Where will community hospitals fit in the future healthcare landscape?

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Panelist Profiles
Terrence Deis James Fiorenzo John Sigsbury Mike Williams
President and CEO President President and CEO President
Parma Community General Hospital UPMC Hamot Emanuel Medical Center Community Hospital Corporation
Parma, Ohio Erie, Pa. Turlock, Calif. Plano, Texas
John Commins (moderator) Edward Prewitt (moderator)
Senior Editor, Community & Rural Hospitals Editorial Director
HealthLeaders Media HealthLeaders Media
Vero Beach, Fla. Danvers, Mass.
Sponsor
26 HealthLeaders October 2012 n Sponsored Material n www.healthleadersmedia.com

2. Listening to Your Data
Roundtable Highlights
HealthLeaders: Is there a future for that continue to serve a mission, but do really comes back to the physicians.
independent hospitals? it in such a fashion that they are opera- And you’re not going to consistently get
tionally efficient—so that they continue quality physicians to move to smaller
Mike Williams: I think the future for to do those things that might not be communities to be able to deliver the
community hospitals, as they histori- profitable as long as they do enough of quality that’s necessary to meet the
cally have been operated, is probably the things that are profitable. Because buyer’s quality equation. So I think it’s
limited. We are at a point in the evolu- without that network of institutions, a problem that small hospitals continue
tion of healthcare that is mandating where then are we going to provide the to deliver in their message to us: We
that all hospitals, but particularly inde- care to those who don’t have access?
pendent community hospitals, look at
the way they’re operating, look at the Terrence Deis: We’re sort of an anom-
relationships that they are entering aly. We’re sort of an island amongst sys-
into, and really begin to do an internal tem hospitals. We’re the last indepen-
assessment of their own viability to be dent hospital in Cuyahoga County. …
independent in the future. We really, truthfully, though, are inter-
dependent. We work with the other
John Sigsbury: We did quite a bit of hospitals in the area, both community
surveying of our population to see if hospitals as well as tertiary care hospi-
anyone in the community could actu- tals, and in that way we’re able to serve
ally distinguish between a proprietary a mission of providing true commu-
hospital, a faith-based not-for-profit, nity healthcare. We were founded by six
a not-for-profit system, and then an communities. We’re the only hospital James Fiorenzo
organized, integrated system of care. that has “community” in our name. … President
UPMC Hamot
And from the consumer’s point of view, We’re a general hospital/community
they can’t. They don’t see a difference. hospital, sort of friends and neighbors
They’re treated virtually the same, no taking care of friends and neighbors. can’t adequately recruit, plus we’re in
matter what hospital they walk into. I get letters every week that tell us: I competitive situations with other com-
The procedures, the billing, everything don’t know what the difference is, but munity hospitals who can’t get their
that happens to them is virtually the they tell us there is a difference. You heads around the issue of transforming
same. We’ve said to our board that in know, “Don’t join the system.” There’s themselves to meet the demands of
the years to come, those lines between a hometown feel. There’s something what is coming with reform. I’ve said
what’s not-for-profit and proprietary different. We like to think that is sort before, and I heard [Cleveland Clinic
will be completely blurred because … of our niche. It’s something hard to put CEO] Toby Cosgrove say almost five
if you don’t operate your independent your finger on. So as we become more years ago, that there would be 12–14
not-for-profit hospital to the same interdependent, we know that there’s major systems in this country in the
business standards that everyone else is no future for a community hospital next 15 years, and everybody would
able to achieve, there is no future. that doesn’t change as change is needed be affiliated with one of them. That
and isn’t as efficient as you possibly can was his view of the world. I think we’re
Williams: Most community hospi- be. But we want to do as much as we going to be somewhere close to that at
tals are either publicly governed or can to keep that hometown feel. some point, and everybody will have a
not-for-profit. One of the challenges relationship with one of them. Terry’s
is that most of those are the safety-net James Fiorenzo: Well, I think that the already got relationships with two of
hospitals. The question that I have to community hospital is going to have a the systems. He’s not married to them
come to grips with … is that we have niche, but I believe that there has to be yet, but he’s dating both of them. He’s
to, in the not-for-profit sector, marry some focus on the buyer here. Who’s been doing that for a period of time.
mission with business acumen with a paying the bills, and what are they going Everybody seems to be dating some-
requirement for margin. But … if there’s to pay for? At the end of the day … body at this point in time and look-
a consolidation of facilities to just be there’s no way that the community ing to attach their wagon to someone
profitable, where will the safety-net hospitals in the majority of the smaller for something.
