and serve the medical center.
The technology offered at the medical center has been maintained at an excellent level of proficiency. At the same time, the medical staff is aging, with the average age of the physicians being 57. There are younger primary care physicians who serve the specialists, but the specialists are also aging. ERMC boasts a Level 1 Trauma Center with air service. The total number of licensed beds for ERMC is 550. On any given day, the occupancy rate is 300 heads on the beds.
Northern Mountain Hospital Consortium (NMHC)
NMHC was initially formed in response to the migration of patients to Chestnut. Due to the relatively aggressive strategies carried out by the hospitals in Chestnut, these rural hospitals decided to create a consortium of rural hospitals so that they could gain economies of scale in several areas, which include group purchasing, benefit administration, and physician and staff recruitment.
Additionally, they worked together to stem any further deterioration of their market share. Patients were selecting to go to the larger community for services and leaving the smaller communities that collared the Chestnut metropolitan area. NMHC represented individual hospitals in four counties that circled Chestnut County: Walnut,
- Butternut, Oak, and Maple. Walnut and Butternut Counties had good employment with Oak and Maple Counties being mostly rural.
- In each county, the inpatient facilities averaged about 20 years of age. The upkeep of these facilities has been sketchy.
No facility needs any major upgrades, but modernization is needed. The state does not have a Certificate of Need (CON) process. The medical staff makeup varies each location. The hospitals in Oak and Maple Counties are critical access hospitals. Further details will be provided regarding these organizations later in the case study.
Archway Hospital (AH)
AH is located directly in the community of Chestnut. It fully resides in the urban area of the community. The hospital has 200 registered beds, but on any given day, there are only 50 to 75 patients in this facility. This hospital was a Doctor of Osteopathy (DO) hospital; therefore, most physicians working out of this facility were DOs.
The payer mix for this hospital was heavily burdened with Medicare and Medicaid. This payer mix composed nearly 85% of the reimbursement. The facility is aging and needs considerable repairs. It is questionable if it will be worth the investment in this facility.
Leadership And Organizational Culture
The original merger that created the East Chestnut Regional Health System (ECRH) occurred 10 years ago. This merger was between ERMC and AH. AH had a rather dynamic leader who was about 57 years old at the time of the merger.
After the merger, the AH CEO became the new President and Chief Executive Officer of ECRH. Since this CEO had only worked in a smaller organization, he had not experienced the cultural changes and demands that occur after the merging of a large organization. Additionally, he began to change the organization’s culture such that decisions were made on a decentralized basis. He trusted the management team at AH to do the right things and make the right decisions with inadequate supervision.
However, the Chief Operating Officer (COO) put in charge was originally from AH but left 2 years after the merger with a new COO being put in place. This COO developed a rather poor reputation and was known to want to build his own empire at AH and be dishonest sometimes. This reputation created a culture within the traditional AH that lacked a cohesive team effort to create a system. This positioning of the COO was left unattended by the President and CEO of ECRH since he was actively pursuing the acquisition of NMHC.
The hospitals of NMHC were doing okay, but those in the consortium realized that their ability to stand alone was becoming difficult in today’s market. When the leadership of the consortium assessed the call as to a partnership, they decided that ECRH would be the best choice. The other option was to develop a for-profit hospital in Chestnut. The leadership was attracted to what they saw happen with AH. They liked that the central administration of the system allowed AH to continue as their own entity without a lot of centralized control.
By the time all of this was put together, the President and CEO of ECRH was near retirement. He retired about three years after the merger activity was complete. During those three years, he became lax in his leadership role. ECRH deteriorated in market share and profitability during this time.
Upon his retirement, the Board of ECRH searched for a replacement nationally. They employed Hunter Brown as the new President and CEO. Mr. Brown was the CEO of a smaller health system and had been in that position for nearly 10 years. Therefore, he had limited experience from other markets in the art of strategic implementation. However, he was also well-trained, bright, and articulate in expressing his knowledge. He has now been the President/CEO of ECRH for nine months.
As for the remainder of the leadership team for ECRH, there is a newly hired corporate counsel. She has 15 years of experience and is extremely competent in her work. The CEO also hired a new Chief Financial Officer. He has taken good strides in managing the accounts receivable throughout the system as well as extracting exceptional dollars from high quality supply chain management.
- The Chief Operating Officer (COO) is new and has three years of previous experience from the same organization where the CEO departed.
- The Chief Medical Officer (CMO) has been retained from the old leadership team. His reputation is excellent, and he works well with other physicians, including the medical staff and the employed physicians.
- The Chief Nursing Officer (CNO) is three years away from retirement. She is known for not getting along with the medical staff and will always defend nursing when at times this is not appropriate.
- The Senior Vice President for Human Resources is competent and respected by management and staff throughout the organization.
