Key Community Hospital Partnership Considerations
Taking Your Board through a Process with a Practical Approach
Webinar: Wednesday, January 30, 2013,
12 Noon – 1:00 pm CST
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Presenters
Mike Williams, president & CEO
Community Hospital Corporation, Plano, Texas
Glenn Robinson, CEO
Hillcrest Health System, Waco, Texas
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Community Hospitals in Perspective
Total U.S. Hospitals 5,754
Community Hospitals 4,985
Rural Community Hospitals 1,987
Critical Access Hospitals 1,325
Urban Community Hospitals 2,998
Community Hospitals in a System 2,941
Community Hospitals in a Network 1,508
Source: American Hospital Association’s Hospital Statistics, 2012 edition, data from 2010 annual survey.
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Community Hospital Opportunities
• Community commitment
• Do what you do well
• Clinical integration
• Operational efficiency
• Advances in technology
• Meaningful use/financial improvement
• Strategic alternatives to preserve independence
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Community Hospital Challenges
• Low patient volumes
• Recruitment of physicians/specialists
• Physician alignment
• Policy and market changes
• Medicare and Medicaid cuts
• Economic downturn pressures
• Access to capital
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Partnership Conversations
• Community need
• Clinical service breadth
• Physician alignment and strength
• Revenue, sustainability
• Managed care leverage
• Compatibility of purpose
• Reputation
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Partnership Considerations
The more $$$ you need, the less control you will
have in your local governance.
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Partnership Considerations
Responsible action is more favorable than the last possible moment.
• Think proactively
• Board dynamic is critical
• Define your optimal terms
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Unique Partnership Options
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First, Get Your ‘House’ in Order
• Assess market position: know your market clout; it provides a position of strength during conversations with potential partners and physicians.
• Assess finances, profits: know operational areas of challenge and profitability.
• Industry transformation: educate the local board and hospital management about inevitable industry changes such as increased regulatory scrutiny and declining reimbursement rates.
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Next, Understand Your Strategy
• Clinical services: understand the hospital’s clinical
strengths, areas that can be expanded, and what is
lacking to appropriately serve area populations.
• Infrastructure: explore shared infrastructure and
areas where the hospital needs guidance.
• Know what you are willing to give up.
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Potential “For Sale”
Where’s the fruit? Characteristics of a targeted community hospital: • Likely to target non-performing organizations
– Room for quick fiscal improvement – Stable demographics (but not as significant a factor) – Physician recruitment opportunity – Limited available capital for improvements
• In addition, look for: – Minimal managed care – Niche player – sole community provider – Opportunity for higher margins – Control issues
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Tactics
• Target indirect stakeholders – Commissioners
– Physicians
– Former board members
• Promise of $$$ – Can be very “promising,” particularly to a city or
county commissioner struggling with funding
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Case Study
Hillcrest Baptist Medical Center
Waco, Texas
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Old Providence Location Hillcrest Baptist Medical Center
Providence
New Hillcrest Location
Hillcrest Health System
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Hillcrest Health System
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Hillcrest Baptist Medical Center
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MARKET SHARE OF HOSPITALIZED MCLENNAN COUNTY RESIDENTS
(Actual Market Share Based on Texas Hospital Assn. Patient Data System Data)
58.1% 57.7%55.8%
53.1% 53.9%
49.4%47.9%
45.1%43.4%
29.9% 30.1% 31.1%
35.0%33.5%
38.1%40.4%
44.5%46.5%
7.3% 7.8% 9.0% 8.0% 8.7% 9.1% 8.3% 7.5% 6.9%4.7% 4.5% 4.2% 3.9% 4.0% 3.4% 3.3% 2.9% 3.2%
0%
10%
20%
30%
40%
50%
60%
70%
1999 2000 2001 2002 2003 2004 2005 2006 2007*
Hillcrest Providence Scott & White Other
* 2007 based on partial year data annualized
HHS – Market Share Trend
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HILLCREST HEALTH SYSTEM CONSOLIDATED EBIDA
( $000 )
$(6,013)
$10,039
$(8,000)
$(6,000)
$(4,000)
$(2,000)
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
EBIDA
( $0
00 )
FY07
FY08 (9 Mos.)
