'73

County of Santa Clara
General Services Agency
Facilities Department
Capital Programs Division

GSAOl 052102

Prepared by: Ron Johnson

Capital Projects Manager
Reviewed by: Siva Darbhamulla
Acting Manager, Capital
Programs
DATE:

May 21,2002

TO:

Board of Supervisors

FROM:

G. Kevin Carruth

Director, General Services Agency

SUBJECT: Approve Professional Services Contract with Turner Construction Company, Inc.
for Construction Project Management(CPM)services for the Valley Speciality
Center

RECOMMENDED ACTTON

Approve Professional Services Contract with Turner Construction Company, Inc. relating to
providing construction project management services for the design phases of the Valley
Specialty Center(VSC)in an amount not to exceed $1,488,000 for period May 21, 2002
through .A.ugust 20, 2003.
FISCAL IMPLICATIONS

Board o: Sui>cr»n.«4Cfs: Donak! K Ga^, Blanca Alvarado. Pete McMup.h. .James T. Beall Jr.. Li7. Knias
Cour.tv Ejcccut:vc: R:cKArd Wittenben^

1

There is no net impact to the County General Fund as a result of this action. Funds for this
Professional Services Contract(PSC) have been allocated in Fund 0050, Index 2515, ESBJ
4100, FABC 031, Project No. AC0040. The Board of Supervisors allocated $9.4 million to
start the design of this project on November 14, 2000. This is one of the projects currently
being considered by the Board for full funding through Certificates of Participation ("Bonds").

CONTRACT HISTORY

Turner Construction Company, Inc.(Turner) has provided construction management services
for the County of Santa Clara on three projects over the last nine years. Two of these projects
have been completed successfully; one is ongoing. The Consultant's performance on these
projects has been very satisfactory.
The first of these projects was the construction management of the new Main Hospital and
related projects (also known as the North Tower project) at the Valley Medical Center
(VMC). Turner was selected for this project through a competitive selection process. The firm
provided construction management services on this project from 1992 through 1999. Total
fees paid to Turner for these services were approximately $15 million.

The second project was the construction management of the Administrative Office Building
design-build project at VMC. This project was sole sourced to Turner because they were
already on site managing the new Main Hospital project. Turner provided services for this
project from 1998 to 2000. Total fees paid to Turner for these services were approximately
$600,000.

The third project is the management of the on-going Franklin-McKinley Valley Health
Center project. Turner was selected to provide construction management services for this
project through a competitive selection process. Their contract for this project has a
not-to-exceed limit of $940,000 and an expiration date of June 26, 2004.
REASONS FOR RECOMMENDATION

On June 22, 2001 GSA Capital Programs Division issued a Request for Qualifications(RFQ)
for construction management services for the VSC. The scope of serviees in this RFQ
included day-to-day projeet management during the design phases as well as the construetion
phases of the project. Eight construction management firms submitted statements of

Bonrd of Supervisors: Donaki F. Gage, Blanca Alvarado. Pcic McHugh, James T. Beall Jr., Liz iOuss
Cfi.'Ui'.tv F:xccui:vc: Richard Wittenberg

2

qualifications in response to this RFQ. A Review Board, consisting of representatives from
the Health and Hospital System, GSA Facilities Department, and an architect in private
practice reviewed the submittals and created a short-list of five firms. The Review Board

interviewed and developed a tentative ranking of these five firms on July 20, 2001. The
Review Board held a second round of interviews with the top four firms on August 1, 2001
and August 3, 2001. Based on these second interviews, the Review Board determined that
Turner was the number one firm. Positive reference checks conducted after the interviews

confirmed the selection of Turner for this project

Capital Programs is recommending approval of this PSC for a not-to-exceed amount of

$1,488,000 for the period of May 21, 2002 through August 20,2003(15-month term). This
fee and term limit will allow Turner to provide the services needed to manage the remaining
design phases of this project.

Turner's services will be managed by a Capital programs Project Manager.

While the Board is still considering the size and schedule of the bond funding for major
capital projects, including the VSC,approval ofthis Agreement with Turner Construction
Company is needed to keep the project on schedule. Turner's tasks will include the

day-to-day management of the project during the remaining design phases as well as the
validation of the architect's project schedule, cost estimates, and the coordination of plans for
site clearance. All of these tasks are on the project's critical path and a delay will directly
impact the scheduled occupancy of the facility.

If the Board of Supervisors approves funding for the construction of this project. Capital
Programs will bring an amendment to the Board for approval that will extend the scope, term,
and not-to-exceed amount of this Agreement to allow Turner Construction Company to
provide the services needed to manage the construction phases of this project. Should the
Board decide to not move forward with this project as a part ofthe bond package the County
can terminate this contract with Turner for convenience.
BACKGROUND

The VSC is planned to be a 234,000 square foot multi-specialty building consisting offive
stories plus a basement, to be located at the southwest eomer of Moorpark Avenue and South
Bascom Avenue, on the VMC campus. The Strategic Facilities Plan for the SCVHHS, which
was accepted by the Board of Supervisors in June 2000, identified the VSC as the highest

o: b-ipcr\'iAor^, Uoiiaki K

Blanca Alvhi'ati&. Htic .McHugh, JaiiicsT- Beall Jr..

Lu luiiaii

Coun'.v tlxccuuvc: Rjchard W:i:cnl>crg
3

priority project for the VMC campus master plan. The VSC will enhance patient access to
medical services by bringing together specialty clinics, ancillary support (diagnostic imaging,
pharmacy, and specimen collection), physician offices, and special procedure labs currently
located and inadequately accommodated in multiple buildings on or near the VMC campus.
The proposed 234,000 square feet includes approximately 184,000 square feet of departmental
area consisting of 159 exam rooms, 24 treatment rooms, 26 special procedure rooms, 77
medical staff offices, associated waiting/registration areas, medical assistant work areas and
secondary circulation space, to support an estimated 200,000 annual patient visits.

