[SOLUTION] District Hospital

District HospitalA Lesson in GovernanceCynthia Mahood LevinHealthcare Consultant, Palo Alto, CAKurt DarrThe George Washington University, Washington, D.C.HISTORYBarclay Memorial Hospital (BMH) has enjoyed a reputation for excellent medical care in an affluent community for over 70 years. In the mid-1940s, its community was mainly agricultural, but urbanization was beginning. Hospitals in the region were operating at capacity. Community members and physicians proposed a solution to the problem of overcrowding at local hospitals: form a hospital district supported by the community through a tax. Voters approved the hospital district in 1945 by a 5 to 1 margin. The first decision was to select a 15-acre campus. In 1947, voters approved an $8 million bond issue to finance construction and operation of a 275-bed hospital. The tax district spans seven townships that elect five district community members to a governing board for the district hospital’s four entities, which include the hospital, joint ventures that operate an urgent care center and a hospice, and the hospital foundation.THE PHYSICIAN-HOSPITAL ORGANIZATIONAbout 15 years ago, the district hospital board and the CEO devised a strategic plan to form a physician-hospital organization (PHO) with Valley Physician Group (VPG). VPG was formed in 1951 when a number of physicians agreed they could provide better care to their patients by sharing resources and ideas. Over the years, VPG expanded as more physicians and physician groups joined. Currently, VPG has more than 315 full-time physicians in 28 specialties and subspecialties.Joining with VPG to form a PHO required that BMH change its legal status from a public (governmental) hospital to a private, not-forprofit hospital. The new hospital governing board was responsible for the PHO. Within two years, the PHO was going bankrupt because of poor management and a lack of focused leadership. Infighting among VPG and non-VPG physicians began as the hospital deteriorated financially, and employee morale plummeted. With the help of consultant Gregory Schilling, the district board, which had not disbanded, fought the not-forprofit governing board and successfully returned BMH to hospital district control. Being a tax district (governmental [public]) hospital confers several benefits on BMH: public hospitals are a political subdivision of the state with certain legal advantages; board members are elected by voters in the tax district; financial surpluses are reinvested in the hospital; and it has authority to levy a tax on homeowners in the district. Schilling was asked to become the new CEO immediately following dissolution of the PHO.MARKET POSITIONThe healthcare market in the area included five hospitals in close proximity. One was a major teaching hospital; another was a county hospital that provided services to the indigent. In addition, there were numerous physician groups. Originally, BMH provided only outpatient surgery, a birthing center, psychiatric unit, and a senior center. Today, the hospital offers a comprehensive range of services: cancer, urologic, cardiac, and vascular surgery; neurology; orthopedic and spinal surgery; men’s and women’s health services; mental health services; geriatric, palliative, and hospice care; diagnostic services; digestive health; emergency services; primary care, including mother-baby health and pediatrics; rehabilitation medicine; pulmonary services; and a sleep lab.Currently, BMH is licensed for 390 beds. Last year it operated 378 beds, with an average daily census of 249. Annually, BMH provides services of all types to the 118,177 persons living in the service area. BMH has 17,731 inpatient discharges, 6,224 inpatient surgeries, 4,347 outpatient surgeries, and 51,989 ER visits. The numbers reflect decreased volumes in most service lines. The average length of stay (ALOS) is 4.2 days. ALOS has increased somewhat because a change in state law now allows new mothers to be hospitalized longer than 24 hours after a normal delivery. The 4,912 newborn deliveries last year were a record; it is likely the number will increase because BMH is the desirable maternity hospital in the area. Nurses are attentive and maternity units have only private, newly renovated patient rooms. Outpatient visits totaled more than 113,265 last year and should continue to increase as technology allows less invasive treatment. Projections show a potential to increase occupancy if more surgeons admit at BMH and the processes for delivery of services become more efficient. This will make the hospital more profitable. Transplant surgery should generate more revenue, however. Orthopedics is another service line that could be expanded; it has only 40% of the estimated market. BMH is, however, competing with the neighboring teaching hospital for this patient population. Total full-time employees (FTEs) is 3,205. This is a higher-than-average FTE ratio compared to area hospitals. More FTEs result in higher salary and benefit costs. There are 455 physicians on the active medical staff, which reflects a decade-long decline. The