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Planning Services and Payer Contracting |
Strategic Planning for an
Expanding Community Hospital
Client Profile: A 140-bed hospital that is the sole provider in its summer resort area
Project Type: Strategic planning
Challenge: Ensure adequate access to capital to develop the services and capacity required to meet the needs of a rapidly growing retiree population. Help the hospital plan programs to support an expansion to 170 beds with new clinical programs.
DGA Solution and Results: DGA analyzed demographic, operational, financial and market data, and interviewed both internal and community stakeholders to develop a strategic assessment of the hospital. The highly interactive planning process involved senior management, medical staff and the Board of Directors.
The strategic plan brought these stakeholders to consensus on several strategic goals:
- Building service quality and enhancing reputation through establishment of evidence-based care standards and use of integrated information technology
- Identifying future capital needs to meet the rapidly growing community need
- Establishing and meeting financial targets to ensure access to capital for future facility needs
Measurable objectives, action steps and budgets were created to provide a clear roadmap for the hospital. The strategic plan also included a strategic financial plan with aggressive but attainable revenue goals that were agreed to by all stakeholders.
Determining Feasibility of a Surgical
Specialty Hospital Joint Venture
Client profile: Middle Atlantic multi-hospital system with major hospital facility in no-growth downtown location and significant competition in the growing suburbs.
Project type: Facility planning; financial planning and modeling
Challenge: Determine the feasibility of joint development of a surgical specialty hospital with local physicians. This bold strategic move would, if feasible, allow the health system to create additional capacity and strengthen its market position in a growing suburb by building on an extremely successful ambulatory care presence.
DGA Solution and Results: DGA supported the facility planning, deal structuring, and financial analysis for development of a 44 bed surgical specialty hospital.
DGA coordinated input from architects and managed the planning process to determine project cost and integration of the existing ambulatory care facility. We estimated market demand based on detailed discussions with physicians, and determined facility size based on these estimates.
DGA performed several financial analyses, working closely with the system's finance staff, to estimate revenues based on the mix of actual cases treated by the likely physician participants. We built detailed budgets for the operation to determine expenses.
Our financial analysis gained credibility with the system board by considering both the income from the new facility and the negative impact of shifting cases out of the old facility.
DGA lead the joint venture effort to bring the physicians and the system into a balanced and equitable partnership for the ownership and operation of the new hospital. We proposed the initial deal terms and worked with outside counsel to translate these terms into the final documentation needed to close the transaction.
The board approved the project, and DGA has assisted by developing the financial estimates for the offering memorandum.
Determining Feasibility for an Ambulatory Care Facility
Client Profile: A 200-bed Mid-Atlantic community hospital in an expanding suburban market.
Project Type: Financial planning and modeling, business planning
Challenge: Determine the optimal size and service complement for a new ambulatory care facility to be located in an area where the hospital's market position was vulnerable. Develop demand and financial assumptions for a start-up ambulatory operation.
DGA Solutions and Results: DGA used a multi-faceted approach to help our client evaluate the feasibility of developing the ambulatory care facility. We interviewed key physicians, evaluated medical staff support for the project and identified specific services to be evaluated for inclusion. We also determined that one of the locations contemplated by the hospital was preferable.
Because there is no publicly available, credible utilization data for services such as mammography and bone density scans, DGA developed customized demand methodologies based on hospital outpatient utilization and market share, and on our own proprietary claims-based use rates.
We refined the project concept and structure, specifying the diagnostic services and physician office space requirements for a 15,000+ square foot building that was available in the target area. Finally, DGA developed financial projections, including capital costs, revenues and operating expenses. We also assessed the potential impact of the new facility on hospital utilization volumes.
We recommended that the hospital proceed to develop the center, building-out part of the space only as a shell, to allow for future expansion. The ambulatory care facility is now operational and deemed a success. The project has exceeded its goals for protecting market share, and expansion into the shell space is ahead of schedule.
Feasibility and Structuring of an
Orthopedics Joint Venture
Client Profile: A 250-bed independent community hospital in Pennsylvania
Project Type: Strategic and business planning, joint venture development
Challenge: To respond to market challenges caused by a competitor's new ambulatory care facility, the loss of the hospital's primary orthopedics group, and other competitive threats to the hospital's market position.