hospitals be? So that’s why I’m going areas of the country can afford to invest Our affiliation strategy is not just
to be bullish on community hospitals in the quality equation, because that about clinically affiliating; it’s trying to
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3. roundtable: Decision Time for Community Hospitals
find the synergies among those com- community hospital and moving it leaders at a national forum for board
munity hospitals so we can start influ- into a system, you don’t automatically governance who heard a discussion
encing change and transformation of get efficiencies. Oftentimes systems of scale and size and were intrigued
care in those markets. There’s no rea- manage their hospitals relatively inde- by that. They were also talking about
son for two hospitals to be 30 miles pendently anyhow. the whole structure of boards to be
away and both of them recruit urolo- able to adequately lead and direct the
gists, no reason for duplicating gen- Sigsbury: We talk about quality of life systems of the future at that time. So
eral surgeons or orthopedic surgeons if all the time in the community. We’re [the board members] moved to a point
they’re only 30 miles away. They should probably just a little smaller than Parma. where they were able to convince the
work cooperatively and think about We’re about 70,000 [people] in the city, rest of the board … five years ago or so
where the physician does his inpatient and our catchment area is very simi- that we needed to kind of reevaluate
work and where he does his outpatient lar—about 150,000 through what we what the scenario planning was for
work to create a quality quotient that consider to be the primary service area. the organization going forward. For
the buyer is going to be attracted to. Not having a hospital there is devastat- that discussion, we brought in consul-
Otherwise, nobody is going to win in ing. It’s like a General Motors plant tants. … Everybody’s talked to consul-
that scenario. closing. You don’t think of yourself as tants about their future. That process
a company town, but when you have moved our board to further evaluate
HealthLeaders: What is it that needs 1,400 employees and you’re churning potential partners of the future. They
to be protected in the “community” part of a $100 million payroll over and over made the decision based on a posi-
community hospitals? and over again through the economy, tion of strength, that we would be no
there is a sense of responsibility for what more valuable to a partner five years
Deis: I think largely people feel an you’re doing. Subsequently, the deci- down the road than we were at that
ownership in their community hospi- sion to be independent or not be inde- point in time. (With the changes that
tal. Almost every community hospital, pendent does affect local businesses. It we’ve seen already, that was probably
Parma included, is one of the largest affects everyone downstream, no ques- a pretty good analogy, because we’ve
employers, if not the largest employer. tion about that. We also have a tremen- seen a degradation of operating mar-
… I think people look to their com- dous philanthropic relationship with gins, etc. Market forces, particularly in
munity hospital still. I don’t know how the community, as I’m sure everybody the northwestern Pennsylvania area,
to say it better than that. … We’re not does. … Folks in the community are have predicated that that was prob-
anybody’s medical safety net, but we’re giving back to a service they want to ably a really good move.) … We evalu-
an economic safety net for our commu- have there. They believe they’re making ated potential partners. The board put
nity. It’s almost part of the community a difference—that they’re going to have together a partnership committee, and
mission for us. There’s an efficiency healthcare because they’re taking money that committee worked on partnership
trade-off there, because the 7% that out of their pocket to help build a service discussions with the major players in
you save by moving IT out from Erie to or build a service line or build a building the market. They evaluated four, whit-
Pittsburgh has taken payroll tax dol- on campus. It’s a great relationship that tled it down to two, and took offers, so
lars out of Erie. … And there are certain we have with the community. to speak, from those two. The largest
inefficiencies around a high-overhead insurer in our market decided to jump
organization as well. Just by taking a HealthLeaders: We have a spectrum in at the last minute as well. They were
of experiences around the table. Jim, you not included in the original review
started this process of looking ahead several because nobody felt that they could be
years ago, and you made the decision to join a player in the “template” for what we
with UPMC on terms that were positive for were looking for.
you. John, you’re going through this process Our template for a partnership was
now and you’ve just made a decision to join based on what we always identified
with Tenet, which has not been easy in every during this whole process: “the five
aspect. Terry, you’re thinking about what C’s.” … The first one is culture. How
the future is: What are the values to protect? does their culture match with ours?
