A successful multi-hospital system, located entirely in a highly competitive state with no certificate of need (CON) requirements, had initiated a suit against a national hospital management company to recover damages resulting from the management company’s gross negligence. Under the prior contract manager’s supervision, the system’s financial condition had dramatically deteriorated and the system was unable to gain access to long term debt financing to fund a planned hospital expansion in an important and rapidly growing market. As a result, the hospital lost key physician practices and market share to a large, nearby competitor. HMP was engaged to determine the precise amount of operating profits lost as a direct result of the management company’s failure to perform.
Issues
- The effects of the market shift and patient migration due to the resulting lack of capacity at the hospital in question had to be quantified
- Marginal cost that would have been associated with the lost volume also had to be determined
- The physicians involved required political sensitivity
Approach
- Using publicly available data sources, HMP built a database of all inpatient admissions for the entire state for the relevant six-year period
- Using this database, HMP was able to determine actual patient admission patterns by hospital, physician, payor and DRG
- Each physician on staff whose admitting patterns were documented to have changed during the relevant period was interviewed by an HMP Managing Director with extensive experience as a hospital CEO to confirm the specific reasons for the change in referral patterns, which were then documented
- HMP developed a statistical model to establish the mathematical relationship between individual physician’s inpatient utilization and outpatient utilization
- The documented lost inpatient and outpatient volumes by payor were input into HMP’s Hospital Operating Model to determine an accurate assessment of lost net patient revenue, marginal cost, and marginal profit for the relevant six-year historical period, as well as projected losses for an additional four years
Results
- The client secured an eight–figure settlement in compensation for lost operating profits