Repairing Health Care-Stat!

Jim Nathan’s office is command central. From his desk

stacked with papers, the head of Lee Memorial Health System plans his assault

on the problems that threaten the quality of health care.

At NCH Healthcare System, Ed Morton is wrestling with

increasing challenges in health care. His biggest opponent: a shortage in

nurses, pharmacists, laboratory technicians and other health professionals. The

labor crunch makes him wonder: “Who is going to care for this monstrous

increase in the aging that’s going to occur in the next 10 to 20 years?”

For Stephen Royal at Southwest Florida Regional Medical

Center, the dark sky is beginning to lighten just a little. When he arrived in

Fort Myers in 1999, he was the hospital’s fifth chief executive officer in

seven years. That instability, combined with the government’s charges of fraud

against owner HCA Inc., was giving the hospital a bad reputation. Royal and his

staff have worked hard to regain the trust of patients, physicians and the

community.

Off Interstate 75 in Naples, the area’s newest hospital,

Cleveland Clinic Florida, has made it through one year. But space is already

tight, as snowbirds have flocked to the hospital. After battling NCH to build

its Naples facility, the Cleveland Clinic is now fending off its own challenger

as Naples-based Health Management Associates (HMA)—an operator of acute-care

hospitals—attempts to enter the region.

Everything from too few hospital beds to accommodate the

area’s growing and aging population to unexpected costs from terrorism are

concerns for the area’s health care executives, who are juggling increasing

expenses with a declining economy while keeping an eye on the competition.

While no one is saying much about HMA’s plans, each has a strategy to defend

its turf. In Lee County, Nathan, who leads a not-for-profit hospital, and

Royal, who heads a for-profit organization, balance cooperation on issues such

as trauma care and competition. (The two happen to be third cousins who grew up

together in Cincinnati.) In Collier

County, Morton and Dr. Melinda Estes (the chief executive officer for Cleveland

Clinic Florida, who one day a week drives across Alligator Alley from her home

in Weston, site of another Cleveland Clinic) are waiting to see if HMA will

join them as a third player in Collier.

Dealing with Demand

Boasting the newest facilities in Southwest Florida,

Cleveland Clinic Florida has positioned itself to take advantage of the coming

growth to the east. The Collier market has already proved to be a good one,

says Estes. With 70 beds, the hospital currently has 50 physicians representing

more than 20 medical specialties. Plans call for 70 physicians within three

years. “Because a large number of people in Southwest Florida come from the

Midwest, the Cleveland Clinic has name recognition. Keeping up with the demand

has been a tremendous challenge,” she says.

With the population projected to explode in the next 10

years, the clinic hopes to break even at its facilities in Naples and Weston

sometime between late 2003 and early 2004, although it is in the process of

recasting its five-year financial plan.

“Our goal has been to raise the bar on the quality of health

care in Southwest Florida and here in Southeast Florida,” Estes says in a phone

interview. The biggest challenges for Cleveland Clinic are making room for

future patients and facing future competition. Following HMA’s announcement in

February that it would be asking state regulators for permission to build the

100-bed Collier Regional Medical Center, Cleveland Clinic filed a request with

the state to add up to 60 beds in its North Naples hospital. Estes doesn’t have

her guns drawn yet, downplaying the HMA request. “We were considering the need

to expand beds prior to HMA’s application,” she says. “It seemed an opportune

time to go to the state.”

Filling a Void

HMA has been a quiet player in Southwest Florida since the

company was founded here in 1984. The nation’s largest operator of acute-care

hospitals and the largest publicly traded company in Southwest Florida, HMA has

facilities in the Southwest and Southeast, including Charlotte Regional Medical

Center in Punta Gorda. Earlier this year, HMA acquired East Pointe Hospital in

Lehigh Acres from HCA, with plans to renovate the facility and rename it Lehigh

Regional Medical Center. The company now has ambitious plans to become the

provider of choice for physicians and patients. “Over the years we’ve tried to

help residents by working with NCH, but every time we’ve tried to propose a

joint venture, it didn’t come to fruition,” says John Merriwether, director of

financial relations for HMA. “We think we all need to work together here. That

hasn’t taken place.”

