Case 17 – District Hospital

17
TEACHING NOTE
District Hospital
A Lesson in Governance
Cynthia Levin and Kurt Darr
I. CASE SUMMARY
In 1947, Barclay Memorial Hospital (BMH) was built to serve the community, and
was set up to be governed by a district board. In the early 1990s, the administration
and the governing board agreed that, in order to remain competitive, the hospital
needed to form a physician–hospital organization (PHO). The hospital joined a medical group known as the Valley Physician Group (VPG), making BMH a private, notfor-profit hospital. The BMH PHO eventually dissolved after financial failure and
BMH reverted back to district ownership. Gregory Schilling was hired as a consultant to assist in the dismantling of the PHO. Eventually, Schilling was hired as the
CEO of BMH. He successfully brought the hospital back to financial viability and
improved morale. This didn’t last long, however.
The district board consists of five elected members from the community who
serve 3-year terms. The five members are Dr. Larry Harvey, Dr. Ray Brandon, Dr. Karl
Pearl, Dr. Aaron Travis, and Stephanie Stewart. The relationship between the board
members and the CEO has become strained. Furthermore, Schilling had back pain that
had become aggravated. His ability to lead the organization was being compromised.
Schilling’s strategic plan was not being implemented in part because the board was
reluctant to increase services in orthopedics and open-heart surgery because of possible political ramifications from bringing in new surgeons to work with the old.
Schilling had another challenge to overcome—the vice chief of staff, Dr. Clara
Mavory, had originally persuaded Schilling to help BMH return to its district status;
she was, however, becoming disruptive and uncooperative. This was particularly troubling in a Joint Commission survey year. The governing board was cowed by Mavory
and provided little support to Schilling. Mavory even had questionable clinical behavior that was never addressed in a disciplinary action. By this time, all of Schilling’s
requests to the board, including support, were being ignored.
Used by permission of the authors. All rights reserved.
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District Hospital
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Schilling decided to form subcommittees to gain better support from his board.
Each subcommittee leader would present and persuade the other board members.
Once again, Schilling was able to begin moving the board toward decision making.
Schilling, however, had his own decision to make: Should he try to renew his contract
for the following year or should he retire? All of these problems were taking a toll on
Schilling. His health was not improving, and he had already returned the hospital to
district control. The employees were aware of the decision facing Schilling. The
employees remembered the turmoil from the merging and dissolution of the PHO. A
local union began organizing efforts directed at nonnursing staff.
Mavory became the vice chief of staff after using intimidation to cause her rival
to withdraw. Mavory began her reign by finding ways to pit the medical staff against
administration. She would demand confidential information and attend confidential
department meetings. Mavory obstructed preparation for The Joint Commission survey by changing organizational charts, medical staff bylaws, and medical staff rules
and regulations. The on-call physicians for the ER were demanding compensation.
Mavory convinced the plastic surgeons to threaten to quit if the hospital did not provide a compensation plan. Two board members felt this was an Emergency Medical
Treatment and Active Labor Act (EMTALA) violation, which could result in fines for
the hospital and bad public relations. The physicians accepted the CEO’s proposal.
Schilling decided to resign, and Jena Carson agreed to become the interim CEO.
II. PHYSICIAN–HOSPITAL ORGANIZATION (PHO)
A.
B.
Valley Physician Group (VPG) formed in 1951
1.
Contains a total of 140 physicians in 28 medical specialties and subspecialties
2.
Serves 325,000 patients; attends 2,500 deliveries; employs 60 FTEs; and has
gross revenue of $120 million
PHO
1.
Legal classification changed hospital from public (governmental) to private,
not-for-profit hospital
2.
New governing board and district board still intact
3.
Schilling returned BMH to district control
a.
Public hospital and political subdivision of the state
b.
Legal advantages
1.
Board members elected by voters in the tax district
2.
Financial surpluses put back into the hospital
3.
Has authority to levy tax on homeowners in the district if necessary
III. MARKET POSITION
A.
BMH licensed for 400 beds; operates only 275 beds with average daily census of
249 patients
B.
Discharges: 26,731/year
C.
Average length of stay for all inpatients: 3.4 days
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Management, Medical Staff, and Governing Body
D.
Newborns: 3,216/year
E.
Outpatient visits: 232,363/year
F.
Surgeries: 6,201/year
G.
Expand transplant surgery and orthopedics, which currently have only 60% of
the estimated market
H.
Hospital FTEs: 2,705, or 6.76 FTEs per licensed bed—a ratio that is higher than
other area hospitals
I.
654 physicians on staff
J.
Decrease in volunteers from 890 to 803
K.
Operating budget: $200 million
IV. DISTRICT HOSPITAL
A.
Five-member district board elected by residents in the district to serve a 3-year
term
B.
CEO hired by the board and is a voting member
1.
2.
3.
4.
Chairman is Dr. Larry Harvey, orthopedic surgeon with privileges at BMH
a.
Potential conflict of interest because he is a clinician in the hospital
b.
Does not adhere to operating room schedule
c.
Excessive use of supplies
d.