DGA Solutions and Results: DGA recommended several ambulatory/physician office strategies. We identified a premier orthopedics group and negotiated an arrangement for a satellite of the group to locate at the hospital. To ensure the arrangement's financial success, DGA completed a detailed financial analysis, including assessing the market opportunity and analyzing the financial benefits for multiple scenarios. We helped define the structure of the deal, ensuring that the different components of the affiliation met the required fair market value standards.
The hospital has now transformed devastating losses in its orthopedics service line into a significant improvement in the hospital's quality, patient volume, finances and an improved image for the hospital in its community.
Facility and Financial Planning for a
Campus-Based Medical Office Space
Client Profile: A Mid-Atlantic community hospital that is a ministry of the nation's largest Catholic healthcare system, with an integrated primary care network
Project Type: Facility master planning and program planning; financial planning and modeling
Challenge:Create a financially feasible master facility plan and assess demand for campus-based medical office space for key affiliated physician specialists. The hospital needed space for the growth of high volume outpatient services despite the full utilization of the existing facilities, and improved functional layout to eliminate inefficient workflow patterns and complex internal paths. The plan had to work within the financial constraints imposed by the hospital's healthcare system parent.
DGA Solution and Results: DGA conducted a series of engagements, developing a plan that separated both facilities and financing for inpatient and ambulatory care services. High growth outpatient services were clustered and consolidated into a separate delivery site which could be financed by private development.
The new site will provide an ideal location for physicians affiliated with the hospital to relocate their practices onto the campus, enhancing patient service and convenience as well as practice efficiency. This approach will allow the hospital and health system to conserve their combined capital resources to fund core hospital expansion needs and growth opportunities, while accelerating implementation of the overall master facility plan.
Review of Proposed Payer
Contracts for Major Health System
Client Profile: Major metropolitan health system with three hospitals
Project Type: Payer contracting
Challenge: To evaluate the neutrality of a proposed sweeping change to the current outpatient payment methodology by a major local third-party payer. Instead of being paid on a percentage of charges, the health system was to be paid on the basis of a fixed-fee schedule. The proposed fee schedule was intended to be "neutral" with respect to the previous charge-based payment, and DGA was engaged to test that neutrality.
The proposed payment methodology for Emergency Department (ED) and Ambulatory Surgery Center (ASC) services provided a single "episode of care" payment for all services to the patient. For these services, the system would be paid the lower of the fee schedule amount or the actual charges for the service.
DGA Solution and Results: DGA obtained payer worksheets provided showing the data and the neutrality calculations, and hospital data showing charges and volume by service code. For ASC and ED, we obtained clinical data that allowed us to determine the "severity" of the case (which established the proper payment) and to group together all related services into each "episode".
For each system hospital and department, we computed payment under the current and proposed systems. We discovered that the payer had not properly implemented the "lower of charges or fee amount" rule for the ED. Some low-severity cases would actually be paid at a lower amount than computed by the payer, so that the resulted fee multiplier was below "neutral".
When the health system informed the payer of the problems, the payer dropped the rule. The work protected the system from incurring a significant loss of revenue loss in its Emergency Department and Ambulatory Surgery Center.
Evaluating a Pay-for-Performance
Option for a Health System
Client profile: A five-hospital health system, struggling with the financial burden of a large base of Medicaid and indigent care patients
Project type: Payer contract modeling and support
Challenge: Create the tools and methodology to allow the client to choose whether to participate in a quality-based pay-for-performance program, and to provide the data to support them in participating if they chose to do so.
DGA Solution and Results: We created a detailed simulation model that let the health system assess the potential impact of the proposed agreement. Based on this assessment, the client decided to move ahead with pay-for-performance, and was able to negotiate for performance metrics and goals that worked to their benefit in determining whether they had achieved quality goals.
This client now has the tools and skills to manage the on-going modeling and performance analysis it needs to manage this essential payer contract. The health system has reported highly successful financial and operational performance with this payer agreement. The pay-for-performance program has also boosted morale and public image for some of the hospitals by creating a healthy competition to achieve quality goals.
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