Report Back on Valley Specialty Center Operating Costs and Revenues
Finance and Government
Operations Committee
May 29, 2002
Agenda item #9
Dedicated to the Health
Administration
of the Whole Community
2200 Moorpark Avenue
San Jose, California 95128
Phone(408)885-4030
Santa Clara Valley
Health & Hospital System
May 22, 2002
To:
Supervisor Pete McHugh,Chairperson
Supervisor James T, Beall, Vice-Chairperson
Finance and Government Operations Committee
Supervisor Liz Kni^ Chai
Supervisor
Vice-Chairperson
Health and
From:
lit;
ttee
Robert
Execu^
Subject:
arson
[rei
CVHHS
Report Back on Valley Specialty Center Operating Costs and Revenues
On April 16, 2002, Supervisor McHugh requested a report back to the Board through the Finance
and Government Operations(FGOC)and Health and Hospital(HHC)Committees on the
operating costs and revenues of the Valley Specialty Center(VSC) (see Attachment A for
analysis). The referral stated that‘The Committees should receive the report at their next
respective meetings when each considers bond financing of capital facility projects after the
April 30 Board workshop.”
On May 13, 2002, a report back was sent to HHC on the strategic context for facilities projects,
including an update of the “Strategic Business Plans for Valley Medical Center in a Competitive
Market Place”(Attachment B). The Strategic Business Plan update reaffirms the
recommendation for the development of a specialty outpatient center on the VMC campus.
SUMMARY
The VSC project both increases the County’s capacity to provide specialty services to its
residents and has a significant positive financial impact on VMC. This project:
• Expands critically needed specialty resources to the entire community,
• Enables continued expansion of primary care clinics, and
• Without VSC, the VMC contribution margin falls to a negative $6.3 million in FY06.
With VSC, the contribution margin (the difference between collected revenues and
direct expenses) is a positive $8.6 million per year by FY06.
S;inia riar.i Valley Health A; Hospital Sv«itcm riwix-d and n|XTaicd tiv the T’otmiv of .Santa Clara
^\
2
METHODOLOGY
The referral requested staff to provide an analysis that is modeled after the Milpitas and Gilroy
report submitted to HHC on March 15, 2002. Therefore we reviewed the direct expenses and the
resulting revenue associated with the operations of VSC. Direct expenses inelude Object 1 (all
staffing costs). Object 2(medical and office supplies, contract services, etc) and Ancillary
expense (special procedures, pharmacy, radiology, and lab). We did not include the debt service
of the building. Furthermore, the referral asked staff to perform the same analysis to project for
patient visits at 171,500, 200,000 and 228,500. Staff did not perform the last visit option
because VSC capacity is 200,000.
In order to aecomplish the above, staff used FYOl as the base year for projection and included
only those specialty services that will be housed in the VSC. The analysis captured all clinical
and ancillary costs, outpatient visits and inpatient activity. In other words, everything that
happened financially to these patients while at VMC was captured. However, if a patient was
seen only in the inpatient setting they were excluded since the purpose of the analysis was to
focus on VSC.
ANALYSIS
The following was reviewed to perform the analysis:
(1) The relationship between specialty clinic visits and inpatient volume,
(2) The payer mix over the past 5 years of specialty patients at VMC,and
(3) The costs and revenues associated with specialty care.
1. The relationship between specialty clinics visits and inpatient volume
In FYOl,36,664 patients were seen by specialists that would be in VSC. These patients had
109,556 outpatient visits and 43,750 inpatient days. This is a ratio of 2.5 visits per inpatient day
and approximately one admission for each five patients.
These ratios are critical. When specialty physicians approach capacity, the number of
admissions to VMC by those specialists will no longer grow. This limits the growth of inpatient
days at VMC. In the last five years, there has been increased specialty services and increased
days at VMC. Five years ago, our specialists were using 78% of their exam rooms at any given
time, now 95% of those exam rooms are used.
The following graph shows the impact of patient days at VMC under two scenarios:
Scenario A: VSC is not constructed.
Scenario B: VSC is constructed with continued growth of inpatient days.