The remainder of the leadership team was retained from the old regime. This included information technology, employed physician group leadership, marketing, human resources, and other vice presidents or directors responsible for varying service lines. It should be noted that the IT leadership is just completing the implementation of the EPIC system.
The future for this team depends on how well the overall implementation of the system goes. Likewise, those in the marketing department will need to be stellar in senior leadership advice regarding the marketing of complex issues that will be encountered ahead. They have been told if marketing misses the target, then replacements will occur within this department.
The new CEO inherited the management team of AH and NMHC. For NMHC the organizational structure was left intact with the COOs for each of the individual hospitals being retained. It was agreed that this traditional structure would be left intact for at least five years. This agreement was near its end and the new CEO had plans to change the existing structure as well as management.
This change was being considered for this year’s strategic plan development. Even if the structure of NMHC was going to be changed to a more direct relationship with corporate leadership, the existing COO’s would be retained as they have performed well since the merger. As for the COO of AH, he had been recently terminated. An interim COO is now in place pending the board approved closure of this hospital.
ECRH was not the only provider of care in the community. There was a for-profit hospital, Banford Medical Center (BMC), that had been purchased by a large publicly traded for-profit health system about 10 years ago. The for-profit health system was the largest in the country. The CEO of this hospital was good at optimizing performance because of the weaknesses of ECRH and its leadership. He was an effective opportunist.
BMC has 400 registered beds with a current occupancy rate of 85%. They have been effective at taking market share away from ECRH. For each loss of service line market share by ECRH, BMC has shown proportional gains. After the acquisition of BMC, the for-profit immediately moved to build a new facility. This new facility is located on the growing wealthy edge of the community.
Additionally, at the time that this new facility was developed, the for-profit syndicated ownership to the physicians. The highest level of syndication occurred with the obstetrics and gynecology physicians in the community. Therefore, women’s services deteriorated at ECRH. It should be noted that this physician syndication occurred before the Affordable Care Act was passed, which precluded hospital ownership by physicians.
It is important that additional information is provided regarding ECRH. ECRH recently purchased 100 acres of land across the interstate from BMC. This land is located northwest of Chester. The intention is to eventually build a new medical center on this location. The initial planning of this land has occurred, and it has been approved to build a regional oncology center on this site. The construction of the project is already underway with an anticipated completion in 6 months.
In addition, ECRH has an orthopedic hospital attached to the current ERMC site and a behavioral health hospital at this same location. ECRH also has two ambulatory surgical centers that are conveniently located on the growing northwest and southwest side in the community. The one surgical center is located on the 100-acre development site.
The orthopedic hospital has done well and is listed in the top 100.
However, the behavioral health hospital is losing significant dollars, so the Board of Directors for ECRH has decided to close this hospital. ECRH has also developed a joint venture imaging center with the radiologists. This center resides across from a major shopping area in the community. It is conveniently located near heavily populated neighborhoods and shopping. The only downside is the location is not close to physician offices that would refer to this center. However, if a new facility is built on the 100 acres, which would include physician offices, the imaging center will be in an ideal location. Leadership is developing a free-standing emergency center on the 100-acre site, which is on the northwest side of Chestnut.
The last competitive issue is the location of a medical school and hospital in the city of Chestnut. The facility resides in a downtown location. This medical school was established by the state nearly 45 years ago and is associated with Greenbranch University. It mostly serves the indigent community in Chestnut and the surrounding area. This academic center has a rather negative reputation in the surrounding area.
There are four other medical academic centers in the state as well as a medical center with a world-renowned reputation. There have been ongoing rumors that this world-renowned organization was planning on assuming the responsibility of the Chestnut academic center. This change would substantially alter the complexion of the local medical community if it were to occur. Speed in ECRH dealing with some of its market issues is an imperative.
Additional Market Information: Population Demographics Chestnut County
- With 433,689 people, Chestnut County is the 6th most populated county in the state.
- The largest Chestnut County racial/ethnic groups are Caucasian (70.1%), African American (18.5%), and Hispanic (6.5%).
- In 2015, the median household income of Chestnut County residents was $41,777. However, 21.1% of Chestnut County residents live in poverty.
- The median age for Chestnut County residents is 37.7 years old.
- Employment is strong in Chestnut County. Unemployment resides at 4.5%. Employer diversity is strong since the community is not dependent on singular large employers. Employment includes some high-tech jobs, general manufacturing to support the automobile industry, and there is a large university, Greenbranch University, located in the community. The university has 25,000 students and offers most majors, which includes engineering and nursing. Walnut County
- With 42,537 people, Walnut County is the 57th most populated county in the state.
- The largest Walnut County racial/ethnic groups are Caucasian (89.8%), followed by Hispanic (7.2%) and African American (3%).
