Strategic Planning Clinical Programs

1. Strategic Planning Clinical Programs School of Medicine Retreat January 30, 2004

2. Mission Statement “We promote the health of our patients and our community and advance the frontiers of clinical medicine”

3. Clinical Service Accomplishments • 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

4. Key Financial Features of FY ’03 for Faculty • 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)

5. SHC Clinical Revenue SHC Professional Practice Revenue

6. Research is growing with clinical volume Direct Research Expenditures

7. 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.

8. SHC Inpatient Growth • 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)

9. Outpatient Growth • 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

10. Overall Practice Net Revenue

11. Capacity Issues • 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

12. 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

13. 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, nowmust create demand for its services, by providing unique services and a small base of primary care physicians

14. Stanford’s changing position in the regional health care market • 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

15. 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.

16. How are we going to succeed? • 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

17. 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

18. Aligning Goals in SOM and SHC • 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.

19. Departmental Collaboration: Creation of Centers • 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

20. The Example of the Vascular Center • 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.

21. Making translation a reality • 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 Diseases CriticalCare • Imaging: Molecular Imaging Cardiac MRI/MRA • Devices: Cardiovascular diseases Orthopedics

22. Other Key Challenges • 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?

23. Goals for 2004 • 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

24. The Future of SHC • 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

25. Inpatient Clinical Volume FY’02

26. SHC Patient Origin 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. 140 (1%) 170 (1%) 140 (1%) 260 (1%) 90 (<1%) 360 (2%) 280 (1%) 1,660 (8%) 200 (1%) 5,710 (28%) 7,050 (34%) 310 (2%) 550 (3%) 190 (1%) 120 (1%) 950 (5%) 130 (1%) 190 (1%) Source: SUMC TSI, September 2000 – April 2001 (8 months annualized). (1) Santa Clara, San Mateo, Alameda, Monterey, and Santa Cruz.

27. 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