3
Inpatient Days Related to Specialty Visits
75,000
With VSC
70,000
65,000
60,000
Without VSC
55,000
125,000
<A
♦
S’ 50,000
Q
♦
45,000
40,000
35,000
30,000
25,000
T
109,556
FY01
117,000
1 22,850
FY02
FY03
123,500
FY04
125,000
147,500
1 54,875
FY05
FY06
FY07
1 62,619
FY08
Visits
2. The paver mix over the past 5 years of specialty patients at VMC
Patient visits to specialty clinics relocating to VSC have increased by 18,238' over the last five
years. 100% ofthose visits were sponsored. This favorable change in payer mix is partly due to
the new Main Hospital which attracted a higher number of sponsored patients.
1
Previously submitted as 27,065 visits, less employee health and other specialty visits that occur at satellite clinics.
4
Incremental Specialty Visits by Payer Mix, FY 98-02
N=18,232
100%
80%
60%
40%
32%
30%
20%
-2%
0%
ADP/Unsponsored
I
INSURANCE
17%
10%
3%
MEOI-CAL
MEOI-CAL MC
I
MEDICARE
VHP/COMMERCIAL
-20%
3. The costs and revenues associated with VSC
Given the relationship between outpatient visit volume and inpatient census and the payer mix of
incremental outpatient visits over the last five years, we analyzed the financial implications for
VMC of two scenarios. We use FYOl as the base year for all projections and FY06 for the fiscal
analysis for both scenarios.
Scenario A-No VSC
What would be the financial implications to VMC of not building VSC? The assumption is that
visits would stay at or near capacity and that inpatient referrals from those specialists would have
little or no growth.
The following table illustrates the direct operating cost and collected revenue in FYOl compared
to that of FY06 if VSC is not built.
Outpatient Visits
Expenses(Obj 1, 2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL Direct Expenses
FYOl
FY06 Scenario A
109,556
125.000
$22,568,536
$34,459,309
$58,554,995
$89,397,153
$81,123,531
$123,856,462
$15.649,322
$68,782,505
$21,867,348
$95,697,312
$84,431,827
$3,308,296
($6,291,802)
Collected Revenues
Outpatient Visits
Inpatient Days
TOTAL Collected Revenues
Contribution Margin
$117,564,660
5
Scenario B - Build VSC
What would be the financial implications to VMC if we build VSC? The assumption is that
visits and inpatient activity would continue to grow but would be slowed until the building is
complete in the fall of 2005.
The following table shows the direct operating cost and collected revenue in FYOl compared to
that of FY06. The referral asked us to look at three different visit levels for VSC: 171,500,
200,000, and 228,500. Since the capacity of VSC is estimated to be 200,000 visits we have not
included the 228,500 option. However, we have added a level of 147,500 as a near-term
scenario for FY06.
FYOl
Scenario B FY06
Visits
109,556
147,500
171,500
200,000
Expenses(Obj 1,2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL Direct Expenses
$22,568436
$58,554,995
$81,123431
$40,661,984
$110,986,403
$151,648488
$47,278,171
$131,628,052
$178,906424
$55,134,894
$156,140,011
$211474,905
$15,649,322
$68,782,505
$27,924,273
$132,358,174
$33,464435
$163,025,129
$40,042,940
$199,442,139
$84,431,827
$3,308,296
$160,282,447
$8,634,060
$196,489465
$17,583,141
$239,485,079
$28,210,174
Collected Revenues
Outpatient Visits
Inpatient Days
TOTAL Collected Revenues
Contribution Margin
Incremental Facilities Cost
On March 22, 2002 GSA reported to FGOC facilities costs by applying a generic allowance to
the entire square feet of each new county building. At 234,000 square feet, VSC was estimated at
$2.5 million. VMC estimates this cost to be considerably less.
Programs moving into VSC will vacate 121,000 square feet for a net increase of 113,000 square
feet. Based on VMC’s estimates of costs per square feet this would create an incremental
facilities cost of $0.6 million. Therefore, a reasonable budget for facilities would be $1 million.
CONCLUSION
In these times of financial uncertainty, the County has an opportunity to proceed with a project,
the Valley Specialty Center, that provides additional critical services to the community while
maintaining the financial viability of VMC and the County.
