Avalon Health Care Organization (HCO) is looking to acquire another organization, XYZ Health Care Organization. The purchase includes two hospitals – one with 100 beds, the other is a 150-bed hospital, which are located in neighboring cities to each other. XYZ Health Care Organization also has multiple satellite doctors’ offices, and the doctors, nurses, and other support staff are all employees of the health care organization. Avalon HCO is considering the purchase of XYZ Health Care Organization because they (XYZ) are in danger of closing and filing bankruptcy. More than 300 employees would be laid off, and two communities would be completely without health care access if that happens. Avalon HCO leadership and board members believe this purchase is a good opportunity to expand their operations in a new market.
The Discovery Phase
When Avalon HCO initially determined they wanted to pursue purchasing XYZ Health Care Organization, Avalon immediately began a thorough review of the existing problems that led to the risk of closure and bankruptcy. The first step of the review phase involved reviewing XYZ’s income statement to determine the net earnings or losses of the organization, cash flow statements to determine where cash is being generated and if there is enough cash on hand to pay expenses and purchase assets, and the balance sheet to review the liabilities (e.g., debts, outstanding payments). In this review, Avalon noted there was an imbalance of revenue streams and that a high percentage of patients are covered by Medicare and Medicaid insurance, which pays less than the cost of care.
Payer Mix and Income Sources 20X0 20X1 20X2 Medicare 27.3% 29.7% 34.6% Medicaid 17.6% 18.4% 21.2% Managed Care 51.3% 48.1% 39.0% Uninsured 1.2% 1.5% 2.4% Indemnity and other 2.6% 2.3% 2.8%
While the financial statements provide part of the picture, other concerns were noted as well. Those are: • XYZ had a Joint Commission site visit within the past six months during which XYZ received a report that
indicated there were multiple areas that were noncompliant with the Joint Commission standards leading to a potential threat for widespread harm (e.g., has caused or is likely to cause serious injury, harm, impairment, or death to a patient, staff or visitor) (Joint Commission, n.d.). The SAFER Matrix provided in the Joint Commission report to XYZ indicated 14 areas that are non-compliant and therefore pose areas of risk and immediate threat to life:
o The Joint Commission’s report of findings indicates the following areas are Requirements for Improvement: Nurse to patient ratio is too high, leading to patient safety issues and neglect. Nurses are
expected to provide care to too many patients at one time. (Human Resources HR.01.02.05) The Joint Commission received concerns about safety and quality of care regarding the
hospital. The whistleblowers have received retaliatory actions from the hospital. (Accreditation Participation Requirements APR.09.02.01)
Patient environment is unsafe and dirty. Over the past year, 33% of the patients who were in the hospital for more than three days had a hospital-acquired infection. (Infection Prevention and Control IC.02.01.01, IC.02.02.01, IC.02.03.01)
Poor pain management in post-surgery patients. (Leadership LD.04.03.13) Medication errors at greater than 5% (also noted by the Joint Commission). (Medication
Management MM.06.01.01) (National Patient Safety Goals NPSG 01.01.01) Treatment services for Behavioral Health were inadequate. (Provision of Care, Treatment,
and Services PC.01.03.05) Chemical (medication) and/or physical restraints were used on patients who have dementia.
(Provision of Care, Treatment, and Services PC.03.05.01, PC.03.05.03, PC.03.05.07, PC.03.05.15)
The Joint Commission reports citations or incidents of Immediate Jeopardy to the Centers for Medicare and Medicaid Services (CMS). According to CMS, “Immediate Jeopardy [is] a situation where the facility’s noncompliance with one or more requirements of participation has caused, or is likely to cause, serious injury, harm, impairment, or death to a [patient or] resident” (Centers for Medicare and Medicaid Services [CMS], 2021, para. 5). The organization has 23 days to implement corrections for all issues identified by the Joint Commission and the CMS survey. If those corrections are not implemented within 23 days, CMS can terminate the organization as well as fine the organization up to $8,500 per day (Cornell Law School, n.d.). CMS fined XYZ $2,000 per day for 90 days for noncompliance with the CMS requirements of participation, for a total of $180,000. Additionally, CMS denied payment for new admissions for that three-month period and required XYZ to provide in-service training for all care providers responsible for prescribing and administering medications. XYZ also needed to create a directed plan of correction, which needed to be submitted to both the Joint Commission and to CMS. XYZ proved its compliance within six months to the
Joint Commission and CMS. With the fines and the three months of loss of both Medicare and Medicaid payments, XYZ is in serious financial danger.