number of hospital volunteers decreased from 890 last year, as well. BMH had gross revenue of $610 million in the last fiscal year, with an operating budget of $570 million. Managing to budget has been difficult. A hiring freeze mid-year showed positive results initially, but after three months some nursing units had nurse-patient ratios that were too low.THE DISTRICT BOARDThe BMH board has five members elected by voters in the tax district to serve three-year terms. The CEO is hired by the board. The chairman of the board, Dr. Larry Harvey, is an orthopedic surgeon with privileges at BMH. His position and authority in the hospital have raised questions of conflicts of interest. He has used his authority to disregard requests from the operating room supervisor to arrive on time for his cases. Harvey’s tardiness means his patients must wait for their procedures to begin and highly paid hospital staff are idle. Harvey threatened to have the orthopedic surgery department manager fired because she tried to control excessive use of supplies and pressed him to keep to his schedule.According to estimates of demand included in marketing analyses, the orthopedic surgery service line should produce a profit; instead, its small market share results in a loss. Furthermore, the payer mix for orthopedics was 50% government insurance coverage for the indigent, which pays only 30% of charges. When the subject was broached by Schilling, Harvey threatened to admit his patients at a competing hospital. Harvey often became emotional in meetings and accused Schilling of yelling at him. Eventually, Harvey stopped returning Schilling’s phone calls. Compounding these problems was Harvey’s difficulty in separating his anger about reductions in healthcare reimbursement and the hospital’s rocky relationship with the VPG physicians from his clinical work in the hospital.Dr. Ray Brandon is also an orthopedic surgeon. Brandon was on the district board when there was a PHO, but he took a more passive role. During a closed-door meeting of the board he did not hide his animosity toward the VPG physicians who formed the PHO with the hospital. He, too, was frustrated by declining reimbursement. In addition, he was frustrated by the breakdown in the relationship between physicians and hospital governance. Occasionally, Brandon appeared to disregard state law applying to governance of tax district hospitals. The “open meetings” law requires that board members only discuss district hospital matters in meetings open to the public. Meetings in which proprietary information is discussed are exempt from the open meetings requirement. During a “closed” board meeting at which proprietary matters were being discussed, Brandon stated he wanted to discipline physicians who refused ER call. After the “open” board meeting that followed, Brandon took the hospital attorney aside and asked her to research legal action against physicians who refused ER call. Schilling had advised board members to approach the ER call issue more diplomatically and not attract media attention. Schilling used a politically acceptable solution by analyzing benchmarking data from area hospitals and offering to pay on-call physicians at market rates. Physician groups were asked to bid to take ER call.The third member on the district board during the years of the PHO was Dr. Karl Pearl, a neurologist with privileges at BMH. He is the most bitter of the board members about how VPG “ruined” the PHO, and he is publicly critical of VPG. Pearl resented the decreases in healthcare reimbursement and he often pontificated about it at board meetings. As with the other physician board members, Pearl’s clinical privileges at BMH are perceived as a potential conflict of interest. He has publicly criticized the large size of the management staff. The CEO took this as a personal affront and believed it adversely affected the morale of his staff.The fourth member of the board is also a clinician. Aaron Travis, DO, is an osteopath with privileges at a competing community hospital. He respects Schilling and accepts his advice. Travis boasts of “saving” the hospital during the PHO by asking “a few simple questions” about the hospital’s performance that, at the time, no one could answer. This led to other questions. The result was greater transparency and, eventually, a financial turnaround for the hospital. Unfortunately, Travis has limitations that affect his ability to be an effective board member. He is openly angry about his experiences during the PHO, such as when his car was vandalized, and he received threatening phone calls. Since Travis has privileges at a competing hospital, some question his loyalty to BMH and commitment to it.The fifth board member, Stephanie Stewart, is a community businesswoman. She respects Schilling and is willing to work with him. Stewart had difficulty grasping the complexity of hospital operations and its finances when she was first a board member. To her, it made no sense that the hospital is not paid its charges for services. She wants to be a team player and becomes frustrated at times with the physician