General Hospital is a (hypothetical) 150-bed, not-for-profit, acute-care community hospital located
in the center of a mid-size U.S. city. Although it employs a few doctors such as a radiologist and pathologist, its medical staff consists of independent community physicians. Until recently, it enjoyed a loyal patient base and modest but stable operating margins. Within the past several years, however, a number of challenges have threatened its survival. The local economy, which was dependent on the manufacturing industry, has been in decline and losing jobs, although a new high-tech industrial park is under development. The hospital's margins are being squeezed as the burden of uncompensated care has risen along with the proportion of patients who are uninsured.
The local population is aging more rapidly than the U.S. as a whole and suffers from proportionately greater disease burdens owing to unhealthy lifestyles. This did not pose a problem for the hospital under traditional fee-for-service reimbursement that paid for each admission. However, under the new federal health reform law, the Medicare program will begin reducing reimbursement rates for hospitals that have high rates of readmissions. General Hospital's chief financial officer calculates that the hospital will suffer a substantial financial penalty if it doesn't measurably reduce its readmission rate, especially if commercial insurers begin to mimic Medicare's payment policy.
General's main competitor in the region, Progressive Hospital, undertook a diversification strategy leading it to purchase a home health care agency, a skilled nursing facility, and a few of the area's leading physician practices. It also jointly owns an ambulatory surgery center with community surgeons. Progressive advertises itself as an integrated health system offering patients a full continuum of care, and it negotiated a pay-for-performance program with a local insurer that rewards it for meeting certain quality and outcome goals. General Hospital has talked to the insurer about participating in the program, but is unable to do so without a way to work more closely with physicians and post-acute care providers who would determine its success.
General Hospital's Chief Financial Officer (CFO) has recommended that the hospital explore becoming an accountable care organization (ACO) to quality for incentives under Medicare's new shared-savings program. He recently attended a conference where other CFOs talked about the benefits of employing doctors to create better alignment with the hospital. At the same time, several independent primary care physicians in the community are in discussions to organize a "group practice without walls" or an independent practice association (IPA) to support their transformation- and qualify for enhanced reimbursement- as medical homes. It is also known that they are considering partnering with one of the hospitals to qualify as an ACO, which will require better care coordination and information exchange with the hospital.
Assume you are General Hospital's CEO. The hospital's board of trustees has asked you to present recommendations for the hospital's future, including whether and how the hospital will meet the challenge of becoming an ACO. They are particularly concerned that the hospital should balance its nonprofit mission to improve the health of the community with the imperative to assure its financial viability.
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