As previously discussed with the Board in October 2001, Capital Programs anticipates that
approximately 55,000 square feet of the building will need to be bid as shelled space (without
interior improvements) to keep the project on budget. The bid package will include the
interior improvements for this shelled space as additive bid items so that these interior
improvements can be added to the contract if the bids come in low enough.
The architectural program for the VSC was completed in December 2000 by HMC Group,
Architects. The VSC is scheduled to be completed and occupied by December 2005.
The VSC's total budget of $93.8 million is anticipated to be funded from a future bond sale.
California Environmental Quality Act(CEQA)

The design of the VSC will proceed simultaneously with the processing of the environmental
reviews and approvals required under CEQA. Capital Programs anticipates that the necessary
environmental reviews and approvals will be completed in the next twelve months, which will
be two to four months before the project is ready to bid.
CONSEQUENCES OF NEGATIVE ACTION

Without this action. Capital Programs will not have sufficient private construction
management resources to manage this project effectively and meet the current schedule.
STEPS FOLLOWING APPROy.A..L

Capital Programs will manage the Professional Services Contract through completion.

age, Blanca Alvaiado. Pcic McHugh, James T. Beall Jr.. Liz iCi'.jas
o: Supcr^'iscrs; Do:K"tkJ
Cc^unry pjcccuuvc: R;chard Wittenberg
4

/

ATTACHMENTS

•(Transmittal submitted on May 9, 2002 1;40;23 PM - PDF Version)
• Turner Contract(Agreements and Amendments)

Board o: Supcr>/i»crs; tonakl F. Gage, Ulaijca .Alvarado. ,^tc McHu.gh. James T. Beall Jr.. LU Ivniss
Li>L.r.:v K.xcvuiivc; Richard ♦V.tTcnbcrK

5

PROFESSIONAL SERVICES CONTRACT
Between

THE COUNTY OF SANTA CLARA
And

TURNER CONSTRUCTION COMPANY
For

PRE-CONSTRUCTION PROJECT MANAGEMENT SERVICES
For

VALLEY SPECIALTY CENTER, PROJECT No. AC0040

MAY 21, 2002

TABLE OF CONTENTS
PART

TITLE

1.

RECITALS

1

2.

DEFINITIONS

2

3.

CHANGES IN SCOPE

7

4.

OWNER'S RESPONSIBILITIES

8

5.

PCM CONSULTANT'S STAFF & SUBCONSULTANTS

9

6.

PCM CONSULTANT'S RESPONSIBILITIES & SERVICES

7.

NOT USED

8.

NOT USED

9.

INDEMNIFICATION & INSURANCE

18

10.

PREVAILING WAGE REQUIREMENTS

19

11.

HAZARDOUS MATERIALS

22

12.

COMPENSATION & PAYMENT

23

13.

TERM & TERMINATION

26

14.

DISPUTE RESOLUTION

28

15.

MISCELLANEOUS PROVISIONS

31

16.

SUCCESSORS AND ASSIGNS

32

17.

NOTICES

33

18.

EXHIBITS INCORPORATED HEREIN

33

19.

LIMITS OF AGREEMENT

34

20.

SIGNATURES

34

PAGE

I

10

EXHIBITS

A

CONSULTANT’S HOURLY RATES

B

CONSULTANT’S STAFF & SUBCONSULTANTS

C

NOT USED

D

NOT USED

E

INVOICE FORMAT

F

INSURANCE REQUIREMENTS

G

NOTICES

H

CONTRACT PROVISIONS TO IMPLEMENT THE TERMS OF THE BOARD
OF SUPERVISORS’ RESOLUTION ON CONTRACT PRINCIPLES

I

DECLARATION OF CONTRACTOR

PROFESSIONAL SERVICES CONTRACT
FOR

PRE-CONSTRUCTION PROJECT MANAGEMENT SERVICES
VALLEY SPECIALTY CENTER

1.

RECITALS

This is an Agreement between THE COUNTY OF SANTA CLARA (hereinafter "Owner" or
“County”) and Turner Construction Company,110 West Santa Clara Street, San Jose
CA 95113 (hereinafter "PCM Consultant").

WHEREAS,this PROFESSIONAL SERVICES CONTRACT (hereinafter "PSC")sets forth
the terms and conditions under which Owner may obtain and PCM Consultant will provide
Pre Construction Project Management and related professional consulting services
(hereinafter "Services") for Program and Pre Construction Management of the Valley
Specialty Center; and,

WHEREAS, PCM Consultant was selected by means of the County consultant selection
process, represents itself as having the requisite qualifications, and desires to provide
such Services; and,

WHEREAS, the compensation and payment for PCM Consultant's Sen/ices are set forth
in Part 12 of this PSC; and,

WHEREAS, The County’s obligations under this agreement are subject to and
contingent upon the availability of funds; and

WHEREAS, Owner’s objectives for the Services provided by the PCM Consultant are to
obtain unified management of the Project to achieve and maintain time and cost control for
the County; and

WHEREAS, this PSC is limited to services that will be provided between May 21. 2002
and August 20, 2003, for which total compensation will not exceed One Million Four

Hundred Eighty Eight Thousand Dollars ($1,488,000) plus reimbursement of the payment

of any fees as authorized under Part 4.07 of this PSC.

NOW,THEREFORE,Owner and PCM Consultant agree as follows;

PSC with Turner Construction Company for the Valley Specialty Center, AC0040 Page 1 of 34

2. DEFINITIONS

Acceptance - The formal Acceptance by the County Board of Supervisors of the
completion of the Work of a Contract, which to Owner's knowledge has been performed in
accordance with the Contract Documents and Submittals.

Addendum - A written change to the Bid Documents issued before the time fixed for the
opening of Bids.

Approved Equal - Material, equipment, or method approved by the Owner for use in
the project Work performed by the Construction Contractor, as being acceptable as an
equivalent in essential attributes to the material, equipment, or method specified in the
Contract Documents.

Authorization to Proceed - The term “Authorization to Proceed” shall mean written

direction by the Owner’s Project Manager to proceed with the Services associated with
any Phase or Task identified in a Project Agreement.
Basic Services - PCM Consultant's Basic Services as described in Part 6.02.

Bid - The offer of a Contractor to perform the Work pursuant to a completed prescribed
Bid Form, properly executed and guaranteed, and timely submitted.
Bid Documents - The Final Construction Documents approved by the County Board of
Supervisors to advertise for construction of a Project, including the Notice to Bidders, Bid
Form, Agreement Form, Bidder's Bond form. Performance Bond form, form for the
Payment Bond for Public Works, and the Form Escrow Agreement (Substitution of.
Securities), Project Manual, Plans, Permits, and any Addenda.
Bid Form - The approved form on which Owner requires a formal Bid be prepared and
submitted for the Work.

Bid Item - A separately described Work item on the Bid Form, for which each bidder must
submit a separate price. Bid items may be the following types:
Base Bid Item - The Basic Work described by the Bid Documents.
Additive Bid Item - A separately described additional Work item, that the Bid
Documents clearly identify as an Additive Bid Item, for which each bidder must submit
a separate price, and which Owner may choose to award in addition to the Base Bid
Item.

Alternate Bid Item - A separately described alternate Work item, that the Bid
Documents clearly identify as an Alternate Bid Item, for which each bidder must submit
a separate price, and which Owner may choose to award instead of Work specified in
another Bid Item.

Deductive Bid Item - A separately described Work item, which the Bid Documents

clearly identify as a Deductive Bid Item, for which each bidder must submit a separate
deductive price, and which Owner may choose to deduct from the Base Bid item.

