Strategic Planning Clinical Programs

1. Strategic Planning Clinical Programs School of Medicine Retreat January 30, 2003

2. Mission Statement "We promote the health of our patients and our community and advance the frontiers of clinical medicine"

3. Context- Key Financial Accomplishments of FY 2002 • Further stabilization of Stanford Hospital's operating margin, ie first positive operating margin since merger • Improvement in practice's clinical revenues ($91m to $108m) and profits ($16.8m) • Assessment, with SHC, of capital needs of SHC and of our practice • plans for raising $250m in bond market to achieve it • Consensus-building in funds flow methodologies regarding payments from Hospital to School for services rendered

4. Context Clinical Practice Revenue

5. Context Direct Research Expenditures

6. Context Clinical Departments Revenues

7. Ambulatory Growth • Ambulatory services are growing and becoming an increasing fraction of SHC's revenue streams, now accounting for 40% of SHC charges and 55% of faculty charges • 57% of faculty collections were derived from outpatient svcs in FY'02 • The increasing importance of ambulatory services revenue means that both the faculty and SHC are increasingly dependent on its growth for economic viability, as well as for a secure referral base • Neither can afford to concede wholly the profit derived from outpatient services to the other entity

8. Exclusion of LSS (Pediatric based) data for FY2000 and FY2001 Exclusion of Capitation reimbursement for all fiscal years.

9. Key Issues in Ambulatory Services • Funds flow in ambulatory services must incent growth • Revenues from newer infused therapies and diagnostics need to be shared between SHC and the faculty to encourage development • Attribution of expense to ambulatory services, but not to inpatient services, means largely ambulatory services are being neglected as sites for growth • Newer treatment options for common chronic diseases (immune modulators, etc) tend to be outpatient modalities • With the recruitment of a new VP for Ambulatory Services, along with service and operational issues, funds flow issues must be addressed

10. Patient Base A Strategic Imperative: Defining and controlling our access to the patient base around us • Kaiser controls ~ 40% of the patient base around us and is seeking to do its own tertiary/quaternary care • Sutter/PAMF accounts for 23% of SHC discharges now and is seeking to consolidate the large majority of the remaining non-Kaiser patients into their system • Stanford needs access to patients who will benefit from our care and help us advance medical knowledge

11. Patient Base Potential Strategies for Maintaining Patient Access • Create a full service health system • Partner with full service systems* • Be the quality and value leader** • superior skill sets, knowledge bases, but also excellent service • cost basis that is attractive to full service systems and their constituencies

12. Unresolved Issues in Potential Satellite Facilities • Should a satellite facility be ambulatory, inpatient, "short stay", specialty-specific? • If we had a partner, multiple issues would arise: • Business model is complex in governance and calculations • Medical group representation also is complex • Current reality is that partnering with Sutter remains uncertain, and we need to have an independent strategy

13. Quality and Value Leadership • Stanford still enjoys public stature as a quality leader • PacifiCare quality index just released placed us at 95th% of 200 California hospitals, and the highest among academic hospitals • UCSF scored at 78th%, UCLA at 58th% in 60 metrics related to common practices • UC Davis scored only at 44th % • Patient satisfaction scores in ambulatory services have recently been below historical norms • Third party payers are now introducing "tiering", a designation made by insurers to establish different payments to centers, based on "quality and cost" • Aetna and Blue Cross propose us as first tier designees, but Healthnet seeks to place us in second tier

14. Applied Research Current models • BMTx Unit • Oncology Clinic • Stroke Service • Device Development Center • Imaging Services Potential models • Stanford Cancer Institute • Stanford Neurosciences Institute • Stanford Cardiovascular Medicine Institute

15. Newer Initiatives- Clinical Centers • Multidisciplinary clinical centers of excellence are increasingly the norm across the US because patients want them • Centers will have multidisciplinary governance, administrative infrastructure, and may be nested in Institutes, which can serve as the focused research sites from which translational initiatives might arise • Centers are planned in cardiovascular, neurological, cancer and transplantation services • Centers can help us engage the public and its philanthropy, enlarge our reputation as industry leaders, and be the platform for development of novel strategies, ie be the "critical mass" that smaller subunits will never achieve

16. Institutes Scope Stanford Institutes of Medicine ResearchPatient Care Institute for Cancer/Stem Cell Biology and Medicine Future Institute Future Institute Future Institute Future Institute

17. Institute Organization Institute for Cancer/Stem Cell Biology and Medicine Research Center Clinical Cancer Center Basic Research Clinical Research Clinical Informatics ACCESS/SPTRC GCRC Breast Cancer Center Prostate Cancer Center Institute-Based Associates Head & Neck Cancer Center Leukemia Center ????? Cancer Center Department-Based Affiliates Radiation Therapy Translational Research Core Facilities Surgical Oncology Bone Marrow Transplantation

18. Faculty Practice Organization Fundamental issues in FPO • Does it represent and is it composed of faculty at large or chairs? • Is it an organization embedded in the Hospital or to the School? • Is it a "group practice" with a strong central authority or a confederation of departments? • What should it govern and control?

19. Practice Organization • Dean and CEO agreed in 8/02 upon structure that recognized a confederation of depts as the fundamental organizational model • Council of Clinical Chairs provides forum for input and deliberation about issues surrounding professional practice • Dean, CEO, Clinical Chairs, COO, CFO and Sr Deans for Clinical Affairs and Finance and Administration • Meets biweekly, chaired by Sr Dean for Clinical Affairs and COO • Smaller Joint Clinical Planning Committee creates proposals, organizes initiatives and supervises strategic planning • Dean, CEO, COO, CFO, Sr Deans for Clinical Affairs and Finance and Administration • Meets at least weekly or more frequently when needed

20. Current Organizational Chart Dean and CEO CEO Council of Clinical Chairs Joint Clinical Planning Committee Dean SAD Clin Affairs SAD F&A CEO COO CFO Professional Contracts Professional Billing (PFS) QA / Compliance Ambulatory Services Adult/Children's Services Carve-out Splits

21. Goals for 2003 • Refine and begin to implement strategy for securing our patient base, by creating off-site ambulatory services, if possible with a partnership with a full service health care system • Refine and enlarge the initiative for institute and center development, as platform for clinical growth and translation • Develop further the practice's organizational structure and funds flow to align finances and mission-based goals

22. Key Challenges • Availability of timely, accurate data relating to financial performance across the hospital and the faculty practice • Volume, expense and profitability of clinical units • P&L, expenses and performance should be transparent • Development of a faculty culture that seeks to enlarge the enterprise's resources, rather than seeking advantage in re-negotiating different splits of it • Centers and institutes will require re-shuffling of some authorities, accountabilities and funds flows

23. Key Challenges • Advocacy for and recognition of the value of providers of clinical care and education • enable us to recruit and retain physicians in the "physician-educator line" • Better communication between UTL and MCL lines for translational initiatives