COMMUNITY HOSPITAL HEALTHCARE SYSTEM: A
STRATEGIC MANAGEMENT CASE STUDY
Amod Choudhary, City University of New York, Lehman College CASE
DESCRIPTION
The primary subject matter of this case concerns strategic management of community hospitals
in the United States. This case has a difficulty level of five; appropriate for first year graduate
level students. This case is designed to be taught in four class hours and is expected to require
twenty-four hours of outside preparation for students. For the graduate student, it should be a
half semester long group project with a presentation and report at the end of the semester .
CASE SYNOPSIS
This case study analyzes the turbulent social, legal and technological issues that are affecting
today's suburban community hospitals in United States. The soaring health care costs,
increasing number of uninsured or underinsured patients, reduced payments by government
agencies, and increasing number of physician owned ambulatory care centers are squeezing the
lifeline of community hospitals whose traditional mission has been primary care. Furthermore,
with the enactment of Patient Protection and Affordable Care Act in March 2010, community
hospitals are facing new challenges whose full impact is unknown. This case study would help
students learn about Strategy Formulation including Vision and Mission Statements, internal
and external analysis, and generating, evaluating & selecting appropriate strategies for a
healthcare organization.
COMMUNITY HOSPITAL HEALTHCARE SYSTEM
With the enactment of Patient Protection and Affordable Care Act in March 2010 (Health Act),
and President Obama's professed goal of making heath care in the United States more accessible
and affordable, the next few years are sure to be very turbulent in the healthcare industry. The
Health Act is expected to provide healthcare coverage to 95% of Americans, which will include
an additional 32 million persons nationally (New Jersey Hospital Association, 2010). The Health
Act goes into effect in 2010 with many of its requirements not becoming effective until 2019.
Directly because of the enactment of the Health Act, insurance premiums are expected to
increase anywhere from 2% to 9% depending on who is quoting them (Wall Street Journal,
2010). The Health Act requires children to remain on their parents’ health plans
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 36
until age 26, eliminates copayment for preventive care, bars insurers from denying coverage to
children and adults (in 2014) with pre-existing conditions, eliminates lifetime caps on insurance
coverage, and requires setting up of insurance exchanges in all states (by 2014) through which
individuals, families and small business can buy coverage (Adamy, 2010; Pear, 2010).
United States spends approximately $2 trillion annually on healthcare expenses (Underinsured
Americans: Cost to you, 2009). This amount is more than any other industrialized country in the
world and counts for 16% of the U.S. GDP. This percentage is higher than any developed
country in the world (Johnson, 2010). Despite the substantial healthcare spending, access to
employer-sponsored insurance has been on the decline among low-income workers, and health
premiums for workers have risen 114% in the last decade (Johnson, 2010). Furthermore,
healthcare is the most expensive benefit paid by U.S. employers (Johnson, 2010). Despite this
outlay, approximately 49 million Americans are uninsured and about 25 million underinsured-those who incur high out-of-pocket costs, excluding premiums, relative to their income, despite
having coverage all year (Abelson, 2010; Kavilanz, 2009). Overall, the healthcare industry in
America is besieged with high cost, uneven access and quality (Flier, 2009). The intractable
issues of high cost, uneven access and quality have made everyone unhappy from patients,
hospitals, doctors to employers.
The American healthcare industry is composed of approximately six major interest groups:
hospitals, insurance companies, professional groups, pharmaceuticals, device makers, and
advocates for poor (Goldhill, 2010) with the Physicians--part of the professional groups-- having
the biggest influence on the industry. Although hospitals constitute only 1 percent of all
healthcare establishments--hospitals, nursing and residential care facilities, offices of physicians
& dentists, home healthcare services, office of other healthcare practitioners, and ambulatory
healthcare centers--they employ 35% of all healthcare workers (U.S. Department of Labor,
2010).
Community Hospital Healthcare System
Community Hospital Healthcare System is a not-for-profit organization located in Monmouth
County, New Jersey. With its 282 beds and 2400 employees including 450 physicians,
Community Hospital serves approximately 340,000 residents in four suburban counties of central
New Jersey. The Community Hospital Healthcare System is a holding corporation made up of (i)
Community Hospital Medical Center, (ii) Applewood Estates, (iii) The Manor, (iv) Monmouth
Crossing, (v) Community Hospital Healthcare Foundation Inc., and (vi) Community Hospital
Healthcare Services, Inc. (a for-profit-corporation).
