Alan M. Zuckerman
What Would You Do?
The Problem
Suburban Community Hospital has basic and undistinguished cancer services. A few new board members are agitating to substantially expand these services and partner with a renowned cancer center, in what would be an expensive and politically challenging undertaking. Hospital management believes the expansion is warranted but is concerned about the level of risk entailed in making a new bold play. What would you do?
The Situation
Suburban Community Hospital is a full-service, general acute care hospital serving a populous and affluent area in the southern part of a large metropolitan area. Suburban has 300 beds and a broad range of outpatient services, enjoys a good reputation in its service area, and has had satisfactory financial performance for many years. Suburban is located 10 to 15 miles from the next closest hospital. Most of its competitors are similar to Suburban in size and scope of services, except for one large teaching hospital, University Hospital, located nearly 20 miles to the northeast.
Like all of its competitors except University Hospital, Suburban has offered a basic cancer program throughout its recent history. The regional cancer market is fragmented, and none of the competitors, except for University, stand out in any way (see exhibit) . Even University’s Cancer Institute, while fairly comprehensive, is not a major research center and has had an unstable past.
All of the hospitals are affiliated with a university–sponsored cancer program. Most are affiliated with University’s Cancer Institute, a few are affiliated with the Cancer Center, and one is affiliated with the Cancer Network (see exhibit) . None of the affiliations are terribly meaningful; in most cases, they involve only participation in clinical trials and limited consultative services. Needless to say, little, if any, clinical or market advantage is derived from these relationships.
Suburban’s medical staff is large and well trained. Its cancer-related physicians include all the specialists one would expect to find in such a community hospital: medical and radiation oncologists, one breast surgeon, and a few general surgeons whose practices are treating a number of cancer patients.
Many of the region’s affluent residents seek second opinions and often all of their cancer care in the large city to the north. Over the past few years, a few new and prominent trustees have joined Suburban’s board and have become increasingly vocal in calling for an expansion of the cancer services at the hospital. In particular, these trustees would like to see Suburban form a joint venture or other significant relationship with a renowned cancer center, Metro Cancer, which is unaffiliated with any of Suburban’s competitors. A consultant has been retained to work with both parties to see if a venture is feasible.
Alternatives Considered
From Suburban Community Hospital’s perspective, the following alternatives are under consideration:
Maintain the status quo. With this alternative, Suburban would not develop a relationship with Metro, but would attempt to develop its cancer services on its own.
Pursue a moderate affiliation with Metro. The second alternative would involve developing some relationship with Metro, including a research affiliation and selected joint ventures. The relationship also would include development of a few tumor site-specific centers.
Pursue a full affiliation/joint venture. This alternative would involve developing an integrated relationship with Metro, which would act as manager of the cancer program. This approach would require a phased development of a comprehensive program.
It has become apparent during this process that as the plan moves from status quo to the full affiliation with Metro, the risk-reward curve steepens and the degree of difficulty sharply escalates. Suburban’s management understand well that little progress is likely without a partnership with Metro, but they also are aware that Metro has proven to be a difficult partner for others and would create major opportunities and challenges for Suburban in a new relationship.
Also, as the study progresses, various stakeholders are forming different opinions about the plan to affiliate with Metro. Suburban’s board is becoming more enthusiastic, and in fact, several large donors have stepped up to fund the capital costs for a full relationship with Metro. Meanwhile, affected physicians are growing increasingly unhappy about the prospect of a Metro-led program, and the medical staff is sharply divided on the merits of the plan. Moreover, although the projected financial performance is excellent, the probability of establishing a successful relationship is not high and the potential secondary effect from medical staff actions could easily offset any gains.
In every discussion among the board of directors, a few trustees are emphasizing that developing a first-rate cancer program would be in the best interest of the community, and that this benefit should override other concerns. Nonetheless, some trustees are beginning to bend to the pressure of the affected physicians and their supporting colleagues. And despite the attractive pro forma financials, management is unsure about how to proceed. What should Suburban’s leadership do?
The Decision
A special board meeting was called to address the question about how to develop Suburban’s cancer services and whether a relationship with Metro would be desirable. Before the board meeting, Suburban’s management conducted substantial additional analysis, including close study of Metro’s two other significant affiliations, which had existed for more than five years. In both of these cases, financial projections had been realized, and more important, quality indicators had increased dramatically. Satisfaction among patients and their families had also improved from average to excellent.
In addition, although community hospital representatives in the other two communities had reported having difficulty working with Metro as a partner,both had agreed that Metro was, for the most part, a reasonable partner, and ultimately, they had indicated being pleased with outcomes and future prospects.
These reports helped to sway the doubters, and Suburban’s leadership voted to move forward to develop a full relationship with Metro.
Alan M. Zuckerman, FACHE, FAAHC, is president, Health Strategies & Solutions, Inc., Philadelphia (azuckerman@
hss.inc.com).