PSC with Turner Construction Company for the Valley Specialty Center, AC0040 Page 2 of 34

Dedicated to the Health

Administration

of the Whole Community

2200 Moorpark Avenue

7

San Jose, California 95128
Phone (408) 885-4030

f£=

'^"{UMj^Qu^eHsjTuy m ^
£44

Mayl3,2002
TO:

Santa Clara Valley
Health & Hospital System

1

^Hb-P
(^O.’

Supervisor Liz Kniss, Chairperson
Supervisor Blanca Alvarado, Vice-Chairperson
Health and

FROM:

ith/VSommittee

Robert SiUan

Executive Jpii

SUBJECT: Report-I^ack on Strategic Context for Facilities Projects

At the April 10th Health and Hospital Committee meeting, Supervisor Blanca Alvarado
requested an update of the Valley Medical Center Strategic Business Plan to provide the strategic
context for the proposed development and expansion of primary care clinics and services in
Milpitas and Gilroy.
An update of the “Strategic Business Plans for Valley Medical Center in a Competitive Market
Place” has been prepared and is submitted as Attachment A. This update provides Supervisor
Alvarado’s requested context and reaffirms the recommendations for the development of a
specialty outpatient center on the VMC campus, the Valley Specialty Center(VSC), and
expansion of primary care services in key regions of the County.
The report previously submitted to HHC on the proposed Milpitas and Gilroy Clinics is included
as Attachment B. A separate report on the expansion of the Fair Oaks Clinic in Sunn3wale was

submitted to the Finance and Government Operations Committee on May 2"‘‘ and is included as
Attachment C.
SUMMARY

The consequences of not building Valley Specialty Center:
• Expansion of VMC’s primary care services will be problematic.
• VMC’s inpatient census will be at risk.
• Customer satisfaction will erode throughout the entire delivery system.
• VMC’s payer mix will degrade as sponsored patients seek care elsewhere.
• VMC’s community partners will send their specialty referrals elsewhere.
• VMC’s preferential status with Lifeguard and Santa Clara Family Health Plan will be at
risk.

• VMC will fall well behind its competitors.

Santa Clara Valley Health & Hospital System. Owned and operated by the County of Santa Clara.
’rrr

• The County General Fund will be at unnecessary risk.
• VMC will fail to mitigate seismic risks.

OVERVIEW

The proposed expansion of primary care services in Milpitas, Gilroy and Fair Oaks means more
people will have access to preventive and primary care that can improve their health and well
being. Increasing access to primary and preventive care services reduces the likelihood that a

patient will need emergency or inpatient care. For a subset of clients, especially those with
chronic conditions, access to primary care will lead to a referral for specialty services. Often the

specialist will have an on-going relationship with the patient and function as a primary care
provider for a chronic condition while the primary care provider coordinates all of the
individual’s care. For example, cardiologists and oncologists have an on-going relationship with
congestive health failure and cancer patients since these conditions will be on-going parts ofthe
patients’ lives. Without access to these specialty outpatient services, the client’s condition may
and lead to emergency and/or inpatient utilization. Given this, it is critical to ensure an
adequate specialty outpatient care service capacity.
worsen

The incidence of conditions requiring specialty care is relatively low and often requires

proximate access to expensive specialized ancillary services(such as sophisticated cardiac testing
or

radiation therapy equipment and the related teams ofspecialized nursing and technical

personnel) that is impossible to provide cost-effectively in regional clinic settings. Specialists
also frequently manage large numbers of inpatients, so proximity to the hospital is essential to
the cost-effective use of their time.

Therefore, the VMC Strategic Business Plan recommends increasing convenient, locally

available primary care services in additional neighborhoods in the county supported by the
development of a centralized facility for ambulatory specialty care on the VMC campus. To best
meet VMC’s mission and market imperatives, the Business Plan identified development of VSC
as the “most critical next step” for VMC. The business imperative is fully articulated in
Attachment A.

VSC will accommodate outpatient specialty clinics, associated special procedure areas and

physician offices. VSC is being designed as a six-story building (including basement) of
234,000 square feet near the comer of Bascom and Moorpark.

VSC addresses significant space deficits in the existing specialty clinic areas (primarily in the

Outpatient Building); consolidates scattered, antiquated outpatient specialty services, including
both clinics and special procedure areas, in a single location; and provides capacity to
accommodate anticipated increases in demand over the coming years.

3

VSC AS AN ELEMENT OF THE VMC HEALTHCARE DELIVERY SYSTEM

VMC’s specialty clinics are one element in the comprehensive VMC health-care-delivery-system
continuum. Balance among these essential elements of the health care system needs to be
maintained.

: ■■■■

m

Priniaiy
Care

Specialty

Inpatient
Care

Care

VSC would be a center for specialty services for the whole community. In FYOl, the patient
origin ofspecialty outpatient visits by supervisorial district was as follows:

Referrals to specialists in VSC would come from primary care physicians throughout the County,
including those at the various Valley Health Centers as well as community clinics and individual
private physicians. The primary sources of VMC inpatients are from specialty referrals. In fact
there is approximately one admission for every five individual users of our specialty care
services.

4

OBJECTIVES OF VSC

Construction of VSC achieves a number of objectives including:
1. Increase service delivety capacity

VMC has looked at capacity in two ways. First, 95% of all the specialty exam rooms are in use
throughout the week. Second, based on productivity standards as given by our facilities
consultants, the specialty exam rooms are at 96% of visit capacity. The following graph depicts

the average capacity of our specialty exam rooms by service.
Specialty Visits as a Percentage of Exam Room Capacity, FY03
160%

139%
140%

j^vg.= 96%
120%
107%
102%

100%

100%
86%

85%

80%

60%

40%

■

20%

--I

:
0%
.A

A

o®

cP

.cP"
4-

4^

/
4

.O'

4^

Thus our specialty clinics have become a choke point in the VMC health-care-delivery-system
continuum. If we do not expand the specialty services we will not be able to continue to expand
primary care and patients cannot be referred to our specialists and/or become inpatients. The
only way to provide specialty services cost-effectively is to centralize them on the VMC campus
and use VSC as a base for supporting the Valley Health Centers, our community partners, and
our inpatient services.

2. Improve access - the largest determinant of customer satisfaction- and ability to respond
to disaster situations

The same issues which compromise customer service also disadvantage VMC in competing in
the marketplace (see Attachment A for a full discussion of the criticality of this latter objective).

5

The VMC Business Plan strategy is to enhance VMC’s ability to meet its mission and attain
financial viability by allowing VMC to increase its proportion of sponsored patients who have

the ability to make choices as to their providers. To do so, it must successfully compete in the
marketplace. Long waits to obtain appointments and overcrowded, unattractive specialty
clinics are antithetical to this objective.