What are the relationships/affiliations you Was it going to be a good fit, etc.?
want to hold on to? Please summarize your Commitment: What was the commit-
processes and your thinking. ment to the investment, not only in
the community but also on the clinical
John Sigsbury
Fiorenzo: How does a board get their and access issues? Number three was
President and CEO
Emanuel Medical Center head around doing this in the first capital. How much money were they
place? We had a couple of our key board really going to bring to the table and
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4. be able to support us long term? Fourth Building beds in California is an expen- Terrence Deis
was the clinical investment: Did they sive proposition, [but] you don’t need to President and CEO
have access to physicians? We talked any longer. There’s not a capacity issue Parma Community
General Hospital
about the medical school, the fellows, in any hospitals in our area. So you find
the residents. UPMC has 1,500 resi- yourself as the independent hospital
dents and fellows, so they could assist with a loosely organized medical staff,
in populating physician specialties. The mostly of independent physicians com-
last one was the community: How was peting against highly organized groups
the community going to be affected? of physicians. We looked at the orga-
This [led] into a foundation discussion. nization that we had the most clinical
Was a foundation going to be created overlap with, where there was as much
to assist in reinvesting in Hamot … and synergy with the physicians as possible.
be a longstanding entity after all the That helped with the acceptance of the
dust had settled? So the five C’s were choices amongst the medical commu-
what we brought into our discussion, nity; our board was able to evaluate a
our evaluation, and then looked to see known quantity.
how each one of the proposals matched Now, the one area that we’re going That’s where our board’s head is at. So
inside those categories. Ultimately, to struggle with is, this is going to be a quarterly we look at criteria: quality,
UPMC was identified. Then it was just clash of cultures. There is no question growth, people, recruitment of physi-
pretty much putting the deal together, that the two organizations are going cians, recruitment of executives—very
and then that’s when the lawyers came to be 180 degrees apart. Our role is to specific. And if we trip them, it’s sort
in to make it all happen. bring those organizations and those of like a bond covenant. If we trip more
cultures together over the next couple than one of those, then it’s time we
Sigsbury: I don’t think the process is of years so that the community sees the think seriously whether it’s the last
a whole lot different, even a few years value … and also sees a sustainable hos- responsible moment. We have done
later. Every market has its unique char- pital operation in the community so fairly well keeping the bond covenants
acteristics. Our market is as competitive we can retain as much as we can. We’ve or the triggers at bay, but we still con-
as anyone’s market and is dominated by gotten great protections—not quite as tinue to have discussions where we are
lots of highly integrated systems. Sut- good as Jim—but we’ve gotten what we looking at our current [relationships].
ter is an integrated model. Kaiser is an think are pretty good industry stan- We have relationships with both
integrated model. The Tenet hospital dards on the protection for service lines major systems in town [Cleveland
that is north of us has a 500-physician and the hospital. But nothing works Clinic and University Hospitals]. We
IPA and relationships with Blue Shield unless you get to that level of super- have a separate relationship with one
and Blue Cross. So for us, it became an efficiency that we hope we can achieve very independent hospital much like
issue of exactly how are we going to do with now almost 700 beds between the us, Elyria Memorial—EMH Health-
everything on our own? If we want to two facilities and a fairly significant care is their new name—and then
create a pathway for medical residency, physician organization. Southwest General, which actually
we’re doing it on our own. There is no has a partnership with UH already.
help, there is no intellectual capital, and Deis: Our situation is different as far But that partnership is at the system
there is no other capital. We have to as where we’re at, but I don’t think level, and the hospital is actually ready
generate it ourselves. If we want to start we’re not doing things very similarly to to do some things out on their own.
a service line, we have to be the one that the rest of the group. In our strategic So we’ve created this collaborative in
invests in the service line. There’s no planning process around this issue, order to get some economies of scale
rationalization across a larger market- our board did a couple of things. One on things like purchasing, EHR, high-
place. With our board, who has been is they defined the term: As opposed cost items, potentially back-office
very supportive of our growth strategy to trying to sell at your peak [or] cut things. In the meantime, from our
over the nine-plus years I’ve been there, the transaction at your peak, philo- clinical relationships we’re looking at
we have to be as transparent and as sophically our board decided [to focus how much benefit would there be to,
realistic as possible over what the long- on] the last responsible moment—not instead of having relationships with
term prospects are with the emphasis the last possible moment, but the multiple tertiary providers, what if we
on beds. When beds are being deempha- last responsible moment. We set up had a relationship with one single pro-
sized, beds become an expense. When some criteria around at what point in vider—essentially going from dating
someone can compete effectively in your time we should look more seriously at two people to dating one person, and
area with outpatient facilities, their cost something that gives up governance what is the benefit of that. We’re trying
of entry in the marketplace is very low. and management of the organization. to determine currently whether the
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5. roundtable: Decision Time for Community Hospitals
benefit of doing that outweighs the have left is to sell the asset or to merge Deis: We have an 18-member board.