ASSUMPTIONS for VSC Financial Analysis
Visits
'Defined by the different scenarios,
'inpatient days are driven by outpatient visits and will vary by payer mix. FY01 is the base.
Payer Mix
'FY01 is the base.
'Using the past 5 years' experience, incremental specialty visits will be 38% Medicare; 4% Medi-Cal; 21% MCMC;37% Insurance; and 0% for
Unsponsored and VHP. This assumption is applied to FY03 and FY 06 Scenario B. Therefore, outpatient visit mix will show a grov\rth
in all payer source except unsponsored and VHP. Furthermore, since inpatient days are driven by outpatient visits, the inpatient payer mix will also change.
'The payer mix in FY01 is applied to all visits in FY 06 Scenario A.
Expenses
'Direct expenses increase by 6% each year.
'Capital, debt service, construction and building costs are excluded.
Revenue
'Medi-Cal increase 20% for FY02(as result of lawsuit, the increase was 30% but 20%> was used), then 3% thereafter.
'Medicare, MCMC, insurance and VHP increase by 3% annually.
'Unsponsored has no increase.
'Rate per visit or day is based on FY01 experience by payer mix.
Ambulatory and Community Health Services
05/22/2002
ASSUMPTIONS for VSC Financial Analysis
Visits
‘Defined by the different scenarios.
‘Inpatient days are driven by outpatient visits and will vary by payer mix. FY01 is the base.
Payer Mix
‘FY01 is the base.
‘Using the past 5 years' experience, incremental specialty visits will be 38% Medicare; 4% Medi-Cal; 21% MCMC;37% Insurance- and 0% for
Unsponsored and VHP. This assumption is applied to FY03 and FY 06 Scenario B. Therefore outpatient visit mix will show a growth
si
in all payer source except unsponsored and VHP. Furthermore, since
inpatient days are driven by outpatient
‘The payer mix in FY01 is applied to all visits in FY 06 Scenario A.
visits, the inpatient payer mix will also change.
Expenses
‘Direct expenses increase by 6% each year.
‘Capital, debt service, construction and building costs are excluded.
Revenue
‘Medi-Cal increase 20% for FY02(as result of lawsuit, the increase was 30% but 20% was used), then 3% thereafter
‘Medicare, MCMC,insurance and VHP increase by 3% annually.
‘Unsponsored has no increase.
‘Rate per visit or day is based on FY01 experience by payer mix.
Ambulatory and Community Health Services
05/22/2002
Attachment A: VSC Financial Analysis
FY06
Scenario A
FY 01
Outpatient Visits
Inpatient Days assoc, w/visits
FY03 Budget
(no VSC)
109,556
122,850
125,000
43,750
49,209
49,912
Scenario B
171,500
73,491
147,500
61,966
200,000
87,176
Outpatient Payer Mix
Medicare
21%
23%
21%
27%
27%
29%
Medi-Cal
27%
25%
27%
20%
19%
17%
8%
9%
8%
12%
13%
14%
Insurance
10%
13%
10%
19%
20%
22%
Unsponsored
28%
25%
28%
18%
18%
15%
6%
5%
6%
4%
4%
3%
21%
Medi-Cal MC
VHP
Inpatient Payer Mix
Medicare
17%
18%
17%
20%
21%
Medi-Cal
42%
38%
42%
28%
27%
Medi-Cal MC
5%
6%
5%
7%
7%
8%
Insurance
19%
24%
19%
34%
35%
39%
Unsponsored
15%
13%
15%
9%
9%
7%
1%
1%
1%
1%
1%
1%
VHP
Expenses(Obj 1, 2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL DIRECT EXPENSES
$
$
$
22,568,536 $
28,435,058 $
58,554,995 $
74,001,779 $
81,123,531 $ 102,436,837 $
34,459,309 $
M,397,153 $
123,856,462 $
40,661,984 $
110,986,403 $
151,648,388 $
47,278,171 $
131,628,052 $
178,906,224 $
55,134.894
156,140,011
211,274,905
$
$
$
$
15,649,322 $
19,711,607
68,782,505 $ 86,362,263
84,431,827 $ 106,073,871
3,308,296 $
3,637,034
$
$
$
21,867,348 $
95,697,312 $
117,564,660 $
$
(6,291,802) $
27,924,273
132,358,174
160,282,447
8,634,060
33,464,235 $
163,025,129 $
196,489,365 $
17,583,141 $
40,042,940
199,442,139
239,485,079
28,210,174
Collected Revenue
Outpatient Visits
Inpatient Days
TOTAL PATIENT REVENUE
CONTRIBUTION MARGIN
Ambulatory and Community Health Services
$
$
$
$
5/22/02
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 ofthe
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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
1
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
time when increasing numbers and proportions of the nation’s residents lack health insurance,
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 ofthe most difficult markets for health care providers in
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 ofthe area s residents. Private
hospitals can pull back to services that are profitable regardless ofcommunity 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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
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, motivated
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.