Currently, we have significant delays in scheduling appointments for patients in our specialty
clinics. The standard number of days for appointment availability is 20. However, as shown
below, the next available appointment for many of the specialties is beyond 20 days:
Average Appointment Accessibilfty In Days, May 2002
t20

102
100

63
60

-65-

39

39

40

3T
24
20

0

/

5-

5J>'

if
<i

-s?

<<>

<o
i
.

S'

o'
o'

o»'

Physically, our specialty outpatient clinical space is scattered and insufficient both in terms of
numbers of exam,treatment and special procedure rooms and in the amount of supporting spaces
for those rooms. The environment neither encourages efficiency nor supports good customer
service and market competitiveness. The poor working conditions in the outmoded Outpatient
Department increase VMC’s difficulty in attracting and retaining highly qualified specialist
physicians, nurses, and technical staff as well as patients.
VSC would improve this situation dramatically by providing space to consolidate and expand
specialty services. Two examples are the VSC Cardiovascular Center which would consolidate
activities that are now infive different geographic locations on campus and the Cancer Center
which would bring together services now located infour different campus locations. This
clustering of services will make services them much more convenient for patients who are
seriously ill and have trouble moving from place to place.

VSC would consolidate the specialty clinics, cluster clinics with related special procedure areas,
substantially increase the number of exam,treatment and procedure rooms and provide

6

appropriate support spaces. VSC would provide reserve capacity in the specialty services that
would be needed in a unified response to any disaster scenario.
3. Enhance financial viability.

The impact of the new VSC facility will be dramatic. A major increase in insured patient activity
followed the opening of the new Main Hospital. Much the same will happen with VSC.

Insurance Payor Patient Days
Fiscal Year 1990- Fiscal Year 2002

Projected
20,000

20,000
18,658

18,500

19,400

15,598

15,000
13,807
13423
12,051

10,000
10,143

10,921

10,798

IU99

5,000

T

FY90 FY91 FY92 FY 93 FY 94 FY 95 FY 96 FY 97 FY 98 FY 99 FY 00 FYOl
Fiscal Year

FY02

4. Mitigate seismic issues in H-1 (the Old Main Building)

The new Main Hospital replaced inpatient beds and selected services located in the seismically
unsafe Old Main Building. The scope of the new Main Hospital project did not include specialty
procedure labs that remain in the Old Main Building. The SCVHHS Strategic Facilities Plan
accepted by the Board at its May 2, 2000 meeting contains a master plan which phases future
development on the VMC campus. The first and most significant step in that master plan is
building VSC. VSC removes all remaining outpatient care activities from the Old Main structure
so that most of that building can be demolished and the balance seismically upgraded.

Not moving forward on development of VSC will require the abandonment of the master plan
strategies for reducing seismic risk, improving inpatient support services, and improving
emergency response capacity. A decision not to proceed with VSC creates a break in the
approach by the County to continually reduce its seismic deficiencies and exposure over time.
The decisions to proceed with the West Wing(95 inpatient beds and ER/Trauma Center) in 1984
and the new Main Hospital in 1994 reflect two steps toward seismic risk management by the
County on the VMC campus. Building only clinic space and not including the special procedure
labs would reduce the size and cost of the VSC project; however, the seismic risk and liability
would remain for the services in the Old Main Building.

7

The agreed upon approach to addressing seismic issues in the Old Main Building is to
seismically upgrade its western portion and empty and demolish its eastern part. The special
procedure areas and physician offices that are to be included in the VSC are now primarily
located in the Old Main Building. These areas represent some 47,000 of the total of 234,000
square feet in VSC of the building. Vacating the eastern portion and upgrading the western
portion are dependent upon the completion of VSC.
CONCLUSION

The Board has authorized $9.4 million to date for VSC. Planning and programming are done.
The architect has completed the pre-design phase and schematic design drawings and is starting
design development. The Board has approved the lease of space to accommodate programs
being displaced from 2220 Moorpark and the space is being readied for occupancy in the fall of
2002. Following site clearance, construction of the VSC building will commence in mid
calendar 2003 with occupancy in the Summer/Fall of2005. To address the objectives described
above in an expeditious manner we recommend: 1)full funding for VSC be included in the
proposed upcoming County bond issuance and 2)the $1.48 million Turner Construction
Company contract be approved. Delaying action on this contract would increase VSC cost by
approximately $200,000 per month.
Attachments:
A:

Update of the “Strategic Business Plans for Valley Medical Center in a Competitive Market
Place”

B:

Report Back on Milpitas and Gilroy Clinics to Health and Hospital Committee, April 10,
2002.

C:

Report Back on Fair Oaks Clinic in Sunnyvale to Finance and Government Operations
Committee, May 2, 2002.

c: Board of Supervisors

Valley Specialty Center
Frequently Asked Questions
1. When was a Medical Office Buildingfirst proposedfor VMC?

The original plan for the replacement of VMC in the 1980’s included replacing the
Outpatient Department(OPD).
The 1990 Master Plan by the Design Partnership proposed a 260,000 square foot outpatient
facility on the VMC campus.

In 1992 Anshen and Allen Architects programmed a 220,000 square foot MOB to
complement the new Main Hospital. The MOB was deleted from the North Tower Project
scope due to insufficient funds. Had this project been completed it would have cost
approximately 70 million dollars.
2. Why not expand primary care services instead of building VSC?

It is not a question of”either/or.” Balance must be maintained between the primary care
system and specialty care. If we expand primary care and neglect specialty care we will not
be able to refer our chronically ill patients or those patients in need of specialized care to our
specialtists. This will have a negative impact on our inpatient census and, therefore, VMC
finances.

3. What kind offinancial analysis has been conducted on VSC?

A financial analysis has been done which shows that there is no projected increase in the
General Fund for expanding specialty care services. In the last five years we have expanded
our specialty services with no change in the number of unsponsored patients! 100% ofour
expansion has been with sponsored patients. The incremental revenue will, at a minimum,
offset the incremental operating cost to VMC of the expanded new specialty services in the
VSC.

Building the new Main Hospital led to an increase in sponsored patients. Those referrals
came though our specialty services. Building the VSC will continue this trend.
4. What is the risk ofnot building VSC?
•
•
•
•
•

Longer waits for specialty services.
VMC cannot expand primary care services.
VMC’s payer mix will degrade as patients seek other choices.
VMC will no longer be competitive.
VMC will not mitigate seismic risk on the campus.