- In 2015, the median household income of Walnut County residents was $55,120.
However, 10.8% of Walnut County residents live in poverty.
- The median age for Walnut County residents is 39.8 years old.
- With 38,352 people, Butternut County is the 65th most populated county in the state.
- The largest Butternut County racial/ethnic groups are White (87.0%), Hispanic (9.5%), and African American (1.7%).
- In 2015, the median household income of Butternut County residents was $50,663. However, 13.4% of Butternut County residents live in poverty.
- The median age for Butternut County residents is 39.7 years old. Oak County
- With 37,120 people, Oak County is the 66th most populated county in the state.
- The largest Oak County racial/ethnic groups are Caucasian (93.3%), Hispanic (4.0%), and African American (1.1%).
- In 2015, the median household income of Oak County residents was $42,492. However, 14.9% of Oak County residents live in poverty.
- The median age for Oak County residents is 46.6 years old.
- With 27,816 people, Maple County is the 79th most populated county in the state.
- The largest Maple County racial/ethnic groups are Caucasian (90.8%), Hispanic (7.1%), and African American (1.0%).
- In 2015, the median household income of Maple County residents was $39,353.
However, 15.4% of Maple County residents live in poverty.
The median age for Maple County residents is 48.2 years old.
Both Oak and Maple Counties are rural with an older population. Many patients have Medicare and Medicaid that come from these two counties. Likewise, the hospitals located in each of these countries have been designated as critical access. Like many rural counties, Oak and Maple have been blighted with younger people using drugs, including methamphetamine.
The rapid changes seen in the demographics of the city of Chestnut over the last ten years has forced changes upon the face of medical care. The largest of three medical centers in the city, East River Medical Center has lost some of its reputations due to geographic location in the middle of an urban blight area.
While it was the facility of choice for many years, safety has become a concern over the last few years despite maintaining technological superiority in the area. It suffers from an aging population of medical providers, but has a level 1 trauma center, and with 550 beds it maintains a 60 percent occupancy under normal circumstances.
Like many areas of the country, the rural areas with significantly smaller facilities could not hold in the face of customers going to the much larger facility in chestnut. In an attempt to provide superior service, lowering costs, and providing a cohesive marketing strategy, the Northern Mountain Hospital Consortium was formed of four hospitals in the outlying areas.
By sharing resources such as benefit administration, physician and staff recruitment, and benefitting from group purchasing to keep costs low, they have offered a high level of care in areas that otherwise would have been forced to close in many demographics. They do need modernization in some areas of the hospitals, but none of them suffer from a severe need for upgrades.
The one facility that stands out in the East Chestnut Regional Health System is Archway Hospital. It started out life as a hospital for Doctors of Osteopathy and the majority of the practitioners at the hospitals are DO’s. It suffers from a low percentage of occupied beds on a regular basis and the majority of the reimbursement for medical expenses has been from Medicare.
It has not aged well. The facility needs dramatic improvements and when compared with the traditional amount reimbursed with Medicare, and the low patient population, it is doubtful if it is worth the expense to modernize and it may not be able to keep it from shutting its doors in light of the modern demands of profitability.
Although the formation of the East Chestnut Regional Health System was originally between Archway and East River Medical System the problems with the aging population of medical providers and the hospital itself were brought to the new venture when the CEO of Archway became the head of the new venture.
Due to his experience only in smaller facilities and running a completely different medical venture, it began to struggle. Over a period of a few years, a completely new management lineup has taken place, with the addition of the management team from Northern Mountain Hospital Consortium.
With radical changes in practically every department, taking the best from each of the hospitals in the new organization, there now seems to be a team that has the experience and the ability to make the tough decisions and drive the East Chestnut
Regional Health System into the future and do so with success.
The biggest challenge in marketing the ECRH is going to be making all the facilities into one cohesive unit in terms of technological abilities, services, quality of care, community responsibility, and not have it separated in the minds of the patients and community in terms of the individual facilities. They have to remove the stigma that affects Archway for example when it was compared to the much larger facilities in the area.
This will require not only a complete rebranding of the facilities in terms of recognition such as logo and overall presentation, but also of the same services. They need to be thought of as one big hospital instead of several smaller ones. This may prove problematic when it comes to Archway which is so deficient in many areas, and the only hope may be to either close, sell, or completely repurpose the hospital.
If it were designated as part of the greater conglomerate but was converted to a specialty hospital such as a cancer center or children’s hospital, this may allow the group to keep the doors open with minimal cost and yet with just changes in personnel from DO’s to regular MD’s they would be able to not only turn things around, but make it a much higher patient population hospital and the hospital of choice for whatever specialty they choose. It may be possible to turn Archway around so completely with this strategy that it would become the dominant profit making facility in the group on a per-bed basis.
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