Time Magazine ran an article in the summer of 1954 entitled, “Diversification: The New Magic Word in Industry.”
The first line reads, “Grow or die is the chief axiom of U.S. businessmen.”
This mentality is dubbed the “growth mental model” by University of Virginia business administration professor Edward Hess in his book “Smart Growth.” Hess describes two mindsets of this model as businesses must continuously grow or they will die, and growth is always good.
Thus, expansion, growth, diversification is commonly sought in business.
Pagosa Springs Medical Center is no exception to this model.
“The hospital has grown bigger and faster than some people imagined it could,” said CEO Brad Cochennet.
At the onset of its creation, directors of the Upper San Juan Health Service District (USJHSD) primarily wanted to provide a strong primary care facility and 24/7 emergency care.
According to board member Dr. James Knoll III, that is still the emphasis. Providing this in a small, rural community, however, has had to be done in a roundabout way.
The first step in keeping the primary care, emergency and urgent care facilities was to obtain government aid. With attachment of both the ER and the primary care facilities to a Critical Access Hospital, the government, through Medicare and Medicaid, reimburses the CAH 101 percent. This allows the healthcare facilities to continue to operate at a “survival” level — making enough to keep operating, but not making a very large profit.
“It’s nothing to generate profit. The thing is just surviving,” said Knoll.
Knoll explained that emergency room facilities, the most expensive for patients to use, generate the least money. In fact, more often than not, Knoll says, they lose money. Primary care facilities also do not generate much money.
This has been fine for the past few years, but now the PSMC has reached a critical juncture.
”The Rural Health Clinic is at capacity,” said Cochennet. The last two office spaces are in the process of being converted to closed exam rooms to make a total of 12 exam rooms and one procedure room. The room the doctors use, all six of them, is an old X-ray room. A training room has been converted to house an office for three billers, a conference room table and a kitchen. Since the arrival of the new general surgeon, Dr. David Shaeffer, a storage room has been converted to an exam room to allow him to see people.
The current problem is funding expansion government reimbursement won’t allow for. There could be a proposal for another mill levy, but Knoll said the board doesn’t want to ask any more of taxpayers.
So, the Pagosa Springs Medical Clinic is using the 1954 magic word: diversification.
Diversifying, with specialists.
The first phase was the gastroenterologist experiment. Dr. Rick Zak from Chico, Calif., started coming to the facility three days per week for six weeks to perform colonoscopies. The experiment was a success.
Now, the hospital is moving into the realm of general surgery, as well as purchasing a new CT scanner. Will adding surgery bring in more money and thus help stabilize the medical facility?
Cochennet’s prediction for the next months: the hospital will have made or exceeded all the patient appointments for both the surgery and CT scanner business plan. The goal Cochennet wants the hospital to reach is for the hospital to have paid for itself and to even be independent of revenue from taxpayers.
However, there are skeptics whose concern is that each addition and project is not a step toward independence from government funding but of dependence.
“This is a community hospital, not private or for-profit,” said hospital board member Michelle Visel. “It is my job to protect the taxpayers.”
Visel was the only board member to vote against the addition of general surgery services at the hospital. Her reasoning was multi-leveled: one point stemming from her fiscal conservatism, another from the fact that the general surgery option deviates from the setup in the district’s strategic plan.
“Surgery was not at the top of the strategic plan list, but it was one of the first implemented,” Visel said.
Knoll, on the other hand, thinks the diversification is a risk worth taking. “We have to take some risk,” he said. He compares the healthcare business with any sales business, but unlike a shoe store, which can order more shoes and sell them, a healthcare facility has to expand its services.
Primary care and ER, however, will remain the core. The additional services, in Knoll’s mind, are ancillary attachments, which can be broken off and allow the facility to survive.
Other parties involved have no concern that the money spent is not a solid investment. Bob Scott, member of the USJHD finance committee, said he is comfortable with the speed of growth “as long as it’s part of a strategic plan that is predicated on a sustainable business model.”
So far, Scott believes the, “growth is strategic, financially viable and increases both the survivability and sustainability of the entity.”
As far as physical expansion, such as adding additional exam rooms to the clinic, the board is in agreement that it is a necessity.
Cochennet said the PSMC has sent out a request for proposal to five different architectural firms to create a three- to five-year master facilities plan. The plan is to be comprehensive and forward looking, including possible expansion of the hospital as well as the clinic. This means that the plan could include space for mammography and bone density services.
Cochennet estimated that within 120 days PSMC should have a master facilities plan in hand.
How the expansions will be paid for, whether by donation, the increase in revenue from surgery and CT scans, or by the taxpayers, is still a question with which the hospital board must grapple.
The 1954 Time magazine article ends with the lines, “Hundreds of corporations once rose or fell with the sales of one product — and helped pull other companies down with them. Now these companies have gone a long way to balance the drop in one product with a rise in another.”
The question remains, though, how sound is this theory and does it apply to community healthcare facilities?
The USJHSD board and administration are looking for a balance, an ebb and flow that will likely be constantly sought.