As a result, HMA executives thought it was “necessary,

almost an obligation” to provide an alternative for frustrated patients,

Merriwether says.

HMA’s formula, which has been successful in 42 hospitals in

14 states, is simple: Revenues must exceed expenses. When it acquires a

hospital, the company brings in a local admin-istrative team to make decisions

while finances are kept in check with a

centralized financial system. “You need three things: financial capital

resources, the human talent to provide the leadership and the technology,” says

HMA president and chief executive officer Joseph Vumbacco.

Although other hospital executives are frustrated with a

crush of patients in the emergency rooms, Vumbacco takes a different approach.

The emergency room, he says, is the front door to the hospital, generating 40

to 60 percent of admissions in HMA’s hospitals. HMA’s goal is to admit or send

home patients less than two hours after they come into the emergency room. The

national average is five to six hours.

“We think that’s one of the most important functions of a

hospital. We have community hospitals and we believe in community hospitals.

We’re not going to do heart transplants. We provide general acute care,”

Vumbacco says. “We will not just focus on wealthy people in the community.

We’re going to take all comers. We believe by focusing on the needs of all the

people, you serve your mission and do an excellent job.”

Until now, HMA has acquired hospitals instead of starting

its own. Vumbacco does not deny the challenges HMA could face with the proposed

$75 million Collier Regional Medical Center, if the plans are approved by the

state in mid-June. “We’re just not going to throw up our hands and say, ‘The

sky is falling in.’ We’re overcoming these issues in a positive way,” he says.

Sounding the Storm Warning

When nathan left lee memorial Health System in the mid-’90s

for Washington, D.C., he had grand plans to make a difference in health care

reform on a national level. But he found no appetite in the nation’s capital

for “serious systemic reform,” and after three years, returned to the health

system facing a new set of financial problems.

In 1999 and 2000, for the first time, the organization had

lost money. “The place was paralyzed. We had to get finances under control. We

worked hard to do that without incurring a major layoff,” Nathan says. “People

thought the only way to fix it was to get rid of a whole bunch of people, but

we were looking at volume growth.”

With that crisis behind him, Nathan is now on a mission to

educate the public about the problems looming. People must start discussing how

much they want to spend and what kind of system they want, he says. Two key

questions must be answered: Is health care a commodity or is it a social good?

Do we believe that we want to have everyone covered versus survival of the

fittest?

“If people who are closest to this and are seeing the

perfect storm emerging don’t articulate it, then who is?” he asks. “I don’t

know that by sharing it I can stop the speed of the storm coming, but if I

don’t even attempt to, then I’m not doing my job.”

His biggest concerns are the aging and growing population,

lack of access to capital, labor shortages, supply and technology expense

increases, and the growing number of uninsured and underinsured patients,

particularly in the emergency rooms, which Nathan says are “increasingly

becoming the depository for all of society’s ills.”

“There is no way health care can be delivered or financed

when the baby boom generation begins to use services at the level that seniors

do. The demand on facilities, technology, staff and financials will be so great

that the way we currently do it will not be possible,” he says.

Nathan has identified a need for $250 million in capital

over the next five years. He expects to raise $125 million at most. By the time

the addition of 122 beds at Health Park Medical Center is complete in five

years, he says, the center will likely already need more beds. “The needs and

demands far exceed the financial capabilities.”

The pressures have driven hospital executives to look at

their operations more carefully. “A few years ago, you were competing because

you had unused capacity. Today most places are close to full and are trying to

figure out how to manage what they have more efficiently,” he says.

A Hospital without Walls

Morton’s mission is different. Hospitals, he says, must

recognize that their core mission is restoring, promoting and maintaining health.

“It’s understanding the role nutrition and health education play,” he says.

Preventive medicine, he says, could reduce the number of people hospitalized,

therefore de-creasing the need for expansion.

But it’s tough to do such outreach and manage the daily

operations of NCH Healthcare System with lim ited resources—especially human

resources. “If we’re 150,000 nurses short and baby boomers are aging and we’re