9

5. What services will be performed in VSC?

VSC specialty services will be available to adult and pediatric patients from throughout the
County. Typically, patients will be referred by their primary-care physicians at one of our
regional Valley Health Centers, our affiliated community clinics, or by individual private
physicians.
VSC Program

Outpatient Clinic

Special Procedure Area

Cancer Center

Medical and Radiation Oncology clinics Radiation therapy (linear
(and other specialties, e.g.. Gynecologic accelerator)
Oncology)

Cardiovascular

Cardiology and Cardiovascular Surgery
clinics(including ProTime clinic)

Center

EKG/Holter, Stress Test;
ECHO/Ultrasound; non-invasive
vascular lab; Cardiac
Rehabilitation

Diabetes Center

Diabetology and Endocrinology clinics;
Diabetes Education

Employee Health

Employee Health Clinic

Medical Specialties

Dermatology, Gastroenterology,
Infectious Disease, Respiratory
Medicine, and Rheumatology clinics

Gastroenterology (including
endoscopy and esophageal
motility); Respiratory Medicine
(including pulmonary function,
exercise and metabolism, and
spirometry)

Neurosciences Center

Neurology, Neurosurgery, and
Rehabilitation clinics

Neurophysiology (including
EEG/Sleep Studies and
EMG/EVP)

Ophthalmology

Ophthalmology and Optometry clinics

Orthopedic Surgery

Orthopedics clinic

Otolaryngology

Otolaryngology clinics; audiology

Podiatry

Podiatry clinic

Surgical Specialties

General Surgery, Plastic Surgery, and
Urology clinics

Urology (including video and
regular urodynamic testing)

10

6. Will VSC serve patients from all over the County? Why does VSC have to be on
campus?

While decentralization of primary care services can be and has been effectively and
efficiently achieved, specialty outpatient services like inpatient services need to be
centralized and the main VMC campus represents a location central to the entire County.
Physicians providing outpatient specialty services typically have concurrent responsibilities
to their inpatients in the hospital; additionally, specialty services require highly trained staff,

expensive specialized equipment, and dedicated space. Where warranted and feasible, some
select specialty services have been made available at regional locations, e.g., diabetes
education, podiatry, etc.

7. What is the cost ofdelaying VSC by 6 months?
$1.5 to $2.0 million for each six months.

Attachment A

STRATEGIC BUSINESS PLANS FOR VALLEY MEDICAL CENTER
IN A COMPETITIVE MARKET PLACE

Update 2002: Report for Health and Hospital Committee Meeting, May 23, 2002

This report reviews Valley Medical Center’s progress since the May 2, 2000 adoption by the

Board of Supervisors of VMC’s Strategic Business Plans(SBP 2000) to improve its position in
the Santa Clara market for healthcare services. The goal of SBP 2000 was to focus VMC’s

efforts to better achieve its “open door” mission by meeting the challenges of market competition
for sponsored patients.

The May 2000 Strategic Business Plans:

• identified trends facing all hospitals nationwide and public hospitals in particular - trends
that create a dilemma for public hospitals;

• developed a framework for analysis and strategy development toward payers, geographic
areas, and partners; and
• recommended strategic actions to:

- maximize the benefit of managed care relationships;

- build relationships with community physicians;
- expand VMC’s presence in underserved areas;

- expand enrollment and sponsorship; and

- improve County understanding and practices to promote business plan success.

Over the last two years, VMC has made great progress toward its objectives in each of these
areas. In concert with others, it has actively expanded sponsored enrollment throughout the

County, especially among children. Through managed care and other contracts, it has increased
its insured patient volumes and overall patient census significantly and thereby moderated the net
county cost of its programs. It is expanding its community ambulatory capacity along with its

rapid growth of inpatient census. VMC’s progress is a strong argument for the soundness of the
strategies the Board adopted in May 2000; however, several recent trends suggest some “mid
course adjustments in management’s priorities. In particular, VMC’s success over the last two

years has strained the system and showed more clearly than two years ago the importance of
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additional capacity, especially facilities for ambulatory specialty care. Valley Specialty Center is
a most critical next step; its authorization will allow VMC to continue the progress it has made;
delay or cancellation could reverse many of the Health and Hospital System’s recent gains.
The 2000 Strategic Business Plans
What did SBP 2000 research conclude about VMC’s situation and areas for its strategic focus?

The following is a summary of the Plans’ important conclusions and comments about their
relevance to today’s questions.

SBP 2000 Problem: The Dilemma Facing Public Hospitals

Public hospitals throughout the nation face a dilemma of rising mission imperatives on the one
hand versus declining federal and state resources to support them on the other hand. They must
continue to meet their mission imperatives as the “open door” providers in their communities at a
residents lack health insurance,
time when increasing numbers and proportions of the nation’s
welfare reform has reduced the Medicaid rolls, and the federal and state governments are looking

to reduce payments to all hospitals to pay for higher costs of drugs and other patient care
over the last two decades are at
services, The special funds that have preserved the safety net
risk. These marketplace trends create financial difficulty for most hospitals. As a result, public
hospitals face intensified competition for sponsored patients, but no competition for the
uninsured. To keep their doors open, public hospitals must meet market imperatives and compete

for sponsored patients. As government institutions, they face barriers to achieving more efficient
operations that other hospitals do not face.

Santa Clara County long has been one of the most difficult markets for health care providers m

the country. For VMC,the public hospital dilemma is particularly acute. VMC faces competition
from established regional/national hospital systems that have relationships with established
medical groups and managed care plans covering high proportions of the area s residents. Private
hospitals can pull back to services that are profitable regardless of community need; the plans
announced by Tenet and HCA show just this strategy. Some private physicians have ended their
Medicare managed care contracts and many others are considering reducing their involvement
with publicly financed patient care. Private hospitals do not intend to replace their physical
facilities and expand their services in line with the expected growth and aging of Santa Clara s
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population. This will continue to increase the hospitals’ abilities to negotiate higher rates from
managed care companies, but at the risk that any set of factors that increase the demand for care
- a flu epidemic, bioterrorism, or an earthquake, for example - will overwhelm the County’s
health care system. VMC’s doors, in contrast, must be open to the entire community. These
trends will make VMC’s emergency services, inpatient beds and ambulatory services -

especially those in referral specialties - even more important to Santa Clara’s residents in the
future.

The dilemma facing public hospitals can be mitigated by strategies aimed at maximizing the use
of the public hospital’s facilities and minimizing operating costs. Most important are focused

approaches for maintaining and expanding their historical Medicaid populations. In VMC’s

growing market, the Hospital has been able to use its delegated contracting authority to expand
significantly its private contract business with managed care plans. VMC has been successful in
increasing its patient volumes and market share, especially in increasing its numbers of Medicare
and Insurance patient days. VMC’s new Main Hospital facility and highly competent, motivateu
medical staff have provided a solid basis for further success.

Cost control also is important for public hospitals, not only for mitigating the growth in the

public subsidy for public patients, but also for the hospital’s ability to offer prices to managed
care plans that will attract private patients as well. Seeking efficiency brings together the
imperative of market competition with the imperative of public stewardship to assure open door
access. Operating flexibility delegated by the Board of Supervisors will remain critical to
VMC’s ability to control its costs.