HHS – Financial Situation
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HILLCREST HEALTH SYSTEM REQUIRED EBIDA BEGINNING IN FY2010
( $ Millions )
$19.5
$24.8$27.4
$33.5
$-
$5
$10
$15
$20
$25
$30
$35
$40
Debt Service +
Required Mortgage
Reserve Funding
HUD-Expected 1.5
Times Debt Service
Coverage
Amount Required for
P&L Breakeven
Amount Required to
Provide Cap Ex = to
Depreciation
($ M
illi
on
s)
HHS – Projected EBIDA Necessary
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• Strained Physician Relationships
– Trust
– Communication
• 1-on-1 Visits
– >200 physician visits in 1st 120-days
• Development of Physician Leadership Group
• Focus on Operational Excellence
HHS – Turnaround Strategies
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• 15 Member Physician Panel • Physician Lead • Selected by CEO • Meets Monthly • Other Attendees:
– Admin ops staff – Board chairman
• Main Focus: – Clinical issues – Process issues
Physician Leadership Group
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E E O B
4.0
4.5
5.0
5.5
6.0
May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08
E B I D A($ in 000's)
(8,000)
(6,000)
(4,000)
(2,000)
0
2,000
4,000
EBIDA 582 (3,950) 973 (7,535) (482) 1,011 2,165 (456) 1,443 2,317 1,314 1,450
May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08
HHS – Operational Improvements
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• Strong, Immediate Operational Improvement • Replacement Hospital Under Construction • Strong Primary Care Network - HFHC • Open Medical Staff
– High quality – Committed to remaining independent
• Future of Healthcare Uncertain – Continued decline in reimbursement – Growing uninsured/underinsured
• Long Term, Sustained Growth???
Hillcrest – Protecting our Future
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• Continued Choice in our Community • Protect Name and Brand
– Hillcrest Baptist Medical Center – 80 year history in community
• Fair and Balanced Board – Community/Hillcrest interest protected
• Hillcrest Family Health Centers would remain a separate entity of the partnership – 38 primary care physicians and 7 clinics
• Continue with our major expansion project • Protect our Faith-Based Heritage
– Retain our affiliation with the Baptist General Convention of Texas
Ideal “Must Haves”
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• Culture
• Physician-oriented
• Financial strength
• An added strength - existing presence in the marketplace
Ideal Partner
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• Non-profit integrated healthcare delivery system based in Temple, Texas
• Physician-founded and physician-led – Employs more than 1,000 physicians and scientists
• Primary teaching affiliate – Texas A&M College of Medicine
• Financial Strength – Joint AA-, Aa3, stable credit rating – Highest A.M. Best rating (A-) issued & affirmed to S&W Health Plan
(2007)
• Quick Stats – Over 14,000 employees – Over 1,000 licensed beds – Serving more than 1.5 million patients annually – 240,000-member health plan
Scott & White Healthcare
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• Governance:
– A new 12-person Board of Directors
– HHS will appoint 6 Directors
• A majority of whom would reside in Waco
– S&W will appoint 5 Directors
• A majority of whom would reside in Waco
Hillcrest Baptist Medical Center
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• Due to a weaker financial position, other negotiation points gained increased value:
– Board Composition (50/50)
– Reserved Powers – Certain actions would require the approval of both HHS and S&W boards – i.e.: • Amendment of Articles of Inc. or Bylaws
• Change in tax-exempt status or mission and purpose
• Admission of any new corporate member
Hillcrest Baptist Medical Center
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• Operations:
– Employees – Hillcrest would employ all personnel (except CEO – who would be employed by CHC)
– Clinical Matters – The Board would delegate authority to the PLG – comprised of physicians and representatives of HHS and S&W
Hillcrest Baptist Medical Center
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• Lose our full independence
• Risk relationship with medical staff
• Risk relationship with HFHC
• Risk relationship with certain community stakeholders
Potential Downsides
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• Mitigation of financial threats
• Stable beginning at our new location
• S&W health plan access
• Perceived “halo effect” by many
– S&W Healthcare = high quality
• Further expansion of training programs
• Synergies in key service lines
– Trauma, post-acute, oncology, etc.
Potential Upsides
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• Memorandum of understanding approved by both HHS and S&W
– Announced 1 year prior to merger
• Conducted due diligence
• Definitive agreement – April 1, 2009
Creation of HBMC
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• Sustained operational and financial improvement – FY12 was our strongest financial year in over 16 years
• Strengthened physician relationships
• Strengthened community relationships
• Sustained positive market share trend
• Addition of new services – S&W Center for Rehabilitative Medicine
– S&W Regional Cancer Center – Hillcrest
– Hillcrest Surgery Center
– Additional surgical specialty growth
Successes
$(6.5)
$12.9 $12.7
$27.9 $29.3 $32.8
$(10)
$(5)
$-
$5
$10
$15
$20
$25
$30
$35
FY07 FY08 FY09 FY10 FY11 FY12
$ M
illio
ns
Operating EBIDA
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• Part of Integrated Healthcare System positioned for the future
– Local, State and National Presence
– Baylor Scott & White Health Announcement
• Continued commitment to local community and the delivery of high quality, affordable healthcare to our region
– Adoption of Best Clinical Practices
– Synergistic relationship that creates value
Future
Questions & Answers
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Thank You!
Community Hospital Corporation
5801 Tennyson Parkway, Suite 550
Plano, Texas 75024
972.943.6400
www.communityhospitalcorp.com