The Master Plan: We Want a Hospital

“Scenario Four: Large university system wants to expand its network and tertiary capacity by building a new community hospital.” It’s one of several thought proposals on Legacy Hospital Partner’s (LHP) web site. They’re a firm that offers financial joint venture options in a nonprofit industry that requires intensive capital outlays. It allows for collaboration that expands opportunity and the reach of health care access. In HUMC’s proposition for reopening Pascack Valley Hospital it exploits a synergy that would shift the financial burden and risk from taxpayers to investors, while maintaining the mission goals of a successful nonprofit business model.

Competition demands innovation in the world of most for-profit entities. Without it―business managements stagnate, becoming complacent, stumbling like tumbleweeds whenever a change in wind appears. HUMC’s new CEO recently wrote an editorial on the need for that innovation. A joint venture between LHP and HUMC would be a new innovation in New Jersey, where a smaller hospital subsidiary extends time sensitive trauma health care access without the expense to taxpayers.

It is a recognition that within an industry where revenue may only require sick people, hospitals aren’t insulated.―Patients are putting off elective surgery as they worry about jobs and their financial future. Others are putting their health needs on a back burner as they lose private medical insurance. Add declining State reimbursements for charity care and smaller returns from endowments, and hospital managements need to weigh options on how to stay relevant in a resource demanding environment.

Each hospital engaged in this ‘discussion’ had an opportunity presented to it with PVH’s closing. Even before it closed. Each reviewed it and considered the opportunity within their vision of the future. Unfortunately too many businesses have visions of what their business is, overlooking why it exists or what it could be. That lack of flexibility ignores the what-if analysis and invariably presents a door to defensive decision considerations, occasionally fostering an unplanned vision adjustment.

The opposition to a reopened hospital chose different routes to their future. Valley Hospital had elected to ‘renew’ itself in a larger image with tax-free revenue and bond debt. They apparently believed size―less patient choices―and quality services would triumph over travel time concerns and grow their market share. Englewood Hospital saw exposure to more patients; possibly believing it would counteract the economy and a tumbleweed management, increasing its much needed tax-free revenue. They now complain about HUMC’s lack of collaborative innovation―while they themselves offer little other than their mutual opposition, funded by tax-free dollars.

HUMC did not originally intend to reopen a hospital. Their partnership with Touro University and the lack of committed vocabulary wasn’t difficult to read. Their correspondence to the State referenced in an AG April 22, 2008 response referencing such, only reinforced that understanding. They were in the midst of building a new cancer center and taking on new debt. The purchase of the PVH site was redirecting millions, which had to affect their accessible cash on hand and potentially, their bond covenants. Yet circumstances change and if a business vision is adaptable, then new opportunities can open. But until a new source of capital could be identified a reopened hospital could not have been on the agenda.

HUMC has a history of seeking opportunity and efficiency as shown by their growth over the years. Legacy’s web site description of “scenario four” reinforces their vision and that history:

“Opportunity:
A large university hospital system reaches its capacity and has to increasingly turn away tertiary referrals. In order to meet the growing referral demand, the system decides to build a new community hospital in another part of its service area. The new hospital will offload some of the less acute medical and surgical volume from the system’s main campus, freeing up capacity for increased tertiary volumes and creating private practice opportunities for its faculty. When limits on availability of capital become an issue, the system decides to look for alternatives.

Projected Outcome:
The university system expands its network by making a minority investment in the Joint Venture, yet it retains its ability to control the new hospital. The new hospital has a synergistic effect on the entire system, making the university system stronger in its market and better able to meet healthcare needs regionally. Tertiary space is freed up on the main campus because less acute services are handled in the new community hospital. In addition, university faculty is provided with new private practice opportunities.

LHP Solution: LHP and the system sign a letter of intent and create a limited liability company (the Joint Venture) to design, build, own and operate a new hospital as part of the university system’s network of facilities. LHP contributes 80 percent of the necessary cash and the system contributes 20 percent. The Joint Venture builds and opens the new hospital under the university system’s network identity. The new hospital clinically integrates into the network to ensure continuity of care. LHP manages the day-to-day operations of the newly acquired facility under the direction of the Joint Venture Board of Directors.“

The Department of Heath will need a comprehensive vision to decide the future of a reopened hospital in Westwood. Will it support a temporary imagined solution by limiting health care access? Will it review the State’s Report and see the bigger picture? Will it hold hospitals accountable or allow the inefficiency of government bureaucracy to be manipulated into a fall guy position?

The opposition embraces and simplifies the State’s Report to a narrow perspective of excess capacity within an oligopoly. Valley Hospital is successful, well exceeding an 83% utilization factor―the ideal capacity cited by that State Report. Englewood Hospital falls short of that utilization, contesting access for others rather than adjusting their own capacity―burning cash and losing money.

The HUMC/LHP partnership will offer an alternative to paying for accessible quality health care with taxpayer backed bond debt. Instead of bondholders receiving tax-free returns, investors take the risk and receive a return on their investment―after taxes are paid. (Maybe Englewood Hospital should be considering such a partnership. It would bring them a new management approach and be a great opportunity for the Englewood municipality and State taxpayers.)

Unfortunately, many opportunities have expiration dates. The Pascack Valley Hospital’s extended certificate of need is quickly approaching a set expiration. Whether it will experience a Lazarus styled intervention by the DOH remains to be seen. In the meantime, the issue has become word weary pending a definitive course of action from the central player, Hackensack University Medical Center. With all the players involved, what the future ultimately holds is anybody’s guess. (But if I was a betting man, I’d bet against the status quo.)