SBP 2000 plan identified six overall conclusions from its review of VMC’s mission, the Santa
Clara market, and the strategies of highly successful public hospitals;

1. VMC must be able to compete in the health care marketplace — meet the market’s
imperatives — if it is to succeed in meeting its mission imperatives.
2. VMC should expand and improve the “gateways” to its services on-campus, replacing
VMC’s outpatient department(OPD)with a building built to medical group practice
standards, and off-campus, expanding ambulatory care in specific areas that are underserved
but also have a mix of sponsored patients.
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3. Several types of partnerships have high potential for attracting sponsored patients who would
use existing VMC resources. In particular, VMC should seek to expand partnerships with
managed care plans and community physicians.
4. VMC managers and medical staff leaders have limited time and resources for new initiatives,
so focus and triage are important.

5. The market is rapidly changing; managers need freedom within a framework to be able to
seize opportunities and take risks responsibly.

6. The Supervisors and the political tradition in Santa Clara County have a preference for
expansion of access to needed services in the community and making the best use of the
assets they have put into place, rather than cutbacks or outsourcing that could compromise
County programs, employment, and finances.
SBP 2000 Framework: Where Should VMC Focus its Efforts?

The Strategic Business Plans recommended that VMC should focus its efforts to improve its
mission achievement and market position in three areas: payers, geographic areas, and partners:

• Pavers. VMC’s inpatient contribution margins (net revenues in excess of variable costs)from
all payers are positive: net county costs are reduced by the addition of any additional
inpatients, other than unsponsored ones. SBP 2000 recommended that VMC should focus on

expanding public program enrollment and developing relationships with private managed
care plans to slow the growth in net county cost.
• Geographic Areas. SBP 2000 recommended that VMC should find opportunities to expand

geographically in areas with mixed sponsored and unsponsored patients, especially those
with high growth in population, high concentrations of Medi-Cal beneficiaries, and relatively
low VMC Medi-Cal market share. These regions ineluded Franklin-McKinley, Central San

Jose/VMC Campus, and South County. Two other areas which currently lack VMC presence,
Milpitas-Berryessa, with its high numbers of Medi-Cal eligibles and Santa ClaraA^MC
campus also were identified as areas for potential ambulatory care expansion. Downtown
San Jose warrants special focus in light of HCA’s evolving plans for the San Jose Medical
Center campus.

• Partnerships. SBP 2000 recommended that VMC should seek partners who share VMC’s

values and can bring patients to VMC who will use resources that now are available (where
marginal costs are low) and/or provide resources needed by VMC patients where VMC
would incur high costs of providing the services directly. Partnerships with community
physicians and with managed care plans(such as Lifeguard) in particular can be used to
bring focused groups of patients to VMC,or to enable VMC to expand its services

geographically. VMC should continue to take a broad approach to partnerships, in line with
its mission as the County’s open door provider.

Strategic Actions: SBP 2000 Recommendations and 2002 Update
SBP 2000 recommended that VMC should take a number of actions over the next three years in

the following five areas, to make best use of VMC for the public benefit:
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1. Maximizing the benefit of managed care relationships.
2. Building relationships with community physicians
3. Expanding VMC presence in underserved areas
4. Expanding enrollment and sponsorship

5. Improving County understanding and practices to promote business plan success
What should VMC’s priorities be in each of these areas today, and what are the critical issues for
the next several years? Following a discussion of emerging trends since 2000, VMC’s progress
and remaining challenges in each of these areas are discussed.
Emerging Trends

Since 2000, four trends have emerged that were not fully visible in SBP 2000, each of which is
important to VMC’s ability to continue to achieve the goals set in SBP 2000 and continue to
achieve its mission in a highly competitive environment:
• The 2000 Census showed that Santa Clara County’s population continues to grow and age,

and at faster rates than projected in SBP 2000. The Census numbers on births and

immigration in particular led the Association of Bay Area Governments to increase its
projections of future population for the County. Over the next 30 years, Santa Clara’s
population is expected to grow by nearly one-third to 2.2 million, an addition of more than
525,000 people. While Santa Clara will remain younger than other Bay Area counties, the
growth in its number of elders will significantly increase the need for ambulatory and
inpatient specialty medical services, especially those focusing on chronic illness. Specialists
such as cardiologists and oncologists frequently are the primary care providers for elders.
Continued active utilization controls, the development of ambulatory care modalities, and

VMC’s hospitalist program for inpatient physician care have had the result that essentially all
admissions are now for specialty care.

• The 9-11 and anthrax terrorist attacks showed elearly the vulnerability of our society and
underscored the need for reserve canacitv in the health care system, especially in specialized
services closely linked to public health. All health care institutions and providers share this

responsibility, but it falls disproportionately on VMC,as the county’s open door provider and

the primary partner of the County’s Public Health Department in the Santa Clara Valley
Health and Hospital System.

• The varieties of trends affecting individuals’ choices of careers have created extreme
difficulties in reeruiting and retaininn a highly qualified healthcare workforce. This puts a

premium not only on wages and benefits but also working environments, including physical
facilities designed to maximize the efficiency of staff efforts and promote the development of

leading services that will give staff a sense of mission achievement.

• Other providers are responding to these trends with focused strategies and targeted

expansion. Private hospitals’ plans to rebuild their facilities to meet the timelines for seismic
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safety improvements required by SB 1953 include modest inpatient expansions - less than the
growth in population would suggest - and focus on profitable services. Providers nationwide
and in Santa Clara are exiting from Medicare and Medicaid managed care arrangements, and
some are refusing to take on additional publicly insured patients. Especially for its
unsponsored patients, but increasingly for Medicaid patients as well, access will depend on
VMC having its own skilled employed workforce. At the same time, ambulatory care

providers such as the Palo Alto Medical Group, San Jose Medical Group and Camino
Medical Group have invested heavily in state-of-the-art, attractive clinic space for specialty

and primary care services. This has “raised the bar” for VMC,and made the contrast with
VMC’s circa 1950 OPD building on campus even more striking. This is a significant

disadvantage to VMC’s ability to offer services acceptable to all the residents of the county,
especially insured patients.

