Cover Strategic Planning
Population PuzzleDo you know if your patient base is coming … or going?
Population Projections
St. George is in Washington County, Utah, which is projected to grow at a steady clip for the next several years.
| 2000 | 91,104 |
| 2005 | 125,010 |
| 2007 | 139,642 |
| 2010 | 165,544 |
| 2015 | 205,025 |
| 2020 | 251,896 |
Source: Utah Office of Planning and Budget, 2007
Every year, Dixie Regional Medical Center in St. George, Utah, had to fly 500 cardiovascular patients—and millions of dollars in potential revenue—to one of its sister Intermountain Healthcare hospitals in Salt Lake City. The medical center simply wasn’t equipped to handle complex cardiac cases.
Hospital leaders wanted a piece of that lucrative business. That wasn’t going to happen in the existing 126-bed facility, though.
“We were landlocked,” explains Administrator Terri Kane. “Our board was supportive, but we just couldn’t do it where we were. In order to meet the needs and growth of our community, we needed to look at new land and expansion possibilities.”
And so in 2003, the new $100 million, 420,000-square-foot, 196-bed Dixie Regional Medical Center opened, fully equipped with a heart-surgery center.
“Our intent was to start with cardiology and then grow subspecialties,” Kane says. “Every one of our goals has been met or exceeded.”
The numbers are impressive: cardiovascular procedures have doubled since 2003 and grow at about 18 percent a year. Imaging is up 10 percent annually. Orthopedic services grow between 5 percent and 10 percent. The average daily census climbed from 80 inpatients in 1997 to 153 now. Gross revenue has increased from $176 million while the new building was under construction to $420 million today. Projections say revenue will top $585 million in five years.
What enabled such a spectacular transformation? How about this: 750 to 1,000 new people move into the area every month. St. George had the highest rate of growth—39.8 percent—from 2000 to 2006 of any metropolitan area in the country, according to the U.S. Census Bureau.
While sprawl has been a boon for Dixie Regional and facilities like it nationwide, it also prompts a lot of soul-searching. As fields of grass and grain are paved over to make room for housing developments and shopping malls, executives at small and midsized hospitals are forced to rethink their role and mission in the community. The question is can they—indeed should they—keep pace with the population boom? Doing so requires a dramatic shift in how the hospital views itself, not to mention a significant influx of capital. New service lines have to be added and that typically means putting up a new wing or even a whole new building. Nurses, doctors and technicians also have to be recruited.
Sticking with the status quo, however, isn’t really an option. Failing to add services to meet the demands of a new consumer base puts a hospital’s financial future at risk. In a highly competitive—and increasingly mobile—world, patients won’t think twice about heading to the nearest city for that hip or knee replacement surgery.
“As the population becomes more sophisticated and closer, they expect the local institution to take care of them,” says Dave Woodland, president of Brim Healthcare, a hospital management firm that specializes in rural hospitals.
Boom Town
Sitting about 2,500 feet below sea level along the last stretch of the Mojave Desert in the southwest corner of Utah and just six miles from the Arizona border, St. George, while not necessarily rural, isn’t entirely urban either. It’s a retirement community with golf courses and hiking trails. It’s a place where “aging baby boomers with equity” come to spend their carefree days, says James Wood, director of the bureau of economic and business research at the University of Utah. The growth started in the late 1970s as developers envisioned picturesque retirement communities.
“Before that, it was truly rural,” Wood says. “It really exploded in the 1990s. At first, it was driven by the retirement crowd, but now the market has grown and it’s part of a corridor that stretches to Las Vegas.”
For Dixie Regional Medical Center, the ongoing influx means the makeup of its market changes by about 30 percent every three years.
“We have to constantly reeducate and retrain our staff,” Kane says. They routinely look for opportunities to draw people in, attending health fairs in the planned communities, working with the local newspaper to put out health information, enhancing relationships with the Chamber of Commerce and Rotary Club, even linking with community clinics.
It also forces leaders to constantly evaluate what services should be offered. In the case of heart surgery, the numbers were clear: 500 patients a year were leaving the area to get care.
“It’s important to have a strong analytical background,” Kane says. “We took a look at where patients were coming from, what was bringing them in. We can also see if people are leaving our community and where they are going. We took a look at DRGs for cardio services going out of our ZIP code. The volume was so great that it was clear there was a need here.”