Community Hospital Medical Center (Community Hospital) is a general, medical and surgical
community hospital offering an array of primary and secondary services, including: cardiology
services, magnetic resonanceimaging (MRI), diabetes services through Novo Nordisk Diabetes
Center, emergency services, endovascular surgery, inpatient psychiatric
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 37
services, maternity care (single room) and special care nursery, oncology, radiation oncology,
rehabilitation, short stay unit, Sleep Disorders Center, Women's Health Center, and dialysis unit.
Community Hospital Medical Center operates a Family Medicine Residency program in
affiliation with the Robert Wood Johnson/UMDNJ Medical School.
Community Hospital has been selected as one of the best places to work in New Jersey by
NJBiz--a business publication--and landed at 20th place among 100 best places to work in
healthcare by Modern Healthcare magazine in 2009. The American Nurses Credentialing Center
has re-designated Community Hospital Medical Center a magnet status for excellence in nursing
and patient care in 2010 (Community Hospital Healthcare System, 2009 Annual Report). Only
6% of hospitals in U.S. hold Magnet designation and only 3% have earned re-designation one or
more times (Community Hospital Healthcare System, 2009 Annual Report). Community
Hospital is also a designated Primary Stroke Center. Finally, a nationally recognized firm has
ranked Community Hospital among the top 5% of hospitals in the U.S. for patient satisfaction
(Community Hospital Healthcare System, 2009 Annual Report).
Applewood Estates is a continuing care retirement community with 290 apartments, 20 cottages,
40 residential health care units, and 60 bed skilled nursing facility.
The Manor provides nursing services for 123 elderly residential units including sub- acute,
rehabilitation and intravenous therapy.
Monmouth Crossing provides assisted facility for the elderly consisting of 76 units. Community
Hospital Healthcare Foundation Inc. seeks and invests funds for the benefit of all components of
the Community Hospital System except for the Community Hospital Healthcare Services, Inc.
Community Hospital Healthcare Services, Inc. is a for-profit entity that provides related services
or participates in joint ventures of related services that do not meet criteria for being tax- exempt.
Examples include an ambulatory diagnostic imaging business and a public fitness club. It also
holds certain real estate in support of the Community Hospital.
Vision--an organization of caring professionals trusted as our community's healthcare system of
choice for clinical excellence.
Mission--to enhance the health and well-being of our communities through the compassionate
delivery of quality healthcare.
Community Hospital's mission and vision is borne out of six Strategic Imperatives-- known as
pillars. They are: (i) growth and development, (ii) community involvement & outreach, (iii)
physician integration, (iv) customer service, (v) high performance and (vi) renown. According to
John Gribbin (personal communication, August 16, 2010), CEO of Community Hospital, use of
technology underpins each of the six strategic imperatives and is used to achieve goals pertaining
to the Strategic Imperatives.
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 38
COMMUNITY HOSPITAL DILEMMA
Traditionally community hospitals have defined themselves to be center of Primary care, i.e.,
place for general medical and surgical care. Unfortunately, under the current health care industry
practices, general medical and surgical care which form the core of a community hospital tend to
be less profitable than specialty care--heart, trauma and, transplant centers. Additionally, while
primary care is increasingly viewed as the long-term solution to U.S. health crisis, many argue
that the Health Act does little to change the economics of specialty vs. primary care. For
community hospitals like Community Hospital, this is not good news. Community Hospital's
mission is primary care, but it is challenged as to how to develop other services that which are
complementary to its mission of primary care that effectively subsidize its commitment to
primary care.
Based on market share, Community Hospital faces two direct competitors and other peripheral
competitors as it tries to maintain its position as the community's healthcare system of choice for
clinical excellence and meeting the health delivery needs of residents in central New Jersey.
