Feasibility Studies: The Key to Evaluating Expansion Opportunity

Hospitals faced with increasing financial pressures and market competition such as declining reimbursements, fragmented financing systems, lower operating margins, and consumers driving healthcare decisions are responding with innovative business approaches. One of most common initiatives is to expand services, either enhancing existing care areas or venturing into a new service line. State of art facilities for imaging, ambulatory surgery, outpatient diagnostics, cancer treatment, or one of more profitable service lines: cardiac surgery are being designed & built throughout country. Today, more than ever, hospitals must carefully consider impact of all spending and financial return to organization. Taking these issues into consideration, hospital executives attempt to offset unprofitable services such as emergency rooms and inpatient psychiatric care with cancer care and heart surgery where contribution margins continue to be “healthy”. New clinical services can position a hospital to generate new streams of revenue while addressing unmet need. There are many risks involved with implementing new and unfamiliar services. Hospital executives can minimize these risks by making intelligent, data-supported decisions. Answers to following three questions are first steps in planning process. 1. What is market of proposed service? 2. Is proposed service a “right fit”, both organizationally and operationally? 3. Does proposed service project a sound financial picture? Feasibility studies are considered one of more powerful, yet under utilized tools that hospital executives can use to test planning assumptions and substantiate their case for expanding services. A feasibility study can be used to solicit board approval; financing and bond review, and meet CON application requirements. Also, they serve as foundation for final business plan. The typical time commitment to conduct a comprehensive feasibility study ranges from 75-120 days, dependent on availability of financial and market information. Case Study Faced with financial challenges and significant out migration of cardiovascular patient population, administrators at a 150-bed community-based hospital conducted a comprehensive cardiovascular feasibility study. “We kept seeing increased need and unmet demand. Diagnostic catheterizations have been offered here for nearly ten years, but patients had to leave community to access advanced cardiovascular care,” they said. This feasibility study was initiated for four purposes: (1) to determine a course of action: whether or not to enter open heart surgery market (2) CON application support (3) financing and bond issuance testing (4) implementation business plan foundation. Senior management conveyed strategic goals and necessity of feasibility study to key medical staff leaders and a selected project team. Support and direction from senior management was critical to success of project, which would be one of biggest investments in history of organization. A senior executive assembled a project team from core hospital departments to discuss timeline, project scope, and to review information on medical admissions and market need statistics. Information was gathered on appropriate data of market share, financial, capital, procedural volumes, and operational requirements. As mentioned earlier, a feasibility study looks at three major areas: (1) Market (2) Operations (3) Finance. Beginning with market analysis, hospital management and key stakeholders were identified and interviewed to assist in development of strengths, weaknesses, opportunities, and threats (SWOT) of organization for proposed cardiovascular services expansion. Trends of cardiac specific procedures were gathered at national, regional, and local levels. For example, U.S. hospitals could expect cardiology services to increase 44 percent more than average increase in other services in next 5 years . Additional criteria analyzed in feasibility study included mortality rates, out migration for advanced cardiac care, cardiac transfers to competitors, demographics, and procedure use rate statistics. These factors assisted in defining hospital’s Total Cardiac Target Market™ (TCTM). The TCTM is geographical area from which hospital could expect to draw patients for advanced cardiovascular care. Demand projections incorporating all of mentioned methodologies were developed and reviewed with senior management. Exhibit 1, demand projections for open heart surgeries within TCTM, calculated by applying actual historical open heart surgery utilization rates, specific to TCTM population. Exhibit 1

Peripheral Vascular Care: Should You Have a "Vascular Center"?