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
3
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 included Franklin-McKinley, Central San
JoseA^MC 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/TVIC
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:
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC. May 13, 2002
4
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 ofemerging 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 offuture 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 clearly the vulnerability of our society and
underscored the need for reserve capacity 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 recruiting and retaining a highly qualified healthcare workforce. This puts a
premium not only on wages and benefits but also working enviromnents, including physical
facilities designed to maximize the efficiency ofstaff 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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
5
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 ofeach 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 ofcapacity, 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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Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC. May 13. 2002
6
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 ofthem for specialty care. A higher percent ofthem 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.
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
7
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 ofsponsored patient volumes at VMC. VMC’s contract with Kaiser
has made effective use of interventional cardiology capacity that VMC otherwise would not have
filled. 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
care 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 ofthe 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
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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC. May 13, 2002
8
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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
9
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.
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
10
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 offunding 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 ofthe Healthy Kids insurance program has been
a model for the nation. Since 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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
11
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 fiilly 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 ofachieving 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.
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
12
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.
JMWatt ConsulUng
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
13
Operations Committee
May 29, 2002
Agenda item #9
Dedicated to the Health
Administration
of the Whole Community
2200 Moorpark Avenue
San Jose, California 95128
Phone(408)885-4030
Santa Clara Valley
Health & Hospital System
May 22, 2002
To:
Supervisor Pete McHugh,Chairperson
Supervisor James T, Beall, Vice-Chairperson
Finance and Government Operations Committee
Supervisor Liz Kni^ Chai
Supervisor
Vice-Chairperson
Health and
From:
lit;
ttee
Robert
Execu^
Subject:
arson
[rei
CVHHS
Report Back on Valley Specialty Center Operating Costs and Revenues
On April 16, 2002, Supervisor McHugh requested a report back to the Board through the Finance
and Government Operations(FGOC)and Health and Hospital(HHC)Committees on the
operating costs and revenues of the Valley Specialty Center(VSC) (see Attachment A for
analysis). The referral stated that‘The Committees should receive the report at their next
respective meetings when each considers bond financing of capital facility projects after the
April 30 Board workshop.”
On May 13, 2002, a report back was sent to HHC on the strategic context for facilities projects,
including an update of the “Strategic Business Plans for Valley Medical Center in a Competitive
Market Place”(Attachment B). The Strategic Business Plan update reaffirms the
recommendation for the development of a specialty outpatient center on the VMC campus.
SUMMARY
The VSC project both increases the County’s capacity to provide specialty services to its
residents and has a significant positive financial impact on VMC. This project:
• Expands critically needed specialty resources to the entire community,
• Enables continued expansion of primary care clinics, and
• Without VSC, the VMC contribution margin falls to a negative $6.3 million in FY06.
With VSC, the contribution margin (the difference between collected revenues and
direct expenses) is a positive $8.6 million per year by FY06.
S;inia riar.i Valley Health A; Hospital Sv«itcm riwix-d and n|XTaicd tiv the T’otmiv of .Santa Clara
^\
2
METHODOLOGY
The referral requested staff to provide an analysis that is modeled after the Milpitas and Gilroy
report submitted to HHC on March 15, 2002. Therefore we reviewed the direct expenses and the
resulting revenue associated with the operations of VSC. Direct expenses inelude Object 1 (all
staffing costs). Object 2(medical and office supplies, contract services, etc) and Ancillary
expense (special procedures, pharmacy, radiology, and lab). We did not include the debt service
of the building. Furthermore, the referral asked staff to perform the same analysis to project for
patient visits at 171,500, 200,000 and 228,500. Staff did not perform the last visit option
because VSC capacity is 200,000.