Taken together, these trends underscore the continued importance of physical facility
development to VMC’s ability to meet both its mission and its market imperatives.
SBP 2000 Recommendations, VMC Progress, and Update

1. Maximizing the Benefit of Managed Care Relationships
SBP 2000 recommended that VMC should;

• Continue to seek contracts to provide specialty services to persons enrolled with private

managed care plans, meeting regularly and seeking opportunities with the largest MCOs in
the area, negotiating especially about services where VMC has capacity, and reporting
progress to the HHC and BOS at six-month intervals;
• Continue its strategy of seeking a broad set of relationships, creating breadth and multiple
opportunities with managed care organizations;
• Review the economic performance of each existing agreement, focusing especially on
payment rates for VMC’s unique services and negotiating clauses to improve payment terms
and constrain VMC’s risks;

• Maintain its policy of rejecting new proposals that fail to meet economic thresholds or would
require expansion of capacity, unless expansion also benefits VMC’s mission patients;
• Seek a primary care relationship with one or more plans; and

• Regularly assess service delivery performance, patient satisfaction, enrollee retention, and
economic benefit.

Progress. VMC has moved forward with contracts with Lifeguard and Kaiser that have opened
the door for significant private insurance business. These contracts have built VMC inpatient
volumes and provided flows of funds that have reduced net county costs. Since 1999, VMC’s

insurance patient days are up nearly 45% and admissions by nearly 90%. VMC’s overall
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inpatient census has increased significantly since the opening of the new Main Hospital. Now it
is running five percent above this year’s increased budget projections. Managed care contracts
have increased the use of VMC’s ambulatory specialty services, in part because VMC is the only

specialty provider to which Lifeguard’s primary care physicians can refer patients without prior

plan approval. VMC’s insurance patient visits are up by 55% since 1999, an increase of nearly
48,000 visits, most of them for specialty care. A higher percent of them are leading to inpatient
admissions. Changing market dynamics and effective contracting strategies also have improved
the economics of VMC’s contracts. Private managed care plans see VMC as a referral provider

of specialty services, which complements the referral volumes from VMC’s own ambulatory
primary care operations and community clinics in the neighborhoods.

Update 2002. VMC should continue its successful strategies with managed care organizations,
including Santa Clara Family Health Plan and VHP, to keep its door open to these sponsored

patients and produce scale economies of benefit to all its operations. As discussed further below,
VMC’s challenge now is to continue to improve its facilities and systems, to make sure that

patients’ and referring physicians’ experiences are favorable, so they will continue to request
access to VMC.

2. Building Relationships with Community Physicians
SBP 2000 recommended that VMC should;

• Assess VMC/ACHS services with available physical capacity and/or tight MD capacity;

• Through VMC medical staff leaders, seek agreements with community physicians in the
desired specialties, assessing additional patient volumes, payer mix and additional VMC staff
needed to handle the patients under each potential agreement;

• Leverage expanded physician relationships obtained though Lifeguard to encourage inpatient
specialty referrals;

• Investigate private physician interest in space in the office building (Valley Specialty Center)
that will replace VMC’s existing OPD;

• Off-campus, test co-location with community physicians as a way to expand primary care in
one area in which ACHS under-serves the community; and

• Continue to work with VMC’s existing FQHC partners, exploring especially their interest in
additional locations.

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Progress. Since 2000, VMC’s contracts with Lifeguard and SCFHP, through which VMC
provides referral ambulatory and inpatient services for private primary care physicians, have
increased the familiarity of private physicians with VMC physicians and services. This has been
critical to the development of sponsored patient volumes at VMC. VMC’s contract with Kaiser
has made effective use of interventional cardiology capacity that VMC otherwise would not have

fdled. Contracts with individual physicians have provided capacity in services at the levels that
VMC has needed. On the other hand, VMC’s experience since 2000 has been that development

of agreements with private physicians takes time and management resources, and may not
produce results even if a first assessment suggests that there is a commonality of interest on
which to base a relationship. Several physician partnerships that initially looked favorable have

fallen through, and in other situations VMC has sought partners in communities it has targeted
for expanding access, but not been able to find them. Finding partners willing to help meet
VMC’s mission toward unsponsored and Medi-Cal patients is increasingly challenging. Further,
in order to negotiate effectively, VMC needs resources (for example, space, operating room
time) that the other party desires. As capacity throughout the VMC system has become more
fully utilized, these resources are in short supply to meet VMC’s missions.

These positive and negative experiences over the last two years can help focus VMC’s future
efforts to expand access.

Update 2002. VMC should continue to maximize the value of its relationships with managed
plans. VMC should take a more reserved posture than recommended in SBP 2000 toward
partnerships with private physicians - one of“enlightened opportunism,” rather than “active
prospecting.” VMC should make sure that it has the information and analytic framework to be
able to respond to physician requests quickly with a strong understanding of the consequences of
the particular “deal” being proposed, but not invest management time in seeking out private
physician partners unless absolutely needed to meet VMC service requirements. VMC needs to

care

set the capacity of its own ambulatory facilities on campus and in local communities based on
the needs of its patients and the physicians fully in the County system. In light of trends in

provider willingness to take on publicly funded patients, VMC should carefully and regularly

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assess its own capacity and continue to focus on providing access through its own facilities and
medical staff and its longstanding FQHC partners.

3. Expanding VMC Presence in Underserved Areas
SBP 2000 recommended that VMC should;

• Build the Franklin-McKinley project now in design.

• Replace VMC’s on-campus outpatient department, which is a critical front door for VMC
inpatient services, with a medical office building (Valley Specialty Center) of a quality
consistent with the new Main Hospital.

• Plan a regional service strategy for the rapidly growing South County region, where hospital
consolidation has reduced inpatient capacity and raised issues of access to reproductive
health services.

• Explore options for expansion in Downtown San Jose in light of Columbia’s anticipated
service reductions on the SJMC Campus; and

• Explore partnerships for. providing VMC services in the Milpitas-Berryessa and/or Santa
Clara regions, where VMC currently has no presence.

Progress. Development of physical facilities for ambulatory care - the gateways to all VMC
services - now is the most significant challenge facing VMC. Its success in contracting with

managed care plans and expansion of enrollment in public insurance plans has created capacity
bottlenecks that threaten to reverse VMC’s progress. VMC facilities in the neighborhoods are

reaching their capacity limits and most of the specialty services on campus are oversubscribed.
VMC is about to begin construction on the Franklin-McKinley center. It has developed initial

plans for expansion of primary care services at Fair Oaks and in Milpitas and Gilroy, and begun
investigation of service expansion elsewhere in the County as well. Changing market dynamics,
as discussed above, make it likely that these will need to be VMC projects, rather than

accomplished through partnerships. The Valley Specialty Center(VSC) project is in design
development and bond financing is needed for construction.