Shore University Medical Center (SUMC)
Shore University Medical Center is a 502 bed regional medical center that specializes as the
region's only advanced pediatric clinical care hospital. SUMC is also a Level II Trauma Center,
with an affiliation with the University of Medicine and Dentistry of New Jersey — Robert Wood
Johnson Medical School. It is located in Neptune, NJ and competes with Community Hospital in
eastern region of Monmouth County, NJ.
SUMC is part of the three-hospital member Meridian Health Systems. SUMC has also received
the prestigious Magnet award for nursing excellence three times. It has been designated by J.D.
Power and Associates as a Distinguished Hospital for Inpatient Services (2006) and received the
New Jersey Governor's Award for Performance Excellence (2005). With their Meridian partner
hospitals, SUMC has also received the following awards: FORTUNE'S "100 Best Companies to
Work For" (2010), Best Places to Work in New Jersey" for five consecutive years by NJBiz,
New Jersey's Outstanding Employer of the Year in 2003 and 2009, One of the top 100 Most
Wired Health Systems in the United States for 10 consecutive years, and John M. Eisenberg
Award for Patient Safety, one of the highest recognitions in the nation for hospital quality.
University Hospital (UH)
UH is unique among the three hospitals because of its size and breadth and depth of medical
services provided and specialties offered. UH is a 610-bed academic medical center and
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 39
a teaching hospital of UMDNJ-Robert Wood Johnson Medical School in New Brunswick, NJ.
UH competes with Community Hospital in the northern and western part of Monmouth County
and eastern and northern Middlesex County. Since it is a teaching hospital, UH provides services
and speciality care that Community Hospital would not be able to provide even it desired to do
so. UH is a Level 1 Trauma Center, with a separate Bristol-Meyers Squibb Children's Hospital
(BMSCH) with research and rehabilitation facilities. Moreover, UH specializes in cardiac
procedures including heart transplants, has a cancer hospital, offers state of the art robotic
surgery and provides kidney transplant services.
UH is recipient of many awards and recognitions: (i) one of America's best hospitals according
to U.S. News and World report, (ii) "Hospital of the Year" by NJBiz, (iii) top-ranked cancer
programs, (iii) recognized exceptional U.S. hospitals in quality and safety, (iv) recipient of
Magnet Award for nursing excellence, (v) award for excellent stroke care by American Heart
Association, and (vi) high patient satisfaction ranking by the patients of BMSCH.
Tables 1 to 5 below provide data that should be used to determine the competitive
advantage/core competencies of Community Hospital. The tables represent data and ratios about
hospital finance (tables 4 & 5), safety and mortality rates (tables 2 & 3), and patient experience
(table 1).
Table 1: Hospital Experience Survey (%)
CMC SUMC UH
NJ
Avg.
72
76
56
66
Patients who reported that their nurses "Always" communicated well.
74
75
73
Patients who reported that their doctors "Always" communicated well.
78
75
76
Patients who reported that they "Always" received help as soon as they wanted.
60
59
59
Patients who reported that their pain was "Always" well controlled.
69
69
67
Patients who reported that staff "Always" explained about medicines before giving it to
59
57
58 55
them.
Patients who reported that their room and bathroom were "Always" clean.
64
62
64 66
Patients who reported that the area around their room was "Always" quiet at night.
48
49
49 50
Patients at each hospital who reported that YES, they were given information about what
77
76
81 77
to do during their recovery at home.
Patients who gave their hospital a rating of 9 or 10 on a scale from 0 (lowest) to 10
68
62
66 60
(highest).
Patients who reported YES, they would definitely recommend the hospital.
69
68
74 64
This table provides data from a survey that asks patients about their experience during a recent hospital stay.
http://www.hospitalcompare.hhs.gov/ August 11, 2010.
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 40
Table 2: Hospital Mortality Rates Outcomes of Care Measures
CMC
SUMC
UH
No different than U.S.
No different than U.S.
No different than U.S.
Death Rate for Heart Attack Patients
National Rate
National Rate
National Rate
Better than U.S. National
Better than U.S. National
No different than U.S.
Death Rate for Heart Failure Patients
Rate
Rate
National Rate
No different than U.S.
No different than U.S.
No different than U.S.
Death Rate for Pneumonia Patients
National rate
National Rate
National Rate
Rate of Readmission for Heart Attack No different than U.S.