In order to aecomplish the above, staff used FYOl as the base year for projection and included
only those specialty services that will be housed in the VSC. The analysis captured all clinical
and ancillary costs, outpatient visits and inpatient activity. In other words, everything that
happened financially to these patients while at VMC was captured. However, if a patient was
seen only in the inpatient setting they were excluded since the purpose of the analysis was to
focus on VSC.
ANALYSIS
The following was reviewed to perform the analysis:
(1) The relationship between specialty clinic visits and inpatient volume,
(2) The payer mix over the past 5 years of specialty patients at VMC,and
(3) The costs and revenues associated with specialty care.
1. The relationship between specialty clinics visits and inpatient volume
In FYOl,36,664 patients were seen by specialists that would be in VSC. These patients had
109,556 outpatient visits and 43,750 inpatient days. This is a ratio of 2.5 visits per inpatient day
and approximately one admission for each five patients.
These ratios are critical. When specialty physicians approach capacity, the number of
admissions to VMC by those specialists will no longer grow. This limits the growth of inpatient
days at VMC. In the last five years, there has been increased specialty services and increased
days at VMC. Five years ago, our specialists were using 78% of their exam rooms at any given
time, now 95% of those exam rooms are used.
The following graph shows the impact of patient days at VMC under two scenarios:
Scenario A: VSC is not constructed.
Scenario B: VSC is constructed with continued growth of inpatient days.
3
Inpatient Days Related to Specialty Visits
75,000
With VSC
70,000
65,000
60,000
Without VSC
55,000
125,000
<A
♦
S’ 50,000
Q
♦
45,000
40,000
35,000
30,000
25,000
T
109,556
FY01
117,000
1 22,850
FY02
FY03
123,500
FY04
125,000
147,500
1 54,875
FY05
FY06
FY07
1 62,619
FY08
Visits
2. The paver mix over the past 5 years of specialty patients at VMC
Patient visits to specialty clinics relocating to VSC have increased by 18,238' over the last five
years. 100% ofthose visits were sponsored. This favorable change in payer mix is partly due to
the new Main Hospital which attracted a higher number of sponsored patients.
1
Previously submitted as 27,065 visits, less employee health and other specialty visits that occur at satellite clinics.
4
Incremental Specialty Visits by Payer Mix, FY 98-02
N=18,232
100%
80%
60%
40%
32%
30%
20%
-2%
0%
ADP/Unsponsored
I
INSURANCE
17%
10%
3%
MEOI-CAL
MEOI-CAL MC
I
MEDICARE
VHP/COMMERCIAL
-20%
3. The costs and revenues associated with VSC
Given the relationship between outpatient visit volume and inpatient census and the payer mix of
incremental outpatient visits over the last five years, we analyzed the financial implications for
VMC of two scenarios. We use FYOl as the base year for all projections and FY06 for the fiscal
analysis for both scenarios.
Scenario A-No VSC
What would be the financial implications to VMC of not building VSC? The assumption is that
visits would stay at or near capacity and that inpatient referrals from those specialists would have
little or no growth.
The following table illustrates the direct operating cost and collected revenue in FYOl compared
to that of FY06 if VSC is not built.
Outpatient Visits
Expenses(Obj 1, 2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL Direct Expenses
FYOl
FY06 Scenario A
109,556
125.000
$22,568,536
$34,459,309
$58,554,995
$89,397,153
$81,123,531
$123,856,462
$15.649,322
$68,782,505
$21,867,348
$95,697,312
$84,431,827
$3,308,296
($6,291,802)
Collected Revenues
Outpatient Visits
Inpatient Days
TOTAL Collected Revenues
Contribution Margin
$117,564,660
5
Scenario B - Build VSC
What would be the financial implications to VMC if we build VSC? The assumption is that
visits and inpatient activity would continue to grow but would be slowed until the building is
complete in the fall of 2005.