cost. It’s not free to do that, actu- with another organization. Many times Sixteen members are made up of the
ally. You can be Switzerland as long it’s difficult for a CEO or a management community. They’re appointed by the
as you’re Switzerland, but once you team who has been responsible, at least mayors of our six founding communi-
choose a side, then ... the next thing you partially, for that fiscal failure to go to the ties. We also have two physicians on
know, people who have not competed board and say, “We now need to be proac- our board. We do have term limits, and
with you because you’re Switzerland tive,” because it’s a time of reaction. More that hasn’t always been the case. But
will [have] a competitive response. often than not, it’s a default on a bond that’s added some value. … They’re a
covenant that causes the board to be committed board. They’re engaged,
made aware of the challenges that they’re they’re committed to the community,
facing. Then a third party comes in and first and foremost. One thing they do
begins to take control away from that a very good job at is not being parochi-
group, saying, “We will now dictate your al about their own community. They
future because you haven’t managed look at the broader community, which
effectively, nor has your management sounds trivial, but you could spend a
team been accountable to a board who lot of time in that kind of environment
has assumed their fiduciary responsibil- arguing about whether we’re doing
ity in an ongoing way.” something for this city or that city, and
that almost never happens. They look
HealthLeaders: How do you get boards at the broader community. And they
of community hospitals to come around to a have been pretty proactive about this
Mike Williams way of thinking that isn’t based on the last whole idea of partnership and so forth.
President possible moment? So in that way they’ve been very strong.
Community Hospital
Corporation
Fiorenzo: I think the board makeup Williams: It’s been said that the
is critical to any of these types of deci- role of a hospital or a health system
Williams: One of the most interesting sions—their histories, their knowledge CEO is one of the most challenging
things we’ve talked about is that deci- base, etc. Unfortunately … everybody in any business by virtue of the differ-
sion point of when you go. I’ve heard too is all over the place in regards to term ent audiences that have to be served.
many execs wait until it becomes a dis- limits. The recruitment process is dif- You’ve got the staff, the community,
tressed situation and not take a respon- ferent. … It’s crazy stuff in regards to the employees, the board. When I look
sible view—“This is what I’m burning how we actually repopulate our board around and see those boards … that
on a month-to-month basis.” Every dol- makeup. … These are the kind of things are most progressive in their think-
lar that gets burned never comes back, that all of the small community hos- ing, it’s the board that has a very posi-
so it doesn’t ever get reinvested in the pitals have to deal with in some way, tive relationship with their CEO. The
community. It’s not a part of a future shape, or form, and there’s no good CEO has to be confident in his or her
scenario. At what point do you recognize answer. But for you to make the most abilities to the extent that he or she
the trajectory of the organization to say, reasonable decision at the most respon- can educate the board about the chal-
“We can’t burn through any more of sible time, that board dynamic is criti- lenges that lay ahead. … That relation-
this, and we have to create a responsible cal. And many CEOs are somewhat ship skill … allows that board and that
legacy in the community”? … What are reluctant to challenge their boards in CEO to say together, “We’re going to
the motivating factors that cause a board regards to what really has to be done. walk into the future.”
and a management team to say, “This is And if you bring the third leg, the
the last responsible moment”? … Many Sigsbury: We often talk about how medical staff, into that relationship,
boards, like those that I think you guys one of our most important roles is the those are the organizations that are
work for and work with, are proactive, development of our senior executive going to be most successful in the
thinking ahead, looking for that last staff, and the recruitment, the motivat- future, when month by month they
responsible moment. But I tend to see ing, and the training of that group. I are thinking together about what’s
across the country the exception to that don’t think the responsibility is any less coming and how they can deal with
thinking. It’s a reaction, most often to for a CEO in working with your board whatever those challenges are. I really
fiscal failure. At that point, the organiza- chair in recruiting and retaining a board believe it’s the relationship skill that’s
tion is not in the best position to sell, to of directors. … But it takes as much or going to allow the CEO to educate, be
partner, to do whatever. They’re [acting] more work on that side as it does with transparent with, and be proactive with
from a position of weakness, and many finding and developing senior executive the board to address the issues. H
boards think that the only option they talent in the hospital side. Reprint HLR1012-4
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6. vision road ahead
for the
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