members’ negativity. Often, she and Travis have asked physician board members to “move on from the past.” The breakdown in communications with the CEO was apparent to Stewart.THE NEW CEOThree of the five district board seats stood for election in 2012. Two of the three current members remained on the board because there were no other candidates. Before the November elections, the board asked Schilling to become the new CEO. Schilling was the former CEO of a not-for-profit hospital and had spent his entire 40-year professional career as a hospital administrator. Schilling has a history of back problems. When he arrived on the job he appeared to be in good health. As noted, he was originally hired by the district board as a consultant to help the hospital dissolve its relationship with VPG in the PHO. He successfully returned the hospital to district control and eliminated the hospital’s $3 million per month deficit within his first year as CEO. The number of FTE hospital employees had decreased significantly during the affiliation with the PHO. This kept expenses for salaries and benefits at a lower percentage of hospital revenue, but Schilling wanted to increase employee morale by hiring more staff, reinstating salary increases, and improving benefits. He also began to put resources back into the hospital by making desperately needed upgrades to the facility. These changes increased employee trust and respect for Schilling, while his warmth and caring attitude helped him gain employees’ loyalty. However, these changes also caused the hospital to start losing money again.LEADERSHIP STYLEBoard members, physicians, and employees gave Schilling accolades for returning the hospital to profitability. Schilling’s leadership style, however, was criticized when later financial projections showed a $30 million loss for the following year. Physicians described his leadership style as patriarchal and paternalistic. Physicians, nurses, and managers were accustomed to a culture of teamwork that had been supported and fostered by the former CEO. Schilling became frustrated when his authority was questioned, not only by the medical staff and nurses, but by his executive team. Schilling felt that members of his team did not have the experience to support his turn-around efforts. Most were good at taking direction from him and his COO, but they felt the absence of a strategic plan impeded their ability to focus on a common goal. Schilling delegated the authority to conduct executive team meetings to his COO, Daniel Porter. Porter was not well respected by the management team because of his authoritarian leadership style and his lack of listening skills. The dynamic in executive meetings was such that participants would either begin arguing with each other or nobody would contribute ideas. A lack of leadership was becoming apparent throughout the organization.LOSING SUPPORTBy improving morale, renovating the facility, and recruiting former members of his executive team, Schilling stabilized BMH. A strategic plan was developed and presented to the board. Schilling’s decision to keep the strategic plan confidential until it was ready to be launched, however, made some managers, physicians, and hospital staff uneasy. Because of the politics involved when physicians think their prerogatives are threatened, it was proving impossible to increase market share of revenue-generating services. When pressed to expand the orthopedic and transplant surgery service lines by recruiting new surgeons, the physicians affected threatened to admit to competing hospitals. The orthopedic and transplant surgeons had been at BMH for years and were comfortable with their departments’ status. Added to the equation was the physician board members’ reluctance to make enemies. The PHO experience had left a bitter taste in the mouths of these board members; they seemed paralyzed by past events. Schilling began to lose support.The board even criticized successful decisions made by Schilling. The last major decision the board made at his recommendation was to end risk pool agreements with insurance companies. Schilling had presented two options to the board: increase revenue or decrease expenses. The board agreed to decrease expenses by renegotiating the hospital’s risk pool contracts, but later claimed Schilling waited too long to present this information to them. In fact, Schilling had tried to persuade the board to exit risk pool agreements for more than 2 years.A TROUBLED PHYSICIANThe vice chief of staff, Clara Mavory, M.D., is an anesthesiologist who practices at BMH. She was praised for her commitment to the hospital’s survival as a freestanding facility. Mavory had helped lure Schilling from a neighboring hospital to return BMH to district ownership in 2014. Mavory had a troubled history with VPG; she was asked to leave after being disciplined for disruptive behavior seven years prior to establishing her own medical practice. Mavory had a troubled history at BMH, too. A peer review file on Mavory’s clinical performance prepared by the BMH quality department showed several instances of questionable