Vol. 1. No. 5

I appreciated, and believed, what they said. In the late sixties this community blazed a trail that others would not take for decades when they brought about the merger of a Protestant and a Catholic hospital. Since then there have been hundreds of hospital mergers or acquisitions; this was one of the first. I learned that much has changed at MMSC over 25 years, but certain important things had remained constant.

This visit, along with recollections of my experience as a hospital/health system CEO since Dad's retirement, prompted me to reflect on the following questions: "How have hospitals and health care changed during the past quarter century? .... Have there been any constants or unchanging paradigms during that time? .... What lessons can we learn from this?" I will offer my perspective on these questions within the context of several themes in this and subsequent issues.

SIZE DOES MATTER

We've learned that size does matter. But bigger isn't always better. Individual hospitals and small systems have gained buying power, leverage and economies of scale through organizations like VHA and Premier; likewise, the aggregation of Catholic systems. In major markets like Chicago (Advocate), Dallas-Ft. Worth (Texas Health Resources), Boston (Partners) and New York (Mt. Sinai-NYU) these freestanding power-houses have come together, submerging, at least to some degree, their prior prominent identities. On the other hand, some merged organizations in San Francisco, Philadelphia, Manchester, NH and Detroit have fallen on hard times or have been dissolved. I am among the minority who

believe that Columbia's national branding campaign was not entirely wrong. But in some markets, like Chicago and Corpus Christi, their acquisitions caused some observers to say, "You can't put four KMarts together and produce a Bloomingdale's?'

Is there a constant theme? Clearly, essential ingredients include commitment to a common mission and vision, an objectively and thoroughly crafted business plan, and the courage and tenacity to execute. Or, as George Caidwell, then CEO of Lutheran General System, once told me, "It's not what you do, but who you do it with ."

THAT'S OK. IT'S REIMBURSABLE

Some of our younger colleagues will not recall heating that mantra of the 70s and early 80s, usually intoned by those who were advocating the acquisition of an expensive piece of equipment for which there might not have been a solid business case, but "which Medicare will reimburse care." For one radiologist colleague that phrase ranked right up there with "if your mother were the patient." That began to change in 1983 with Medicare's prospective payment system - DRGs. But in the meantime, these perverse cost reimbursement incentives helped create excess capacity that is not easy to eliminate, even with painful budget reductions, mergers, downsizing, punitive governmental reimbursement policies, and the selective provider contracting and medical management practiced by the managed care organizations.

In this instance, a new paradigm has evolved. While the declining cost of many technologies like CT scanners makes them more "affordable," executives and governing boards are making tough-minded business decisions, looking at return on investment (ROI) models similar to those employed in the general business world.

As resources become more constrained, precious capital must be conserved for new business ventures, market needs must be considered (and not just the needs of the providers), and objective business analysis used for deciding where to deploy the capital. I will discuss other ramifications of this change in reimbursement in addressing other themes in upcoming issues.

I hope that these observations are helpful in putting the last 25 years in perspective and in provoking a little debate. We welcome your opinions. Through such an exchange we hope to sharpen our collective understanding of events and trends, enabling us to condition our thinking and position our organizations for the changes that lie ahead.

About the author: David Buchmueller has over thirty years combined experience as a CEO of, and consultant to hospitals and health systems. David brings his expertise in operational, systems and personnel management to SMG clients.