No different than U.S.
No different than U.S.
Patients
National rate
National Rate
National Rate
Rate of Readmission for Heart Failure Worse than U.S. National
No different than U.S.
No different than U.S.
Patients
Rate
National Rate
National rate
Rate of Readmission for Pneumonia Worse than U.S. National
No different than U.S.
Worse than U.S. National
Patients
Rate
National Rate
Rate
This table measures the hospital mortality rates for the three hospitals and compares those results with U.S. National Mortality
Rates. http://www.hospitalcompare.hhs.gov/ August 11, 2010.
Table 3: Recommended Care/Process of Care: Hospital Overall Scores (%--higher score is better)
Top 10% of Hospitals scored equal Top 50% of Hospitals scored equal
CMC SUMC UH
to or higher than
to or higher than
Heart Attack Overall Score
96
99
98 100
97
Pneumonia Overall Score
93
96
83 99
96
Surgical Care Improvement
90
97
95 98
95
Overall Score
Heart Failure Overall Score
89
97
91 100
96
This table compares Heart Attack, Pneumonia, Surgical Care and Heart Failure Care among the three Hospitals and other
hospitals in State of NJ. New Jersey Department of Health and Senior
Services, Web.doh.nj.us/.../scores.aspx?list..., downloaded August 13, 2010
.
Table 4: Ratios and Indicators
CMC
SUMC
UH
Average Length of Stay (days)
3.6
4.6
5.0
Medicare Average Length of Stay (days)
4.7
5.7
6.5
Occupancy Rate for Maintained Beds (%)
78.8
77.7
82.1
Operating Margin Ratio (%)
2.4
2.9
0.1
Total Margin Ratio (%)
8.7
9.3
8.6
Current Ratio
3.97
2.23
1.51
Modified Days Cash on Hand Ratio
241.6
194.4
250.2
Net Patient Service Revenue
6,206
7,287
8,653
Total Expenses per Adjusted Admission
6,286
7,405
8,783
Charity Care Charges as percentage of total Gross Charges
4.0
4.4
5.0
Provision for Bad Debt as Percentage of Net Patient Service Revenue
1.9
4.3
5.0
This table provides ratios for Utilization, Financial Health and Operational Performance for three hospitals. FAST Reports,
New Jersey Hospital Association.
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 41
Table 5: Key Statistics for Community Hospital
2007
2008
2009
Beds
271
276
282
Births
2,026
1,869
1,749
Emergency Department Visits
60,344
60,828
64,460
Family Medicine Center Visits
18,424
20,046
19,482
Health Promotion Visits
53,291
51,072
50,880
Patient days (including same-day surgeries)
83,968
82,533
76,635
Physical/ Occupational Therapy Treatments
92,911
106,856
122,871
Radiology/Imaging Procedures
125,117
130,108
127,913
Surgeries
15,092
14,033
13,309
Employees
1,664
1,743
1,770
Uncompensated Healthcare
10,537,747
10,885,754
10,390
Bad Debt
2,750,418
2,930,189
3,561,270
Senior Living Communities Occupancy Rates (avg. in %)
90.5
91.4
89.3
This table provides key statistics for Community Hospital for past three years. 2007- 2009 Community Hospital
Healthcare System Annual Reports.
Outlook
The population of Monmouth County, NJ is set to increase from 646,088 to 657,798 from 2009
to 2014. The median age will also increase from 40 to 41, and per capita income will increase
from $40,189 to $42,166 during the same period (North Carolina Department of Commerce,
2008). The CEO of Community Hospital worries that with each passing day the continued
viability of his hospital becomes difficult. Moreover, he believes that the Health Act will hurt
Community Hospital’s bottom line by about a $1 million per year. However, the CEO believes
that Community Hospital is well positioned to meet its challenges and will succeed, albeit with
hard work, talented employees and some luck.