clinical judgment prior to 2015. Also, the file included complaints about Mavory’s inappropriate behavior toward patients and hospital staff. As Mavory’s friend, Schilling felt protective of her. And, he had a sense of obligation toward her for his position at BMH. Although her peer review file had gone to a peer review committee of BMH physicians, no disciplinary action resulted. Schilling kept Mavory’s file locked in a cabinet in the clinical quality department office. According to the hospital attorney, the only way to remove a physician’s clinical privileges is to substantiate evidence of poor-quality medical practice using procedures required by the medical staff bylaws.One year after Schilling became CEO in 2014, Mavory began to demand confidential records, including legal and peer review files. Mavory disagreed with many sections of the medical staff bylaws and recommended revisions. This slowed preparation for The Joint Commission on Accreditation of Healthcare Organizations (The Joint Commission) survey because the quality department had to focus on the hospital’s legal counsel’s review of proposed revisions to the medical staff bylaws. The Joint Commission requires bylaws changes to be in effect a year before a survey. When Mavory did not receive the confidential files she demanded, she criticized Schilling publicly and began to persuade other physicians to distrust his leadership. She had done the same thing to the prior administrator. Also, in 2015, board members began to feel bullied by Mavory. The three physician board members with clinical privileges at BMH disagreed with Mavory’s demands but found it easier to acquiesce than challenge her.Later, in 2016, Schilling realized how useful the information in her peer review file could have been in stopping Mavory from causing a rift between the medical staff and administration. The file existed and still could be used. Because Schilling and Mavory had become adversaries and because a long time had elapsed since the events as now it was over a year, reporting Mavory would seem vindictive, however. Schilling’s only recourse was to persuade the board to support him in blocking her demands for confidential information. Over the last year, however, Schilling received no support from the board in disciplining Mavory for her disruptive behavior toward hospital staff. Schilling’s numerous attempts to contact the board chair, Dr. Harvey, had been futile. Harvey would not return his calls.Schilling wrote memoranda to board members when Mavory demanded information. The memoranda included responses to Mavory and explanations to the board as to why certain information was confidential or not appropriate for her to have. No board members answered Schilling’s memoranda. Verbal communications had become infrequent and were limited to board meetings. Harvey, along with other board members, felt Schilling was not healthy enough to continue as CEO. Their concerns about Schilling’s health diminished their trust of his decision making. They preferred to ignore Mavory rather than deal with her. As fellow clinicians, the physicians on the board were reluctant to criticize Mavory.REORGANIZING THE BOARDSchilling trusted his intuition and 40 years of experience as he tried to make better use of the two board members who supported his ideas and remained loyal to him. He developed a plan to organize the board into subcommittees to maximize the influence these two board members had on the other three. Subcommittees included strategic planning, finance, emergency room on-call coverage (ad hoc subcommittee), and governance. Each subcommittee had two board members, the CEO, and designated administrative staff. The proposal for the new subcommittees was presented at an evening public (open) board meeting and was passed unanimously by the board. This restructuring was the first step toward solving the communication problems and increasing the level of trust the other three board members had in Schilling.SUCCESSION PLANNINGSchilling’s contract would end in the fall. Should he retire or should he seek to renew his contract? As much as he did not want to admit it, his health was deteriorating, and maintaining tumultuous relationships was becoming too demanding. Surgery relieved a back condition, but his general health improved only minimally. Schilling had succeeded in what he had been hired to do—get BMH back into district control and stabilize it. Continued success depended on regaining support of his board and the trust of the medical staff. After adding staff and upgrading the hospital, however, expenses substantially exceeded revenues. Projections showed BMH would soon repeat history by losing $3 million a month. Patient volumes in most services were very low. Nursing ratios were high, but the culture of the organization demanded lower nurse-patient ratios in return for not increasing salaries, a compromise that a strong in-house nursing union supported.Unfortunately, most board members were not interested in following the CEO’s advice to improve the numbers because they had lost confidence in his judgment. As the date for