Strategic Planning Clinical Programs

School of Medicine Retreat January 30, 2004

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“We promote the health of our patients and our community and advance the frontiers of clinical medicine”

Mission Statement

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• Recruitment: ENT Chair, Cancer Center Director, Orthopedics Chair (in process), Ambulatory SVCs Director

• Rebuilding: General and Trauma/Critical Care Surgery, Oncologic Surgery

• New Facilities: The Cancer Center will open in March, approximately doubling ambulatory space

• Institutes: Plans for Cancer/Stem Cell, ITI, Neurosciences, Cardiovascular Services are progressing, setting the stage for translational research and an enhanced relationship between the SOM and SHC

Clinical Service Accomplishments

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• Growth in practice’s clinical revenues ($108m to $118m) but profits declined slightly ($14.7m)

• However, FY’04 budget projects a profit of only $6.7m (excluding $5m of clinic incentive dollars)

• SHC raised $250m in the bond market for capital projects, including investments in the Cancer Center and many service lines, and at a very good rate

• Faculty are responsible for much of the profitability of both LPCH ($60m) and SHC ($36m)

Key Financial Features of FY ’03 for Faculty

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SHC Professional Practice Revenue

SHC Clinical Revenue

$-

$20

$40

$60

$80

$100

$120

$140

$160

FY99 FY00 FY01 FY02 FY03

Millions

Physician Net Revenue

Service Payments

Total Payments

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Research is growing with clinical volume

$-

$50,000

$100,000

$150,000

$200,000

$250,000

FY00 FY01 FY02 FY 03

ThousandsClinical Depts

Total SoM

Direct Research Expenditures

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Contributions of clinical care

• In addition, the Dean’s Tax contributed $10.7m to School of Medicine functions last year, as compared with $9.2m in FY’02.

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• During the first quarter of FY ’03, at SHC:– discharges were 9.5% above budget– patient days 7.8% were above budget – compared to last year’s ~4% below budget discharges

• We must have this volume to fund the new debt service ($30m) from bond offerings, operating expenses of the new cancer center ($~20m for the first year)

SHC Inpatient Growth

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• Ambulatory services accounted for 40% of SHC and 57% of faculty net revenue in FY’03– Institutional OP net revenue grew from $178m to $275m

over 3 years – Faculty OP net revenue actually fell from $103m to $97m

during those 3 years

• Both the faculty and SHC remain very dependent on OP growth for economic viability, as well as for a secure referral base– Many of our biggest opportunities are in the outpatient

arena: orthopedics, an eye center, pathology outreach

Outpatient Growth

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Total Professional Net Revenue

0

50

100

150

200

FY2001 FY2002 FY2003

Millions

Inpatient

Outpatient

Total

Overall Practice Net Revenue

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• After our successful program building and recruitment, our inpatient facilities are increasingly full, restraining our referrals

• The OR’s access and utilization are constraining the efficient use of physician time and our enlarging surgical volume

• Deferred projects, like creation of an endoscopy center and increasing interventional radiology suites, underline the need for new facilities

• Development of an off-site ambulatory center will also be essential for accommodating new growth

Capacity Issues

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Potential Strategies for SHC from ’02 Retreat

Potential Strategies for Maintaining Patient Base for Clinical Services

• Create a full service health system• Partner with full service systems*• Be the quality and value leader**

• superior skill sets, knowledge bases, but also excellent service

• cost basis that is attractive to full service systems and their constituencies

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Patient Base of SHC- Clouds on the Horizon

• Kaiser continues to grow market share, and is building new hospitals in Santa Clara and Redwood City

• Sutter/PAMF intends to build 2 new hospitals and to double their patient base in the next 5 years• May pull out of SHC the 13% of inpatient volume they control• They already have awarded contracts for CV surgery and cardiology services

to community physicians

• SHC, with the inability to establish a partnership with Sutter, now must create demand for its services, by providing unique services and a small base of primary care physicians

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• In the last two years, both the stakes for survival and the opportunities to embody our vision have increased very substantially

• Over the next five years, as Kaiser and Sutter expand their full service networks, we will either become the recognized leader in advanced health care, or marginal to the community’s health and bereft of the clinical talent we now enjoy

• SHC must become a “must have” for local employers’ health plans because of patient demand for access to us

Stanford’s changing position in the regional health care market

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The Example of University Employees

• This year during open access we lost an additional 24% of University enrollees to Pacificare and Kaiser plans

• Our costs have been a major consideration: per paycheck for an employee and family, Kaiser cost $72.38, Pacificare cost $76.35, and Stanford’s PPO cost $369.98

• Service and ease of access probably also accounts for some of the erosion, since patients rarely think they will need the advanced care of Stanford unless they already have a threatening disease

The failure to be able to secure university employees into our plans is emblematic of our challenges going forward- in pricing strategies, utilization, service, public perception of us.

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• Play to the talents of our faculty, since they represent ~80% of the inpatient volume and even more of the outpatient volume

• Develop ever more functional relationships and structures between and within the SOM and SHC

• Break down barriers between clinical departments by creating centers and ventures that are multi-disciplinary

• Make a reality out of the promise of translational research

How are we going to succeed?

