Our clients are mainly interested in finding an optimal apportionment of service offered in the orthopedic department among its two main constituents, Faulkner and BWH, in way to minimize costs and maximizing revenue (insurance reimbursement). Indeed, in current market, medical needs are growing, the population is aging, lives longer, requires more care, additional medical advances in research and technologies allow more treatments. At the same time, insurance providers gained more control, through a designated network of primary care doctors (50% of Boston patients), and bargaining power, which allows them to minimize payment to health care providers. These external environment change are amplified around Boston, where health care employ ~15% (110 000) of workforce. BWH is responsible for ~10% of the industry, and Faulkner, ~1%
Not being able to provide the best possible care without cost considerations anymore, BWH (Academic Medical Center) and Faulkner (community hospital) joined force to leverage their respective advantages: nationally well know hospital with highly skilled personnel and technologically advanced equipment for specialised or grave illnesses, versus cheaper, routine, low-acuity procedures in a less crowded environment. Differences in cost can be up to 60% higher in AMCs, although the reimbursement from insurance are also higher. They do however share several values such as training young residents or providing care to those who can’t afford.
The administration’s focus on Faulkner’s orthopedic department illustrates well the purpose of the merger. In fact, prioritizing Faulkner’s Foot and Ankle Center for such procedures allow BWH to empty its occupied rooms (at 90% capacity) for other more intensive procedures which yield higher return from insurance, while letting Faulkner benefitting from its lower costs to treat these relatively “simple” cases while filling up its currently under-capacity rooms. One administrative problem is the representation of Faulkner, although bonified to 4/15, doesn’t allow significant impact (either approval or veto) on decisions regarding the entire merged entity, which is also a subsidiary of an even bigger merger, Partners HealthCare.
Faulkner has other advantages such as more personalized support, less bureaucracy, faster surgical turnaround because of lower-acuity cases, lower teaching responsibilities and less additional work in the rooms. At the same time, Faulkner managed insure its quality and compliance, while improving its brand due to its association with BWH.
These advantages translate in a fast increase of the department, in relative (from 3.5% in 2000 of Faulkner’s surgeries to 12% in 2003, to 1700/8500 = 20% in 2006) and absolute (2.6(1/6) = 17% yearly) terms. Now (2006), with 46 doctors, a few specialized technicians and 12 ORs, the Faulkner’s Orthopedic department is twice as big as BWH’s homologue. A new and BWH-independent Department of Orthopedic Surgery will be created, new infrastructure (mainly 4 new ORs worth $10M) will be added, and the exclusivity of the some services at Faulkner are considered.
Hip Fracture treatments, another bone-related field with potential high-growth (50002409%= 2 times more demand by 2040) due to aging population, constitutes a logical area to invest for BW/F. In fact, the institution believes that a dedicated department can streamline the process with better efficiency and recovery. Current high post-fracture mortality and morbidity rates are partly due a lack of coordination and specialisation for hip fractures, which also cause higher usage of hospital resource (overtime for doctors, longer stay in rooms). Currently with a potential capacity of 300 (and 460 overall), Faulkner is questions the service’s expansion and its related personnel and equipment, which would allow a 30% reduction (6.6 to 4.6) in patients’ stay.
This investment will require an initial investment of (100 + 2*60 + ½*80 + ½*60 + ¼*100 +65 + 5) = 385 thousands of additional cost. The operation presently results in a loss of the hospital ($12000 revenue, and 11000 + 6000 = $17000 cost), which will be attenuated by the streamline process. However, the entire orthopedic department operates with a huge and increasing loss margin of $2M for its inpatients, while BW actually earns about +$3M. In fact, this is hospital-wide phenomenon: BW is positive in the inpatient area ($33M) while Faulkner loses $5M. This is highly correlated with lower reimbursement from insurance companies as well as lower acuity procedure. At the same time, outpatient services’ net margins are similar for both, despite BW’s size, which can be explained by higher (7times) return per customer and less operational costs overall. Each hospital’s technical, legal(contractual with insurance) and operational advantages should be careful examined for the prospects of the Center and the Hip fractures.