Threatened to take cases elsewhere
e.
Stopped returning Schilling’s phone calls
f.
Angry about health care reimbursement reductions and the old VPG
relationship
Dr. Ray Brandon, orthopedic surgeon, who has no privileges at BMH
a.
Animosity toward VPG physicians in the PHO
b.
Frustrated with health care reimbursement
c.
Breakdown in communications with Schilling
d.
Disregards state law that requires two district board members to discuss
issues only in public forums
e.
Wanted to legally challenge physicians who refused to take ER call,
before Schilling found a solution
Dr. Karl Pearl, a neurologist with privileges at BMH
a.
Bitter about the PHO and the decrease in health care reimbursement
b.
Potential conflict of interest (hospital privileges)
Dr. Aaron Travis, osteopath with privileges at competing community hospital
a.
Respects Schilling
b.
Boasts of “saving” the district hospital from the PHO
c.
Openly angry about his experiences with the PHO
District Hospital
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5. Stephanie Stewart, businesswoman in the community
a.
Respects Schilling
b.
Has difficulty grasping the complexity of hospital operations
c.
A team player, but becomes frustrated with physicians’ negativity
V. NEW CEO
A.
Three of the five board seats are up for reelection
B.
Schilling was asked to become the CEO before the November elections
1.
Former CEO of a not-for-profit hospital
2.
45 years as a hospital administrator
3.
History of severe back problems
4.
Hired by the district board to dissolve the PHO
a.
Eliminated the $2 million/month deficit
b.
Hired more staff to increase morale
c.
Upgraded the facility
d.
Warm and caring
VI. LEADERSHIP STYLE
A. Projections show a $24 million deficit next year
B. Style described as patriarchal and paternalistic
C. Sophomoric executive team
D. No strategic plan
E. Daniel Porter, COO
1.
Not well respected by team
2.
Not a good listener
VII. SCHILLING GAINED THEN LOST SUPPORT
A. Schilling increased morale, renovated facility, and appointed his own executive
team, which stabilized BMH.
B. A strategic plan was developed and presented to the hospital board, but was kept
confidential.
C. Orthopedic and open-heart surgery services could be expanded, but other surgeons felt this would threaten their economic base.
1.
Board members didn’t want to make enemies by pushing the surgeons
2.
Board members were paralyzed from past events with the PHO
D. Schilling started to lose support
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Management, Medical Staff, and Governing Body
VIII. TROUBLED PHYSICIAN—CLARA MAVORY
A.
Dr. Clara Mavory, practicing anesthesiologist, vice chief of staff
B.
Lured Schilling from a neighboring hospital
C.
Has troubled history with VPG and was asked to leave
D.
Demanded and was given confidential files, including legal records and peer
review files
E.
Wanted to revise medical staff bylaws, causing a slowdown in preparation for the
Joint Commission on Accreditation of Healthcare Organizations (The Joint Commission) survey because all revisions must be in place a year before the survey
F.
Convinced other physicians to work against Schilling
G.
Board members felt bullied by Mavory
H.
Mavory’s peer review file contained instances of questionable clinical judgment
and inappropriate behavior towards patients
I.
1.
Schilling chose not to act on the information in this file
2.
He later regretted this decision
Board members would not support Schilling in disciplining Mavory
IX. REORGANIZING THE BOARD
A.
Schilling proposed establishing subcommittees to better use the two board members who still supported him. Schilling wanted them to persuade other board
members to implement his ideas.
B.
The subcommittees included strategic planning, finance, emergency room oncall coverage, and governance.
C.
Membership included two board members, the CEO, and other designated
administrative staff.
D.
The proposal was presented at an open board meeting and passed unanimously.
X. SUCCESSION PLAN
A.
Schilling’s contract ends next fall.
B.
Should he retire or seek to renew his contract?
C.
Schilling’s health improved only minimally after back surgery.
D.
He had succeeded in returning the hospital to district control and stabilizing it.
E.
Hospital expenses, however, now exceeded revenue.
F.
The hospital would soon be losing $2 million a month.
G.
Patient volumes were low.
H.
Increasingly, board members did not support Schilling.
I.
Staff members began to question Schilling’s leadership.
1.
Staff did not want to repeat the PHO catastrophe
2.
They called in a nonnursing union
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XI. CHIEF OF STAFF
A.
Medical staff bylaws provided that the vice chief of staff would automatically
become chief of staff if the election were uncontested.
B.
Dr. Mavory’s opponent withdrew after she confronted him.
C.
Schilling recommended that the hospital change its bylaws to make the CEO a
nonvoting member.
1.
Mavory requested that the hospital board make her a voting member because
she was chief of staff, an action that would require a change in the hospital
and medical staff bylaws. The board did not act on her request.
XII. TERMINATION FROM VPG
A.
Seven years ago Mavory had been forced out of VPG because of disruptive
behavior.
B.
Mavory made enemies of VPG physicians by publicly attacking them.
C.
Schilling thought her disruptive behavior would wane if she were not confronted.
D.