• Avalon leaders found there was a high rate of employee resignations over the past two years, a high rate of sick days being used by existing employees, and XYZ failed to replace staff members who left, which increased the workload for remaining staff members and care providers. These staffing issues contributed to the medication errors noted in the Joint Commission’s citation noted above.
• All marketing in the two communities served has been stopped in an effort to conserve money. Patient services were also cut to conserve money.
• As part of the review, Avalon leaders met with the employees of XYZ. Employees reported feeling like the Chief Officers – the C-Suite leaders – are out of touch with the needs of the staff, the care providers, and the community as a whole. Staff members working in the financial department noted that the Chief Financial Officer and Chief Executive Officer do not fully understand utilization management and utilization review, thus leading to lost income from Medicare, Medicaid, and private insurance companies.
Ultimately, these issues led to a significant drop in the revenues of XYZ Health Care Organization.
Avalon’s Board of Directors and Chief Officers moved ahead with the purchase of XYZ Health Care Organization. Avalon’s leadership created a strategic plan that included a list of goals that are prioritized into short-term and long-term goals. The initial goals are:
• Meet with all employees of the hospital and satellite offices to communicate details of the sale and new leadership, to convey the new plans, structural changes and expectations, and to gain employee trust in Avalon’s leaders as well as improve employee morale.
o Update the pain-management policy for post-surgical patients. o Update the restraint policy for all patients. o Implement policies and procedures for patient safety, to include medication management, patient
fall risk assessment, and reduction in healthcare acquired infections. o Implement policies and procedures regarding information management and cyber-security to
reduce the risk of HIPAA violations due to ransomware attacks. o Create a whistleblower policy and hotline so any concerns expressed are anonymous.
• Ensure the issues causing failed Joint Commission inspection which led to the CMS fines and termination in the CMS programs are addressed in an on-going manner.
o Create a Continuous Quality Improvement (CQI) team to identify existing and address potential future areas of concern. This team will make recommendations for improvements.
• Determine opportunities for increasing the net income. o Offer new services (e.g., pain clinic, telehealth) and re-establish previous services that were stopped
for financial reasons (e.g., behavioral health care). $1,600,000 budgeted for creating the pain clinic. $750,000 budgeted for telehealth implementation for five years. $240,000 budgeted for creating the behavioral health care services.
o Expand locations to open an additional 10 satellite offices. $10,000,000 budgeted for satellite offices to lease space, purchase supplies and equipment,
hire appropriate staff, and maintain malpractice insurance for the care providers. o Build a new birthing center at each hospital location.
$50,000,000 budgeted for purchasing homes from neighboring homeowners in a two square block radius next to the existing hospitals, raise the homes, and build the new structures.
o Hire a Gerontologist for one of the satellite doctor’s offices where the patient demographics are mostly older adults. $300,000 budgeted for the salary and benefits plus cost of malpractice insurance.
o Hire three Infection Control nurses, one for each hospital and one to oversee the satellite locations. $450,000 budgeted for the salary and benefits plus cost of malpractice insurance for three
nurses. o Create a list of new positions across the organization to increase staffing and patient support
services, to include 10 new nurses, four new hospitalists, three respiratory therapists, four case managers, four social workers, and 20 other support positions (e.g., nursing technicians, janitorial, pharmacy techs, etc.). Create a timeframe for when each of the positions will be requisitioned and start dates
(e.g., two nurses, two hospitalists, one respiratory therapist, two case managers, two social workers, 10 support positions in first hiring, with the remaining positions to occur one year later).
$1,050,000 budgeted for 10 nurses $1,500,000 budgeted for four hospitalists $240,000 budgeted for three respiratory therapists $600,000 budgeted for four case managers $360,000 budgeted for four social workers $2,500,000 budgeted for the 20 support positions
o Implement a new marketing plan. $1,500,000 budgeted for the new marketing plan.
It should be noted that the list of opportunities for increased net income all have an up-front cost. There is a long- term return on investment (ROI) for each opportunity that must be measured.
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