his contract renewal neared, employees, too, began to question Schilling’s continuation as their leader. Morale declined further as employees began to fear the instability of a possible change in leadership. Employees feared a for-profit hospital system would buy the hospital. This would change the culture of BMH, and likely lead to lay-offs. During the PHO period, employees had been laid off, salaries frozen, and benefits cut. The employees did not want that to happen, again. After receiving a phone call from a BMH employee, a statewide union used local leadership to try to organize non-nursing employees. Nurses and facility engineers were already unionized. Schilling did not have the energy to stop expansion of the unions, which could ultimately organize all nonsupervisory employees.A NEW CHIEF OF STAFFDr. Mavory was elected vice chief of staff after successfully running against several opponents. The medical staff bylaws provided that the vice chief of staff automatically becomes chief of staff if the election is uncontested. Mavory had stated she would refuse to take the salary usually paid to the chief of staff because she considered it a conflict of interest. As the election neared, her only opponent withdrew after Mavory confronted him by telling him his candidacy was causing a rift in the medical staff. His withdrawal made an election unnecessary and Mavory became chief of the medical staff. A chief of the medical staff is an adviser to the CEO and a buffer between the CEO and the chiefs of the clinical departments and specialties. Typically, the chief of the medical staff is a confidante to the CEO and a sounding board for clinical matters. This senior member of the executive leadership solves clinical problems and manages medical issues before they become matters that adversely affect a hospital. Dr. Mavory, however, acted out of self-interest and did not perform these duties.In response to Mavory’s criticism of his power over the board, Schilling recommended a change to the hospital bylaws to make the CEO a nonvoting member of the board. As Schilling’s energy and involvement waned due to his health problems, Mavory requested that the hospital board make her a voting member because she was chief of staff. These actions required changes to both the hospital bylaws and the medical staff bylaws. The board did not act on either request.CAUSING TURMOILAfter Mavory became chief of the medical staff, she continued to make enemies of the VPG physicians by attacking them in the medical staff newsletter and at medical staff executive committee meetings. Seven years earlier, Mavory had been forced out of VPG because of disruptive behavior. Schilling was sure this caused her animosity toward the VPG. Since VPG physicians are 50% of BMH physicians, admitting their patients to BMH is essential to its financial health. Schilling thought Mavory’s disruptive behavior would eventually subside if she were not confronted. He hoped that by ignoring Mavory she would lose her audience. This was not the case, however. On a weekly—and sometimes daily—basis, she demanded access to computer files, legal correspondence between medical staff office employees and the hospital attorney, and files on medical malpractice cases. Mavory demanded the right to attend confidential department meetings and verbally abused physicians who disagreed with her. She constantly tried to pit the medical staff against administration and appeared to want the physicians to become a union bargaining unit.OBSTRUCTING PREPARATION FOR THE JOINT COMMISSIONAt a meeting that focused on preparing for The Joint Commission survey, Mavory demanded a change in a diagram that showed the flow of communications in the hospital. During the last Joint Commission visit surveyors praised BMH for its excellent communication process, which they said was a model for how other hospitals could expedite communications through layers of bureaucracy. However, Mavory argued the chartshowed the medical staff reporting to the CEO.As soon as she became chief of medical staff, Mavory tried to dissolve the medical executive committee and change the membership of most physician committees. She wanted representatives of administration removed even if they were support staff to the committees. These changes would violate the medical staff bylaws and could compromise The Joint Commission accreditation survey, which was only six months away. The only Type 1 violation (the most serious kind) the hospital received in the previous survey was the medical staff’s failure to comply with its own bylaws. Mavory wanted the vice president of quality, Harold Fredrick, excluded from all meetings and eventually fired. Mavory said she did not like Fredrick because they had a personality conflict. Mavory interfered in various ways with implementation of policies and procedures that she disliked. She added and removed appointments to joint medical staff and administrative committees and stalled medical staff bylaws revisions for months and even as long as a year. According to the vice president of quality, this jeopardized Joint Commission