Mavory would demand access to computer files, legal correspondence between
the medical staff office employees and the hospital attorney, and files on malpractice cases.
XIII. OBSTRUCTING PREPARATION FOR JOINT COMMISSION
A.
Mavory demanded a change in the organizational diagram that showed the flow
of communications in the hospital. Mavory felt that the chart showed that the
medical staff reported to the CEO.
B.
During the last Joint Commission survey the surveyors had praised the hospital’s
organizational diagraam.
C.
Mavory tried to dissolve the medical executive committee and change most of the
membership of medical staff committees.
1.
These would be violations of the medical staff bylaws and could compromise
The Joint Commission accreditation survey only 6 months away.
2.
All approvals by the medical staff chiefs’ committee (MSCC) that must also
be approved by the board should be in place for at least a year before a Joint
Commission survey.
3.
The only Type 1 violation the hospital had received in the previous survey
was the medical staff’s failure to comply with its own bylaws.
XIV. COMPENSATION FOR ER ON-CALL PANEL
A.
Physicians were demanding pay for ER on-call. Mavory coached a plastic surgeon to take this issue to the MSCC to be discussed.
B.
Physicians gave the administration a deadline to begin on-call payments that the
hospital could not meet.
C.
Some board members wanted to report the physicians to state authorities for
writing an ultimatum to administration saying they would refuse to take call.
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Management, Medical Staff, and Governing Body
Patients not seen in the ER because there were too few physicians would have to
be transported to other hospitals. Some board members thought this could be a
violation of the EMTALA.
D.
Ultimately, the CEO proposed a solution acceptable to the physicians.
XV. NO STRATEGIC PLAN IMPLEMENTED
A.
B.
The board would not sell or close the money-losing cancer unit.
1.
Physicians providing that service might take their patients to a competing
hospital.
2.
The board was worried that the financial arrangement would make these
VPG doctors wealthy.
Dr. Mavory’s replacement as vice chief of staff was the secretary/treasurer of the
medical staff, Dr. Barry Landon.
1.
Landon is the only open-heart surgeon at BMH.
2.
State law requires hospitals performing open-heart procedures to have a
two-surgeon team.
XVI. SCHILLING’S RESIGNATION
A.
Schilling decided to resign.
B.
He did not want to be blamed for the demise of the hospital and felt responsible
for causing its financial problems.
C.
His poor physical health sapped his energy to strengthen his relationship with
employees, managers, and physicians.
XVII. CONSULTANT, JENA CARSON, HIRED
A.
B.
C.
D.
How would Carson improve the hospital’s financial position?
1.
Carson should direct her management team to pay closer attention to the
budget.
2.
When preparing for the next fiscal year, a smaller budget should be developed.
How would she approach increasing patient volumes?
1.
The hospital needs to focus on areas where they have a good reputation.
2.
She needs to convince the cardiac surgeon and orthopedic surgeons to
recruit more surgeons to increase patient volumes. Carson needs to present
a financial plan to the surgeons to prove the desirable financial impact of this
increase.
Could she use the old strategic plan or should she develop a new one?
1.
Carson should not use the old strategic plan.
2.
A new strategic plan that focuses on market position and centers of excellence should be developed.
Would the board support her decisions?
1.
Carson will have to build trust with the board before its members will support her.
District Hospital
2.
E.
F.
G.
H.
I.
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Because they did hire her, initially they will feel an obligation to be led by
Carson because they chose her.
Can she stop other hospital employees from unionizing?
1.
She could stop the other hospital employees from seeking a union by
actively listening and getting involved in meeting their needs. Fair labor
practices allow hospital management to inform employees of the ramifications of becoming union members.
2.
Educating staff can be semi-effective. However, Carson needs to make sure
that she’s not seen as being anti-union and that no unfair labor practices
occur.
How can she control the chief of staff’s divisiveness?
1.
Carson should take advantage of her newness in the organization. The chief
of staff will want to ingratiate herself with Carson to get the changes that she
wants.
2.
Carson can be patient and wait out Mavory’s term.
How does she focus BMH on completing preparation for The Joint Commission?
1.
Carson must support the VP of quality and empower the management team
to focus their energy on Joint Commission preparation.
2.
It will be very obvious to the surveyors if Carson fully supports the management team and The Joint Commission survey.
How can she transform board members and the executive team into effective
leaders to turn the hospital around and perhaps make it a market leader?
1.
She needs to build board support by proving her abilities.
2.
The executive team must function as a team. Carson should consider how
effective her current team is.
Most important, what priority should be assigned to these problems?
1.
The Joint Commission survey will occur almost immediately.
2.
The financial deficit is the second most important focus.
3.
Staff morale is the next issue. Focusing on morale will also affect the vote on
establishing a bargaining unit.
4.
Begin work on a strategic plan. This will lead to discussion with the surgeons
on increasing market share by hiring to meet market demands.
5.
Customer service training is extremely important, and training sessions
should begin with upper management.
Instructor’s Manual for Cases in Health Services Management, fifth edition, by Rakich, Longest, and Darr.
Copyright © 2010, Rakich, Longest, and Darr.

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