The following table shows the direct operating cost and collected revenue in FYOl compared to
that of FY06. The referral asked us to look at three different visit levels for VSC: 171,500,
200,000, and 228,500. Since the capacity of VSC is estimated to be 200,000 visits we have not
included the 228,500 option. However, we have added a level of 147,500 as a near-term
scenario for FY06.
FYOl
Scenario B FY06
Visits
109,556
147,500
171,500
200,000
Expenses(Obj 1,2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL Direct Expenses
$22,568436
$58,554,995
$81,123431
$40,661,984
$110,986,403
$151,648488
$47,278,171
$131,628,052
$178,906424
$55,134,894
$156,140,011
$211474,905
$15,649,322
$68,782,505
$27,924,273
$132,358,174
$33,464435
$163,025,129
$40,042,940
$199,442,139
$84,431,827
$3,308,296
$160,282,447
$8,634,060
$196,489465
$17,583,141
$239,485,079
$28,210,174
Collected Revenues
Outpatient Visits
Inpatient Days
TOTAL Collected Revenues
Contribution Margin
Incremental Facilities Cost
On March 22, 2002 GSA reported to FGOC facilities costs by applying a generic allowance to
the entire square feet of each new county building. At 234,000 square feet, VSC was estimated at
$2.5 million. VMC estimates this cost to be considerably less.
Programs moving into VSC will vacate 121,000 square feet for a net increase of 113,000 square
feet. Based on VMC’s estimates of costs per square feet this would create an incremental
facilities cost of $0.6 million. Therefore, a reasonable budget for facilities would be $1 million.
CONCLUSION
In these times of financial uncertainty, the County has an opportunity to proceed with a project,
the Valley Specialty Center, that provides additional critical services to the community while
maintaining the financial viability of VMC and the County.
ASSUMPTIONS for VSC Financial Analysis
Visits
'Defined by the different scenarios,
'inpatient days are driven by outpatient visits and will vary by payer mix. FY01 is the base.
Payer Mix
'FY01 is the base.
'Using the past 5 years' experience, incremental specialty visits will be 38% Medicare; 4% Medi-Cal; 21% MCMC;37% Insurance; and 0% for
Unsponsored and VHP. This assumption is applied to FY03 and FY 06 Scenario B. Therefore, outpatient visit mix will show a grov\rth
in all payer source except unsponsored and VHP. Furthermore, since inpatient days are driven by outpatient visits, the inpatient payer mix will also change.
'The payer mix in FY01 is applied to all visits in FY 06 Scenario A.
Expenses
'Direct expenses increase by 6% each year.
'Capital, debt service, construction and building costs are excluded.
Revenue
'Medi-Cal increase 20% for FY02(as result of lawsuit, the increase was 30% but 20%> was used), then 3% thereafter.
'Medicare, MCMC, insurance and VHP increase by 3% annually.
'Unsponsored has no increase.
'Rate per visit or day is based on FY01 experience by payer mix.
Ambulatory and Community Health Services
05/22/2002
ASSUMPTIONS for VSC Financial Analysis
Visits
‘Defined by the different scenarios.
‘Inpatient days are driven by outpatient visits and will vary by payer mix. FY01 is the base.
Payer Mix
‘FY01 is the base.
‘Using the past 5 years' experience, incremental specialty visits will be 38% Medicare; 4% Medi-Cal; 21% MCMC;37% Insurance- and 0% for
Unsponsored and VHP. This assumption is applied to FY03 and FY 06 Scenario B. Therefore outpatient visit mix will show a growth
si
in all payer source except unsponsored and VHP. Furthermore, since
inpatient days are driven by outpatient
‘The payer mix in FY01 is applied to all visits in FY 06 Scenario A.
visits, the inpatient payer mix will also change.
Expenses
‘Direct expenses increase by 6% each year.
‘Capital, debt service, construction and building costs are excluded.
Revenue
‘Medi-Cal increase 20% for FY02(as result of lawsuit, the increase was 30% but 20% was used), then 3% thereafter
‘Medicare, MCMC,insurance and VHP increase by 3% annually.
‘Unsponsored has no increase.