accreditation because all recommendations by the medical staff chiefs’ committee (MSCC) that require board approval must be in place for at least a year before a Joint Commission survey.The manager of the medical staff office resigned, citing high levels of stress over the last year. Mavory told hospital employees and physicians that she considered herself everyone’s boss. When copy room staff told her she could no longer make personal photocopies at hospital expense, she told the supervisor, “Do you know who I am? I am the most powerful physician in the hospital. I am your boss. You will do as I say!”COMPENSATION FOR ER ON-CALL PANELMavory seemed to search for issues or problems to pit BMG’s physicians against administration. Knowing physicians wanted to be paid to take ER call, she coached one plastic surgeon to take this issue to the MSCC. When some members of the MSCC asked the plastic surgeon for benchmark data on what other hospitals paid ER on-call physicians, the plastic surgeon said he was “too busy” to do the research. The plastic surgery group was the most frustrated with not being paid for ER on-call. They gave administration a deadline to begin on-call payments that the hospital could not meet. No physician would agree to research or benchmark how much other hospitals were paying physicians for on-call. A few board members wanted to report physicians to the state for refusing to take call. Patients not treated in the ER because there were too few physicians, or if the ER had no specialists to meet their medical needs had to be transported to other hospitals. Some board members were concerned this was a violation of the Emergency Medical Treatment and Active Labor Act, which could lead to large fines for the hospital and bad public relations. Administration thought this was unlikely, however. The two board members on the on-call subcommittee came to the MSCC meeting to show their willingness to resolve the issue and to get feedback from the physicians as to what they believed the solution to be. They were well received by the physicians attending the meeting after board members encouraged the physicians to help solve the problem. Ultimately, the CEO proposed an acceptable solution: physicians would be paid $500 to carry an ER pager; physicians asked to come to the ER would be paid $1,500 per 8-hour shift.NO STRATEGIC PLAN IMPLEMENTEDThe board refused to sell or close the money-losing cancer unit because its oncologists would admit patients to a competing hospital. They also worried that VPG doctors would be overcompensated because of the financial arrangement. Schilling believed the board was uneasy about a change in hospital services. After the PHO problem, they seemed reluctant to cut services that could make even one hospital physician angry or add services that could “overcompensate” physicians.Dr. Mavory’s replacement as vice chief of medical staff was the secretary/treasurer of the medical staff, Dr. Barry Landon. He was the only cardiovascular surgeon at BMH. This violated state law that required hospitals performing open-heart procedures to have a two-surgeon team. When the director of strategic planning, Kelly Nelson, asked Landon about recruiting another cardiovascular surgeon, Landon wanted to have her fired. Landon felt threatened by Nelson’s recommendation. He wanted complete control over open-heart surgery. Mavory supported Landon’s efforts to remove Nelson, calling her “no good.”SCHILLING’S RESIGNATIONSchilling decided to resign. He did not want to be blamed for BMG’s demise and felt responsible for solving its financial problems. His attempts to rebuild relationships with the board and chief of medical staff had been futile. His poor health meant Schilling had no energy to improve relationships with employees, managers, and physicians. Schilling agreed to stay until the district board hired a consultant as interim CEO.CONSULTANT HIREDJenna Carson agreed to take the position as interim CEO of BMH. Carson’s 20 years of experience as a “turnaround” expert made her an obvious choice. She had many decisions to make in her new role. As she thought about the future, several questions came to mind.QUESTIONS FOR CASE ANALYSIS1. How could she improve the financial position of BMH?2. What strategies should be used to increase patient volumes?3. Should she use the old strategic plan or develop a new one?4. Would the board support her decisions? Her recommendations to it?5. Should she try to prevent nonunion employees from unionizing?6. What steps were necessary to control the chief of medical staff?7. What is the priority of preparing for The Joint Commission survey?8. What could she do to assist board members in governing BMH?9. How could the executive team become more effective in improving BMH’s performance and help it become a market leader?10. How should these questions be prioritized?ENDNOTEThis case used by permission of the authors. Copyright © 2004–2016 by Cynthia Mahood Levin and Kurt Darr.For more information on District Hospital read this:https://en.wikipedia.org/wiki/Hospital


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