Federal government through Medicare and Medicaid provides Community Hospital's revenue of
about 45%. Generally, Medicare and Medicaid payments to hospitals are approximately 20% less
than the actual cost (Arnst, 2010). Remaining revenue of Community Hospital comes mainly
from insured patients. Community Hospital, like most hospitals across the country receives most
revenue from treating complex health care diseases such as surgeries and procedures that require
hospital stay and care. Ominously for Community Hospital, due to diffusion of health care
technologies, services with most revenues are moving away to private surgery centers owned by
physician groups. Additionally, the enactment of the Health Act will lead to reduction of
approximately $1 million to Community Hospital's bottom line. The challenge for strategists at
Community Hospital is to provide primary care and charity care (NJ law requires every hospital
to medically stabilize anyone--regardless of insurance or ability to pay--and treat those patients
to the full extent of services offered by the hospital) in a weakened economy with increasing
charity care expenses and rising bad debt. The strategists must find
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Page 42
new sources of revenue to allow Community Hospital to support its mission while secure enough
funds to meet its commitments to primary and uncompensated care.
CONCLUSION
Community Hospital is in a challenging environment due to changing demographics, highly
regulated health care industry and having an uneven playing field compared with physician
owned surgery centers. Matter of fact, one-third of the nation's community hospitals had
operating losses in 2008 (Nussbaum & Tirrell, 2010). Patients with good jobs and appropriate
health insurance are leaving the region, while physicians are taking high revenue procedures to
privately owned surgery centers. Additionally, with the reduced Medicare and Medicaid
reimbursements and increasing charity care/bad debt cost; Community Hospital needs to create a
new sustainable business model. Please prepare a strategic plan that will steer Community
Hospital through the turbulent times ahead.
REFERENCES
Abelson, R. (2010). Bills Stalled, Hospitals Fear Rising Unpaid Care. Retrieved February 9, 2010, from
http://www.nytimes.com/2010/02/09/health/policy/09hospital.html?emc=eta1&pagewanted
Adamy, J. (2010). Health Insurers Plan Hikes. Retrieved September 7, 2010, from www.wsj.com.
Arnst, C. (2010, January 18). Radical Surgery. Bloomberg Businessweek, p. 40.
Community Hospital Health Care System. 2009, 2008, 2007 Annual Reports. Freehold, NJ.
Flier, J. (2009). Health 'Reform' Gets a Failing Grade. Retrieved November 17, 2010, from
www.wsj.com/.../SB1000142405274870443
Goldhill, D. (2009). How American Health Care Killed My Father. Retrieved January 20, 2010, from
www.theatlantic.com/doc/print.../health-care
Johnson, T. (2010). Healthcare Costs and U.S. Competitiveness. Retrieved January 31, 2010, from
www.cfr.org/.../healthcare_costs_and_us_co...
Kavilanz, P. (2009). Underinsured Americans: Cost to You. CNNMoney.com. Retrieved January 31, 2010, from
http://CNNMoney.com
North Carolina Department of Commerce. (2010). Monmouth County (NJ) January 2010. Retrieved January 31,
2010, from https://edis.commerce.state.nc.us/docs/countyProfile/NJ/34025.pdf
New Jersey Hospital Association. (2010). FAST Reports. Princeton, NJ.
New Jersey Hospital Association. (2010). Memorandum to Chief Executive Officers. Princeton, NJ.
Nussbaum, A., & Tirrell, M. (2010). Health Reform is Dead. Let's go Shopping. Bloomberg Businessweek, p.49.
Pear, R. (2010). Health Plan Won’t Fuel Big Spending, Report Says. Retrieved September 9, 2010, from
www.nytimes.com/2010/09/../09health.html...
New Jersey Department of Health and Senior Services. (2010). Hospital Performance Report. Retrieved August 13,
2010, from http://web.doh.state.nj.us/.../scores.aspx?list...
U.S. Department of Labor, Bureau of Labor Statistics. Career Guide to Industries:
2010-2011 Edition. Retrieved January 31, 2010, from http://www.bls.gov
Wall Street Journal (2010). Sebelius has a List. Retrieved September 13, 2010, from www.wsj.com
Journal of the International Academy for Case Studies, Volume 18, Number 1, 2012
Copyright of Journal of the International Academy for Case Studies is the property of
Dreamcatchers Group, LLC and its content may not be copied or emailed to multiple sites or
posted to a listserv without the copyright holder's express written permission. However, users
may print, download, or email articles for individual use.
Purchase answer to see full
attachment