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The Expertise of our Clinical Faculty

Stanford Faculty• Neurosurgery- vascular,

movement disorders, oncologic

• General surgery- trauma, minimally invasive, transplant, colorectal, endocrine, oncologic, pediatric

• Cardiology- heart failure, transplant, MRI, ECHO, electrophysiologic

• Oncology- breast, lymphoma, urologic, etc

Community Norms• General neurosurgery

• General surgery- possibly with barometric, breast, minimally invasive

• Cardiology- invasive and non-invasive

• Oncology- general

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• Develop organizational models and incentives that align SHC and SOM interests, ie, we should both win in the Cancer Center if it is a success, and both lose if it is not

• We need to look again at our organizational models to see how we can encourage departments to “think globally and act locally” - our local clinical competitors are true group practices,

conferring on them the ability to implement joint projects quickly

• Services shared (contracting, billing, finance) between the professional and institutional components need to be equally mindful of boths’ needs, ie put aside narrowly construed reporting structures.

Aligning Goals in SOM and SHC

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• Centers will have multidisciplinary governance, administrative infrastructure, and may be nested in Institutes, which can serve as the research sites from which translational initiatives arise

• Our first attempt at creation of a center that involved financial sharing, the Vascular Center, was challenging for faculty and administration alike

The creation of centers will require clinical collaboration on a level infrequently experienced at Stanford, but these are essential to our success

Departmental Collaboration: Creation of Centers

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• Vascular services revenue is largely divided between two departments, one of whom derives a large profit from it, while the other suffers a large loss

• The clinicians working within the units wanted to share revenue and expense but this dislocation of the sources and uses of revenue streams led to a year and a half of struggle

• Underlying this: debates over process, governance, committee membership, compensation, faculty leadership, departmental leadership styles, departmental overhead, referral patterns, credentialing ….

• At the end of the day, the Dean’s office and the CEO expressed commitment to implementation and ongoing revision, rather than endless debate; and it is proceeding.

We need to be able to implement centers more expeditiously and with common goals in mind.

The Example of the Vascular Center

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• We need to develop and test new diagnostic and therapeutic modalities across the practice, and maintain a technology gap over the community in our clinical practice, so that we are “must-haves” for employers and employees.

• Stem cell: Oncology

• Genomics: Inflammatory DiseasesCritical Care

• Imaging: Molecular Imaging Cardiac MRI/MRA

• Devices: Cardiovascular diseasesOrthopedics

Making translation a reality

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• How can we reduce cost and optimize utilization, so that Stanford care is affordable?

• Can we continue to grow with limited capacity?

• How should we size and site our primary care physicians?

• How can we consistently value and retain clinician educators?

Other Key Challenges

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• Renew our focus on outpatient services, insuring the success of the Cancer Center, improving access and operations in our clinics, and by creating joint-ventured off-site ambulatory facilities

• Refine and enlarge the initiative for institute and center development, as platform for clinical growth and translation; and begin implementation

• Develop further the practice’s organizational structure and funds flow to create models of shared success

Goals for 2004

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• It is now clear, despite our current success, that over the next 5 years the fate of the SUMC rests on the faculty, who want to embody their mission of innovation, translation, and service

• Fundamentally our strategic plan is the same as it always has been, to be so much more advanced than everyone else that the public will demand access to our care- we are embarking on that somewhat risky but exciting course

We will rise or fall, in an open field, based on whether we align ourselves, control costs, create demand for our care, and live up to our potential

The Future of SHC

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STANFORD HOSPITAL AND CLINICS

PATIENT DAYS ACTUAL VS BUDGET MONTHLY TREND (JAN 2002-JAN 2003)

7500

8000

8500

9000

9500

10000

10500

MONTHS

NUMBER OF PATIENTS

PATIENT DAYS ACTUAL

PATIENT DAYS BUDGET

PATIENT DAYS ACTUAL 9,710 9,328 10,180 9,940 10,045 9,286 9,601 9,246 9,053 9,497 8,773 8,573

PATIENT DAYS BUDGET 9,368 9,133 10,212 9,470 9,899 9,058 9,306 9,814 8,979 9,763 9,146 9,057 9,781

Jan-

02

Feb-

02

Mar-

02

Apr-

02

May-

02

Jun-

02

Jul-

02

Aug-

02

Sep-

02

Oct-

02

Nov-

02

Dec-

02

Jan-

03

Inpatient Clinical Volume FY’02

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While 78% of SHC’s cases are concentrated in a five county

area(1), SHC draws the remainder of its cases from a

geographically dispersed region.

7,050(34%)

5,710(28%)

1,660(8%)

950(5%)

550(3%)

360(2%)

310(2%)

280(1%)

260(1%)

200(1%)

190(1%)

190(1%)

170(1%)

140(1%)

140(1%)

130(1%)

120(1%)

90(<1%)

Source: SUMC TSI, September 2000 – April 2001 (8 months annualized).(1) Santa Clara, San Mateo, Alameda, Monterey, and Santa Cruz.

SHC Patient Origin

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Shared Goals for 2004

SHC• Improve pt satisfaction and

service in outpatient svs; and enlarge its patient volume

• Open and grow volume in the Cancer Center

• Develop quality metrics and market our innovation

• Develop with SOM a major ambulatory joint venture off-site

• Become the best medical center in the West, to secure patients from Kaiser and PAMF

SOM• Renew growth and revenue in

ambulatory svcs, particularly off-site

• Refine the initiative for Stem Cell/Cancer Institute

• Develop translational medicine as our distinction

• Develop a joint venture that allows the SOM to share SHC success off-site

• Create public demand for our services through innovation and superior results