‘Rate per visit or day is based on FY01 experience by payer mix.
Ambulatory and Community Health Services
05/22/2002
Attachment A: VSC Financial Analysis
FY06
Scenario A
FY 01
Outpatient Visits
Inpatient Days assoc, w/visits
FY03 Budget
(no VSC)
109,556
122,850
125,000
43,750
49,209
49,912
Scenario B
171,500
73,491
147,500
61,966
200,000
87,176
Outpatient Payer Mix
Medicare
21%
23%
21%
27%
27%
29%
Medi-Cal
27%
25%
27%
20%
19%
17%
8%
9%
8%
12%
13%
14%
Insurance
10%
13%
10%
19%
20%
22%
Unsponsored
28%
25%
28%
18%
18%
15%
6%
5%
6%
4%
4%
3%
21%
Medi-Cal MC
VHP
Inpatient Payer Mix
Medicare
17%
18%
17%
20%
21%
Medi-Cal
42%
38%
42%
28%
27%
Medi-Cal MC
5%
6%
5%
7%
7%
8%
Insurance
19%
24%
19%
34%
35%
39%
Unsponsored
15%
13%
15%
9%
9%
7%
1%
1%
1%
1%
1%
1%
VHP
Expenses(Obj 1, 2 & anc)
Outpatient Direct
Inpatient Direct
TOTAL DIRECT EXPENSES
$
$
$
22,568,536 $
28,435,058 $
58,554,995 $
74,001,779 $
81,123,531 $ 102,436,837 $
34,459,309 $
M,397,153 $
123,856,462 $
40,661,984 $
110,986,403 $
151,648,388 $
47,278,171 $
131,628,052 $
178,906,224 $
55,134.894
156,140,011
211,274,905
$
$
$
$
15,649,322 $
19,711,607
68,782,505 $ 86,362,263
84,431,827 $ 106,073,871
3,308,296 $
3,637,034
$
$
$
21,867,348 $
95,697,312 $
117,564,660 $
$
(6,291,802) $
27,924,273
132,358,174
160,282,447
8,634,060
33,464,235 $
163,025,129 $
196,489,365 $
17,583,141 $
40,042,940
199,442,139
239,485,079
28,210,174
Collected Revenue
Outpatient Visits
Inpatient Days
TOTAL PATIENT REVENUE
CONTRIBUTION MARGIN
Ambulatory and Community Health Services
$
$
$
$
5/22/02
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 ofthe
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
JMWatt Consulting
Santa Clara Valley Medical Center Strategic Business Plan Update
Draft for HHC, May 13, 2002
1
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
time when increasing numbers and proportions of the nation’s residents lack health insurance,
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 ofthe most difficult markets for health care providers in
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 ofthe area s residents. Private
hospitals can pull back to services that are profitable regardless ofcommunity 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, motivated
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 included Franklin-McKinley, Central San
JoseA^MC 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/TVIC
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 ofemerging 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 offuture 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 clearly the vulnerability of our society and
underscored the need for reserve capacity 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 recruiting and retaining a highly qualified healthcare workforce. This puts a
premium not only on wages and benefits but also working enviromnents, including physical
facilities designed to maximize the efficiency ofstaff 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 ofeach 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 ofcapacity, 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 ofthem for specialty care. A higher percent ofthem 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 ofsponsored patient volumes at VMC. VMC’s contract with Kaiser
has made effective use of interventional cardiology capacity that VMC otherwise would not have
filled. 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
care 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 ofthe 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
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 offunding 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 ofthe Healthy Kids insurance program has been
a model for the nation. Since 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 fiilly 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 ofachieving 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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Document
Report back to the Board through the Finance and Government Operations (FGOC) and Health and Hospital (HHC) Committees on the operating costs and revenues of the Valley Specialty Center (VSC)
Initiative
Collection
James T. Beall, Jr.
Content Type
Report
Resource Type
Document
Date
5/22/2002
District
District 4
Creator
Robert Sillen, Executive Director, Santa Clara Valley Health and Hospital System
Language
English
City
San Jose
Rights
No Copyright: http://rightsstatements.org/vocab/NoC-US/1.0/