The VSC project, including demolition of the existing OPD building, is the lynchpin for
development of the VMC ambulatory care system countywide and also for the critical facilities

projects on campus that are required by SB 1953 in order to mitigate seismic risk and replace
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obsolete buildings. The current OPD building that houses VMC’s outpatient specialty services is
the least up-to-date part of the whole VMC system. It is unattractive and unsuitable for the needs

of patients and providers, especially in comparison with the new ambulatory specialty facilities
of Palo Alto, Camino and San Jose Medical Groups. The growth and aging of the population in
Santa Clara County will increase the need for ambulatory specialty services, especially those for
cancer, heart disease, diabetes, and other chronic conditions of the elderly. To meet these needs

cost-effectively, facilities for physician specialists need to be close to the expensive ancillary

services (e.g., radiation therapy and infusion facilities, cardiac diagnostic and treatment

equipment) they use; the specialized nursing and technical personnel the services require; and the
hospital, where the specialists manage the care for relatively large numbers of inpatients. From
this base, they can provide consultative help and backup for primary care physicians in the

community. If patient volumes warrant it, specialists also can “circuit ride” to offer directly in
the community clinics selected services that do not need expensive specialized equipment and
care teams.

Update 2002. VMC should set its highest priority on development of the Valley Specialty
Center, which is the lynchpin for system development countywide and on campus. It is the most

important gateway to VMC’s inpatient services(more than 45% of admissions), and will provide
needed reserve capacity for Santa Clara County’s public health response to any disaster scenario.
If the specialty referral services planned for the VSC are not available, any growth in primary
care services, including through the planned expansion in the neighborhoods, will only increase
wait lists and beneficiary dissatisfaction, which will threaten VMC's progress and continued

referrals by managed care plans. Not moving forward with VSC also would seriously

compromise VMC’s ongoing efforts to mitigate seismic risk and county liability concerns.

As discussed above, expansion of ambulatory primary care services in the neighborhoods also is
important to VMC’s mission achievement, and VMC should set high priority on the plans for

Fair Oaks, Milpitas and Gilroy. VMC should monitor developments in downtown San Jose and
for now continue to service the region through its existing facilities.

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4. Expanding Enrollment and Sponsorship
SBP 2000 recommended that VMC should;

• Involve SSA in plans for new sites in underserved areas, to assure maximum opportunity for
expansion of enrollment. This should include assuring adequate space is provided for SSA
eligibility staff and seeking SSA information on potential eligibles as one input for deciding
expansion locations.

• Provide space in Administrative Office Building 2(AOB2)for an SSA district office on
VMC campus and space for Council on Aging to develop fuller continuum of services for
older adults;

• Continue planning to combine funding streams in an integrated program of medical and
social services for elders, completing the program planning underway with Council on Aging
and On-Lok and securing the needed waivers;

• Deepen its effort to enroll all who are eligible for existing public insurance programs;
• Participate in private and public efforts to expand sponsorship, working with FHP and VHP
to maximize Healthy Families enrollment related to VMC; working with VHP to design
products for individuals, small groups, and others; and working with a variety of partners to
develop and market insurance products for small businesses; and
• Seek alternatives for funding demonstrations, continuing to actively monitor developments at
the federal and state level to remain at the cutting edge of program development and seeking
new partners among the community foundations and other philanthropies in Silicon Valley
for developing demonstrations of funding approaches for the uninsured.

Progress. The County’s investment in outreach workers to expand enrollment in Medi-Cal and
Healthy Families has been extraordinarily successful, and the development with Working
Partnerships, P.A.C.T., and Family Health Plan of the Healthy Kids insurance program has been
a model for the nation. Sinee January 2002, Medi-Cal enrollment in the County is up by 18%,

Healthy Families enrollment has more than doubled, and the Healthy Kids program has enrolled

nearly 8000 children. Most come to VMC and its community clinics, where enrollment in these

public managed care programs is up by nearly 80%. These programs have demonstrated the
ability of new ideas in Santa Clara County to attract private philanthropic funds. Initial planning
for AOB2 has occurred. On the other hand, since 2000 many counties, including Santa Clara

have moved away from the AB1040 framework for integrated funding for care for elders,
focusing instead on integrating services and information for improved care management.

Update 2002. VMC should continue its active involvement in efforts to increase enrollment and
sponsorship, through the expanding Healthy Kids program and other outreach activities and
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encouraging development of web-based and other convenient mechanisms for assuring that those
who are eligible for benefits get them. Additional efforts in this regard likely should be focused
on elders; other counties with significant immigrant populations have found that sizeable
numbers who are eligible for Medicare may not have enrolled.

5. Improving County Understanding and Practices to Promote Business Plan Success
SBP 2000 recommended that Santa Clara County should:

• Continue the Board’s longstanding support for VMC’s strategy of achieving its public
mission by providing market-competitive services for sponsored and unsponsored patients;

• More fully explore the potential for reducing its employee benefit costs though use of VMC
as a cost-effective provider, considering incentives for County employees to choose
insurance options that focus care at VMC and its ambulatory care sites;
• Expand VMC’s existing delegated authority to other types of agreements, especially
contracts with physicians and other arrangements to expand VMC capacity or provide
services flexibly and cost-effectively; and

• Review the practices of County departments on which VMC relies for services, to assure that
they promote VMC’s ability to compete in the healthcare marketplace, where VMC is judged
by its ability to conform to the business standards of the healthcare industry.

Progress. VMC’s success over the last two years has been due in large part to the County’s
endorsement of VMC’s overall strategy of achieving its public mission by providing market-

competitive services for sponsored and unsponsored patients. VMC’s contracting success has
shown the value of delegated contracting authority for the system. The number of managed care
contracts has increased, and they have provided greater economic value, reducing the growth in

net county costs. Since 2000 also, the establishment of a County Counsel satellite office at VMC
has smoothed workload and improved progress on joint tasks.

Update 2002, Continued Board support of VMC’s overall strategy is critical to its success.
County bond authority for development of the Valley Specialty Center, which is the lynchpin for
system development countywide and mitigation of seismic risk on the VMC campus, is the most
critical near-term need. It is the most important gateway to VMC’s inpatient services, a crucial

support for the activities of primary care practitioners in VMC and community clinics, and will
provide needed reserve capacity for any disaster scenario.

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Conclusions

VMC has opportunities to continue to better achieve its mission and improve its financial
performance through focusing its program development on particular payers, in particular
geographic areas, and with partners. Expansion of VMC specialty services through the Valley
Specialty Center project will help increase enrollment and sponsorship, better enabling VMC to
meet its mission imperatives, support the expansion of primary care access in the neighborhoods,
and draw federal and state dollars to help mitigate the growth of net county cost. Without this
building, the system as a whole will remain capacity-constrained, which will erode its recent
gains.

VMC will continue to need operating flexibility and support from the County to take advantage

of opportunities as they arise, as well as investment funds for the near term and ongoing costs of
these initiatives. Capitalizing on these opportunities will take concerted action by the Board of
Supervisors, County Administration, and VMC’s leadership, medical and other staff Through
them, VMC can maintain its position as one of the nation’s premier public hospitals, achieving
its public mission by succeeding in the competitive healthcare marketplace.

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