The same approach holds for evaluating obstetrics. As a retirement community, there wasn’t much need to expand services. But as the population shifts and births at the hospital climb by 15 percent a year, needs change. The medical center is preparing to hire a perinatologist to help with high-risk pregnancies.
In cases where it doesn’t make financial sense to add a specialty, such as neurology, Dixie Regional benefits from being part of a larger health care system. “If I didn’t have those hospitals in our system, I’d be finding partnerships with someone who could meet our needs,” Kane says.
Building? Be Flexible
The pressure of adding services is trumped only by evaluating a hospital’s physical limitations. Many hospitals in sprawl areas were built with Hill-Burton Act dollars. They are aging. And it doesn’t take long before even a new facility is bursting at the seams. Rick Kaylor, chief planning and development officer for the Georgetown Hospital System in South Carolina, knows all too well the frustrations of trying to keep pace with growth. The system has two concurrent expansion projects—the main 133-bed Georgetown Hospital and Waccamaw Community Hospital in the coastal retirement haven of Murrells Inlet. Waccamaw, which is only 5 years old, has already gone through one expansion and is slated for another. Planners designed the three-story hospital to accommodate a fourth-floor addition. A certificate of need was filed in January to add another 56 beds as part of a $25.6 million expansion.
Douglas Reddington, vice president of BSA LifeStructures, an Indianapolis architectural, planning and design firm specializing in health care facilities, says that a truly long-term master plan is critical in responding to rapid growth.
Hospital leaders should plan land purchases, design phases and even some construction at a central facility to accommodate future population increases, or they should expect to build a series of facilities in developing communities, Reddington advises.
Georgetown’s Kaylor is doing some of both. “The mantra is flexibility—designing facilities where you can accommodate growth,” he says. “From a planning perspective, the difficulty is to maintain services for the current population and yet keep an eye out for the population that’s going to be there in the next five years. That’s not an easy equation. You don’t want to build too much, and you don’t want to build too little.”
That’s exactly the scenario that Benson (Ariz.) Hospital finds itself in. Situated 45 miles southeast of Tucson, Benson is on the cusp of a boom. Benson’s population is 4,700 and its market includes roughly 18,000 people. During the housing boom of the past couple of years, plans were in place to add 40,000 new homes over the next 10 years. Officials at Benson Hospital have been trying to figure out how to capture a portion of that new market. The strategy was laid out: go from small to big, with doctors’ offices, a rural health clinic and an urgent care center all located near one of the planned communities. Eventually, a new hospital would follow.
That was then.
“The housing market has slowed down,” says Benson CEO Ron McKinnon. “We don’t know which way the builders are going to go at this point. I don’t see houses going up as fast as I thought they would. I don’t know if developers will hit those earlier numbers.”
Hospital leaders have scaled back their plans. Financial estimates are being put together for a rural health clinic. An urgent care center may follow, but nothing is certain at this point. McKinnon has also reached out to larger hospitals in Tucson about possible partnerships, but has thus far been rebuffed.
“They seem to have their hands full with what they are doing,” McKinnon says. He hasn’t totally given up on the bigger vision, but he and his leadership team needs to reassess things as the market continually changes.
Accessing Capital
Shrewd—some may say conservative—planning is precisely what the financial sector hopes hospitals in growth areas are doing. To build without a broad vision will certainly be frowned upon by lenders and credit agencies.
“We want to see capital plans that make sense,” says Jeff Schaub, senior director of public finance at Fitch Ratings. “There’s no reason for a 20-bed hospital to go out and buy a cyber knife, but they probably need an MRI and CT scan. Those technologies need to be kept up because the services can be siphoned off.”
High liquidity and stable profitability are other keys, especially if a hospital plans to access the bond market. Hospitals with strong municipal support, either through a sales tax or an appropriation, should receive favorable ratings because of the stability that funding provides.
Of course, small and rural hospitals can turn to the federal government for assistance. The Pikes Peak Regional Medical Center Association, Woodland Park, Colo., in 2005 took advantage of a Department of Agriculture program to get a $14 million grant to help build a primary care hospital. Butting up against rapidly expanding Colorado Springs, the association had been planning the medical center for nearly eight years after a report circulated that the area’s urgent care center wtoo d close. While that proved to be false, momentum was too great to stop plans for the area’s first acute care hospital.