Cardiovascular care is big business for hospitals. While a lot of attention and resources are directed to care and treatment of coronary arteries, peripheral vascular (PV) care has gained momentum. Even though dollars spent on PV care are significantly less than for cardiac, patients are same and PV care is an essential component of full service cardiovascular care. Hospitals are researching needs of their communities and determining whether they should have a PV care focus and what should that look like. Due diligence and business model planning will lead to most appropriate answers. The outlook for potential patients is promising. Today attention is becoming increasingly focused on vascular care, in light of dwindling open heart surgery volumes, reimbursements and increasing costs of supplies for cardiac catheterizations and interventions. Hospitals around country are getting serious about capturing market share and centralizing services for peripheral vascular disease (PVD) care. In past, fleeting attention has been given to PV disease with some facilities providing PV services, but seldom was an entire program focused specifically on PVD. A number of factors have influenced development—or lack of development—of these programs, with greatest being PVD’s “big sister,” coronary artery disease, claiming most of healthcare attention, to say nothing about its appetite for resources. Should your hospital or health system focus on and commit resources to enhance PVD services? What is market opportunity? What is revenue potential? What does a “best” program look like? Spending time completing research and working through these questions will take guesswork out of identifying emerging opportunity for peripheral vascular disease care for your organization. What is PVD? PVD is a condition in which arteries that carry blood throughout body become narrowed or clogged. This interferes with normal flow of blood and can cause pain, physical limitations and reduced quality of life. The most significant risk factors for PVD is age. The older population is projected to double over next 30 years, reaching 70 million by 2030, escalating demand for PVD care. A national study: PAD Awareness, Risk and Treatment—New Resources for Survival (PARTNERS published in Journal of American Medical Association, JAMA September 19, 2001) found that PVD is seriously under-diagnosed and under-treated. The American Heart Association and Harvard Health estimate:

300,000 PVD cases are diagnosed each year. Eight to 10 million Americans are affected. PVD is two to five times more common in men. PVD patients have a six-fold higher death rate from cardiovascular disease. PVD patients have a 15 percent chance of dying within five years when symptomatic. PVD patients have a 50 percent chance of dying within 10 years from PVD. What is PVD Market Opportunity? The patients at risk for coronary artery disease are same patients that will be at risk for PVD. The arguments for concentrating efforts on care specific to this patient population makes good business sense—the patient populations are synergistic and currently interventional radiologist, vascular surgeons, primarily care physicians and most recently cardiologists can diagnose and treat conditions. The increase of patients presenting with symptoms and needing access to care for PVD conditions is anticipated to grow significantly over next twenty years as shown in Exhibit 1. Often times, hospital business development and planning departments are charged with defining market for services and estimating demand and revenue opportunity. The feasibility models start with identifying population at risk and applying utilization rates to determine procedure and admission volumes. PVD care has been tracked and measured but estimates are considered to be low because it is believed that older adults have, in past, lived with their “disability”, accepted limitations and pain with ambulation, and attributed nocturnal leg pain and cramps to “old age”. The demanding “baby boomers” are expected to be less accepting of these disabilities as they become octogenarians. A reasonable approach to estimating demand: Review national prevalence and utilization rates that are available from Vascular Disease Foundation or The Agency for Healthcare Research and Quality Review state utilization rates, if available, as they will provide a more realistic representation of specific geographic areas Apply these rates to population served by facility, by age group, to obtain available market estimates as shown in Exhibit 2 Who Treats PVD? Treatment for PVD can follow three main pathways: Noninvasive disease management that includes risk-factor reduction, medications to relieve symptoms while increasing exercise tolerance, including gene-based therapy. Surgical intervention that is safe and effective for many patients in whom less invasive procedures are not adequate. Catheter-based treatments that have an important and increasing role in treatment of PVD and are being substituted for surgery. Primary Care Physicians are often first provider to identify problem. Cardiologists may identify PVD during cardiac catheterization procedures. The more complicated issue related to PVD is which specialist should provide treatment once disease has been diagnosed. Traditionally, interventional radiologists and vascular surgeons have treated patients with advanced stage PVD. With advancement of catheter-based interventions, cardiologists are increasingly diagnosing and treating PVD in catheterization lab setting. This shift has set stage for cultural and political “turf wars” that need to be addressed and resolved if a hospital is to have a full service, integrated program. What are Components and Design of a Vascular Center? The “Vascular Center” can have a distinct physical plant location or can be developed as a “virtual” care model. It is certainly recommended that some or most of “front door” areas are designed to be patient friendly and centralized with good signage and convenient parking. The majority of PVD care is outpatient and population is challenged to walk long distances. The designated Vascular Center can be main geographic location for admissions and screening functions providing referral and coordination for additional diagnostic studies and treatment. Additionally, prevention, education and outreach staff can be housed in this area and can support a “cross functioning” staff model. A sample design for a Vascular Center is shown in Exhibit 3.