A Prescription for the Free-Standing ED

Kimberly Nealon, St. Vincent Health; Steve Mombach, TriHealth; John Marshall, BremnerDuke Healthcare

Agenda

I. Introductions: Kim, Steve, John

II. Market Conditions: Trends & Demographics

III. Health System Strategies

IV. Financial and Development Implications

V. Physician/Community Alignment

VI. Summary: Lessons Learned

2

Sources Used: AHA, HFMA, Bank of America, Healthleaders

Section II

Market Conditions:

Trends & Demographics

3

Why the Free-standing Emergency Department?

Market Competition

Haves/Have nots

If you build it . . .

Physician alignment4

Internal ‘Market’: Hospital/System External ‘Market’: Public/People/Users

Shorter patient wait times

Greater access to care/different care provided

Reduction of hospital overcrowding

Ambulance Diversion

Revenue diversity/growth

Patient/customer satisfaction

Capital constraint at inpatient acute care

facilities/health system

Physical cost/challenge of ED expansion/

renovations

Physician alignment strategies

Greater access to care

Expansion of brand and market share in

growing suburbs

“Outmigration of care” trend

Revenue diversity/growth

Patient/customer satisfaction

Competition from Retail Clinics

Brand or Hospital Loyalty

Physician alignment strategies

Visit Increase, Provider Decline: The ED Paradox

5

Emergency Department Visits and Emergency Departments(1) in Community Hospitals

1991 – 2007

3,500

3,700

3,900

4,100

4,300

4,500

4,700

4,900

5,100

5,300

80

85

90

95

100

105

110

115

120

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07

Em

erg

ency D

epart

ments

Num

ber

of

ED

Vis

its (M

illio

ns)

ED Visits Emergency Departments

Source: (1) Avalere Health analysis of American Hospital Association Annual Survey data, 2007, for community hospitals.

(2) Thomson Reuters

*2007-2009 saw 12% increase in ED Utilization; virtually no growth in hospital-based

physician visits. (2)

The Outmigration of Care

6

•Outpatient related services continue to grow as the baby boomers age

•Predicted 30% growth of retail clinics from 2012-2014

•60% growth of hospital participation in retail clinics since 2008

•55% of hospital executives to maintain or grow OP services to meet continued

consumer demands -

•Outpatient related services generate higher EBITDA margin than in-

patient . . . 10-35% higher (dependent upon procedure/service)

•However, hospital profits erode if the OP and IP services are operating

in „Silos‟ . . . .

Sources: HFMA, Future of Healthcare Finance, January 2010

Section III

Health System Strategies

7

St. Vincent’s Objectives

Capital Preservation

Further implementation of interstate locations strategy

Expand presence in Hamilton County

Maintain and grow market share in a rapidly expanding suburb

Achieve “first to market” status at Exit 10

Develop first free standing emergency department in Indiana

Off Balance Sheet

“Test the water” for future acute care setting

Physician alignment: JV in real estate and ancillaries

8

St. Vincent Northeast Medical Center: A Case Study

9

St. Vincent Medical Center Northeast - Highlights

10

Total Square Feet 120,000 rsf

Number of Floors 3

St. Vincent Pre-Lease 85,000 rsf (71%)

Primary Uses ED, Imaging, ASC

Secondary Uses Pediatrics, Breast Center, Stress Center, Sleep

Lab, PT, Women‟s boutique

Total Project Cost (DSM) $31,695,259 (Core/Shell, Standard and Above

Standard TI ($264.13/rsf)

Fully Developed Campus Plan

11

Location Map- St. Vincent Medical Center Northeast

12

St. Vincent Medical

Center Northeast

Methodist Hospital

Riverview Hospital

Community Hospital

Community Hospital

St. Vincent Carmel

St. Vincent

TriHealth Ambulatory Strategy

Provide convenient, accessible services in strategic locations throughout the community

Provide readings of images and diagnostic tests by the same experienced professionals located in our hospitals

Provide accessibility of images (records) electronically linked with our hospitals and physician offices

Meet acceptable profitability targets as an independent line of business

Maintain or increase market share for both inpatient and outpatient business units

Create appropriate strategies to compete in this competitive environment

Clinical Program Objectives for Western Ridge

Hospital Services

Emergency Department

Services similar to any hospital

Emergency Room Physicians (24/7)

ED nursing team same as any TriHealth hospital

Helipad for emergency out-going situations

Comprehensive Imaging

X-ray

Computed tomography (CT)

Ultrasound

DEXA scan

Mammography

MRI space for future implementation

Laboratory Services (24/7)

Other Services Including

EKG

Pulse Ox checks

Halter Monitor

Good Samaritan Medical Center – Western Ridge Highlights

Total Square Feet 50,000 rsf

Number of Floors 2

Pre-Lease 45,000 rsf (90%)

Primary Uses ED, Imaging, Lab

Secondary Uses Physicians – Internal Medicine, Pediatrics, Specialty

Total Project Cost $_~$11,000,000 (Core/Shell, Standard and Above Standard TI ($220/rsf)

Development slide

GSH Dependence48%of GSH IP Volume

comes from the west

side markets (2006)

Section IV

Financial & Development

Hurdles

20

Hurdles/Issues

Access to capital

– General constraint and competition (IP needs; Physician employment; etc)

– Off-Balance Sheet scrutiny

– General development costs – infrastructure complications, site complications

Competitor(s) expansion or new construction into same submarket

Convincing physician groups to expand practices in this market

Regulatory/CMS hurdles

21

Capital Challenges

22

Percent of Hospitals Reducing Expenditures on Capital Projects because of the Capital Crisis

Beginning Early in 2008

Source: AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring of Impact on Hospitals.

Capital Challenges

23

Percent of Hospitals Reporting an Increase in the Degree to which Physicians are Seeking

Financial Support from Hospitals Since Economic Conditions Began to Deteriorate in

September 2008

Source: AHA. (March 2009). Rapid Response Survey, The Economic Crisis: Ongoing Monitoring of Impact on Hospitals.

Percent of

overall

citing type

of support

sought

BremnerDuke Roles

24

Equity Source for Client Provide all necessary project capital

Site Selection & Expertise Use market knowledge and experience to secure ideal site with

high visibility without paying a premium

Site Planning/Site Challenges Lead evaluation on site utilization for medical uses and dynamic

infrastructure problems and site control issues.

Maximize public Incentives Use land development experience to maximize incentives from

county and town

TIF Guarantee Use Duke balance sheet strength to guarantee TIF bonds

Deal Structure Achieve off balance sheet treatment for St. Vincent without

taking significant lease-up risk. *Creativity for joint ownership

Leasing Assisted St. Vincent in communicating the vision for the facility

to prospective physician groups and evaluated prospective

interest to right size the building

Construction Manager Coordinated fast-track design and cost estimating

Section VI

Summary: Lessons Learned

25

Timing Is EverythingED

MOB

Development Timeline & Expertise

Cross Train the Staff

Staff Minimally

26

Hospital/Physician Alignment & Capital Creativity

Hospital shared facility ownership

Physician shared facility ownership

Community Alignment

Expanded healthcare services in respective communities

Clinical differentiation from Urgent Care & Providing more convenient care to current patient base

Clarify/Definition for EMS providers

Likelihood of Acute Care beds in near future

TIF growth: commercial development