Hospital Metropolitan Authorities: A new business model for hospitals.

1. Hospital Metropolitan Authorities: A new business model for hospitals. S. T. Parente, Ph.D. Finance, Carlson School of Management February, 2006

2. A Citizen�s Checklist for 21st Century Hospital �Get best care possible�. But what does that mean? Best care: The best outcomes (short and long terms) for me to live with given my condition. Possible: Nice word for limits, budgets, extend of knowledge, distance from hospitals. More importantly, how does the citizen (or you) know? Want a personalized Zaget�s for Health care. But have limited to no scientific data.

3. Current State of the Hospital World Decade of significant vertical and horizontal integration Lower reimbursement by public & private insurers with little hope of rebound Reduced credit ratings due to over-investment Significant competition for new starts Little to no quality of care information to citizens because little payoff from Health IT

4. Health IT in a General Hospital

5. What�s Wrong With Today�s Health IT Picture? TOO MANY SILOES!

7. Is Government Intervention Required? Is there a market failure? Questions (economist/policy makers) ask? Insufficient flow of information for informed purchases in a competitive market. Insufficient access to a good or service of critical societal value (e.g., roads, clean water). Insufficient competition to get the best price for the quality of a good or service. Maybe there is a case given: No information on prices (before service). Little to no information on quality of service.

8. Hospital Metropolitan Authority What it is: Holding company, in the form of a Hospital Metropolitan Authority (HMA) builds a hospital facility to serve a metro area need (e.g., the Twin Cities burgeoning Maple Grove area) Idea borrowed from Metropolitan Airport Commission (MAC) governing use of the Lindbergh terminal in the Twin Cities. HMA provides physical plant, electronic medical record connectivity, and facility safety/standard compliance.

9. Hospital Metropolitan Authority What it does: The HMA auctions off exclusive specialized hospital service contracts that are: Renewable Based on financial and clinical performance Clinical performance benchmarks determined in as real time as possible through use of EMR technology and comparison to national best practices. Contracts include: Medical (e.g., cardiology, ENT) Surgical (e.g., general surgery, ortho) Urgent/emergency care Ob/GYN Psych services

10. Hospital Metropolitan Authority Rationale: Competition in hospital services is nearly non-existent. Current bond status of hospitals cannot sustain robust growth to meet the needs of the baby boom population. Promotes the development of a lean design of hospitals and allows medical units to compete on what they do for their patients, rather than simply their revenue making ability.

11. Hospital Metropolitan Authority Why 2006? The continuation of sprawl in major American cities will contribute to hospital building boom that will not be affordable under current condition. Property building and management companies have matured and specialized significantly in the last 30 years to take on this new role. Electronic medical records may finally be at a tipping point for wide spread use for comparative clinical performance, not just adoption. HMAs guarantee EMR adoption and performance standard, the status quo world looks considerably bleaker given that some hospitals are resorting to taking out cripling financing to buy their EMRs will little serious prospect of institutional ROI. Departmental or specialty ROI looks much more doable.

12. The Maple Grove Opportunity Current trajectory is for one of three hospital chains to be awarded a 200 bed hospital in Maple Grove. INSTEAD Build 100 bed hospital owned by 1 of the 3 systems/consortiums to tackle immediate urgent care & OB/GYN needs. Build a 100-150 bed HMA that handles the rest of the specialized services. State of MN uses it�s moratorium authority to �auction� off 5 + 2 year contracts to hospitals to provide specialized services.

13. What Maple Grove Would Look Like 100 Bed North/Allina/Fairview hospital with OB and urgent care. The 120 Bed HMA Hospital with: Cardiology � Park Nicollet Psychiatry � Fairview Surgery � Mayo ENT � Allina Orthopedic surgery � North Behavioral Health � Ridgeview Emergency room/trauma - HCMC

14. What does the 21st Century citizen get with an HMA? Guaranteed, verified, near real-time metrics for clinical performance. Health providers all using one method for measuring quality and reducing errors. An independent assessment of quality that that drive competition (because a world of oligopoly payers and providers will not). The contracting incentive for hospitals providers to improve their quality of care AND their revenue share.

15. What does the 21st Century citizen get withOUT an HMA? Federal web sites to compare hospital mortality for Medicare patients 2 years ago. Health providers using different methods to measure quality. A summary of statistics provided by hospitals that will not be easily comparable or verified. No performance incentive on quality for future hospital expansion. Expansions will occur as licenses without expiration dates.

16. Next Maple Groves � Important to get this Right - Now New Prague Lake Elmo Apple Valley Hastings

17. Model Could Generalize Nationally & Globally US Western cities expansion Florida & California Growth Northeast aging & sprawl Southeast US growth Similar Global models (already): Dubai Medical tourism to multi-institution firms

18. Questions & Comments? E-mail me at: sparente@csom.umn.edu 612-624-1391