“The more we began to add services to the blueprint, the more it began to look like a small hospital,” says Bob Harvey, the association’s executive director.
The blueprint for Pikes Peak Regional Hospital isn’t without some eraser marks. Originally, local planners thought cardiac services were a logical fit. As they analyzed their growing population and hospital utilization data, however, orthopedics proved a greater need in an area popular with horseback riders, cyclists and all-terrain vehicle enthusiasts.
“It’s pretty easy to eliminate the black magic when you know who your patients are,” Harvey says. The association employed data from Solucient and the Colorado Hospital Association, among others, but the most detailed information came through the cooperation of the two major hospitals in Colorado Springs.
“They understand that it’s better to have a friend up the hill than an enemy,” says Harvey, who expects to partner with the larger hospitals to increase services to their population base, which stretches to rural parts of six counties.
The $20.2 million Pikes Peak Regional Hospital is scheduled to open in August with 15 beds. With the area projected to grow 7.5 percent annually, Harvey expects the hospital to expand to 25 beds within a few years and to 50 beds within a decade. The new hospital will open with emergency and radiology departments large enough to accommodate the expected growth. The building is designed to add patient wings in stages, up to 75 beds, without disrupting care.
Clint MacKinney, a Minnesota emergency doctor and part-time consultant to rural hospitals, believes that population and utilization data are part of the planning equation but don’t tell the whole story. “It’s also helpful for rural doctors and hospitals to ask their patients: What services are they traveling out of town for?” he says. “Those issues of deciding service lines or where to expand and contract are universal. The issues are universal; the answers are local.”
Critical Access Hospitals
Once open, Pikes Peak Regional Hospital will apply for certification in the Critical Access Hospital program, says Ron Ebersole, project manager for the facility. But those planned expansions might force the new hospital to quit the program unless Medicare’s 25-patient limit for CAH hospitals is increased.
CAH certification allows rural hospitals to receive Medicare reimbursements of cost plus 1 percent, which isn’t available to general acute care hospitals. “It may not be quite as important in this facility as most,” says Harvey, because of the area’s relative prosperity. “Overall, it’s probably attractive but not a show-stopper to us.”
Other rural hospitals don’t have that same luxury. Benson Hospital wouldn’t have survived without the cost-plus reimbursement, says Chief Financial Officer Denise Hurtado. Even with optimistic growth projections, the population boom would have to be tremendous to overcome a loss of CAH’s funding levels. “At this time, the board’s thinking is that we will maintain CAH status for at least another five years. During those five years, though, [we] will be reevaluating growth and assessing whether or not volume is there to become a non-CAH hospital,” Hurtado says.
Mike Albertson, a partner in Health Solutions and Market Intelligence in Phoenix, which helped formulate Benson Hospital’s growth strategy, says the decision of whether to leave the CAH program is huge for tiny hospitals—leaving may be necessary to truly thrive in a growing area, yet too risky for some small institutions. And it’s rarely done. Only two hospitals have converted back to Medicare’s prospective payment system, according to the Flex Monitoring Team, which contracts with the federal government to assess rural health programs.
The CAH program, which started as a safety net to preserve acute care for rural residents, has been a boon to many of the 1,300 small hospitals that rely on it for their survival. A recent study by the University of North Carolina at Chapel Hill found that most facilities that converted to CAH not only improved their profitability but also were able to invest more money in their facilities and services.
“The total number of services available has actually increased significantly,” says Terry Hill, executive director of the Rural Health Resource Center in Duluth, Minn. Some hospitals that struggled to survive before joining the CAH program now have the wherewithal to provide hospice programs, cardiac rehabilitation, physical therapy or home-health services, he notes.
Ultimately, though, the program’s primary mission is to maintain hospital access in small communities. “Wherever there is growth, the Critical Access Hospital [designation] may no longer meet the community’s needs,” Hill says. “It’s just not going to be a good fit for some of these [fast-growing] places.”
While population growth may force some hospitals to revert back to the prospective payment system, few experts expect a mass exodus. Hospitals need to be sure that tomorrow’s utilization patterns match today’s predictions, and as officials in Benson are learning, those forecasts can be cloudy.—Eric Apalategui is a writer in Beaverton, Ore.
This article 1st appeared in the May 2007 issue of HHN Magazine.
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