Week 2 Project – Strategic Management

2 to 4 pages 

Week 2 Project

 

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Open Heart Surgery

For this assignment, read 

Case 19: The Case for Open Heart Surgery at Cabarrus Memorial Hospital

· Why is the hospital considering this additional service?

· Does the hospital and community really need this service? Why or why not?

· What should be the most important characteristics of a hospital in which one would want to have an open heart surgery?

· Is it financially viable for a hospital to offer this service? What costs and revenues would you predict to know the viability? Would any revenues cover the costs of offering this service?

In addition to the above, state any three instances that could go wrong if this service is offered.

Support your responses with examples in a 2-4 page APA formatted Word Document. Include an introduction and conclusion. Cite any sources in APA format.

C A S E

The Case for Open

Heart Surgery

at Cabarrus

Memorial Hospital

Situation

It was a clear, crisp October morning in Concord, North Carolina.
The board of trustees of Cabarrus Memorial Hospital gathered in
the windowless, walnut paneled boardroom for its monthly meet-
ing (see Exhibit 19/1 for board members). Board chairman George
Batte opened the meeting saying, “Because we do not have an
open heart surgery program, patients needing open heart surgery
or coronary angioplasty have to be transferred to another hospi-
tal, causing inconvenience to the patient’s families and risks from
delayed treatment. There are several questions we have to answer in
addressing this issue. Should we add open heart surgery to the mix
of cardiac services we offer? Does the hospital’s existing service area
provide adequate patient volumes to support the program? What

This case was written by Fred H. Campbell, The University of North Carolina at
Charlotte, and Darise D. Caldwell, Executive Vice President and Chief Operating
Officer, Northeast Medical Center. It is intended as a basis for classroom discussion
rather than to illustrate either effective or ineffective handling of an administrative
situation. Used with permission from Fred Campbell.

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role should the Duke University Medical Center play in the proposed program? Will
we be able to obtain the required certificate of need [CON] from the State of North
Carolina’s Department of Health and Human Services? Will there be opposition
to the CON from surrounding hospitals? What costs are likely to be incurred in
the required renovation, construction, medical equipment, and staffing?”

He continued, “As you all know, one of the factors pressing a quick decision
is the desire of Dr. R. S. “Chris” Christy to return to the staff of the hospital after
completing his fellowship in cardiovascular surgery. He is being heavily recruited
by other medical centers.”

Mr. Batte then asked Bob Wall, president of Cabarrus Memorial Hospital
(CMH), to address the board on the issue. Mr. Wall said, “As we all know, our
cardiac catheterization service is run by a Duke Medical Center physician. Our
intent has been for the surgical portion of the heart program to be provided
by Duke. Dr. Christy is completing a heart surgery residency through the Sanger
Clinic and wants to return to Concord to practice. Needless to say, we face a
dilemma and there are very different points of view in our medical staff as to the
structure and relationship involved in developing a full-fledged heart program
at CMH. I bring this to your attention now because Dr. Christy has to make a
career choice before January 1st.”

Trustee Batte reminded everyone, “Dr. Christy grew up in our community and
worked part-time in the hospital while in high school and college. After medi-
cal school and a residency in general surgery, he practiced here at CMH prior
to leaving to complete his fellowship in cardiovascular surgery. Dr. Christy was
very popular among the staff and patients and I, for one, very much want to see
him return.” (See Exhibit 19/2 for Dr. Christy’s biography.)

The board had to make its decision about the future of the cardiac program at
CMH before offering Dr. Christy a position; however, it was clear that Dr. Christy
could not wait too much longer to be offered a position by CMH. He had received
multiple offers but, if he delayed, the offers might be withdrawn.

History of Cabarrus Memorial Hospital

The General Assembly of North Carolina passed legislation in 1935 that enabled
Cabarrus County to establish a public hospital. Through the guidance of
Mr. Charles A. Cannon, owner of Cannon Mills, the area’s largest employer, and

Exhibit 19/1: CMH Board of Trustees

Mr. George A. Batte, Jr., Chairman (Retired Manufacturing Executive)
Mr. L. D. Coltrane, III, Vice Chairman (Telephone Company President)
Mr. Robert L. Wall (President, Cabarrus Memorial Hospital)
Mr. Dan Gray, Secretary (Executive Director, Charitable Foundation)
Mr. Durwood Bost, CPA (Retired Manufacturing Executive)
Mr. S. W. Colerider, Jr. (Retired Manufacturing Executive)
Mr. Gene Verble (Merchant and Retired Major League Baseball Player)
Mrs. Margaret C. West (Civic Leader)

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other community leaders, Cabarrus Memorial Hospital was established and opened
for patients on July 26, 1937. The original facility had 50 inpatient beds and a staff
of 19 employees. The first addition of 100 beds was completed in 1940. A second
addition opened in 1951 and brought the total bed capacity to 339. A construction
and renovation program, started in 1969, expanded the total licensed capacity to
350 acute care beds and 30 bassinets. The adult bed capacity was increased to
457 beds through a 1982 construction project that modernized and consolidated
many of the hospital’s services.

Duke Medical Center – CMH Affiliation

CMH had several educational affiliation programs and extensive in-service and
continuing education programs, including a unique teaching arrangement with
Duke University Medical Center. The formal affiliation with Duke included regular
sessions on general and specialty medical topics and patient-directed teaching
conferences used as an additional education tool (see Exhibit 19/3). This Duke
affiliation had begun to seed many specialists at CMH, including a cardiologist,
whose practice was rapidly growing.

CMH was a modern, well-equipped facility. Mr. Cannon, as owner of the large
Cannon Mills, had wanted the thousands of Cannon Mills’ employees to have the
very best health care. His generosity and interest in the hospital had made the Duke
affiliation possible. It has been said that he carried the hospital on the mill’s books
as “plant 13.” Certainly his philanthropy had in fact made it a much more advanced
medical center than those in other communities the size of Cabarrus County.

The Cardiac Program at CMH

For several years, Cabarrus Memorial Hospital had increased the availability
of diagnostic and therapeutic cardiovascular services to the community. CMH
had as members of the active medical staff one invasive cardiologist and three

Exhibit 19/2: Dr. R. S. “Chris” Christy

Ralph S. “Chris” Christy was born July 26, 1957 at Cabarrus Memorial Hospital. He was one of two
children born to Steve and Rachel Christy, hardworking owners of Christy’s Nursery in Concord. Chris
was educated in the Cabarrus County School system and played football for NorthWest Cabarrus
High School. He married Kay Moore, also from Concord, in 1977 and together they embarked on the
adventure of Chris becoming a physician. Chris graduated from Davidson College with a BS and
the University of North Carolina at Chapel Hill with a medical degree. He then attended a surgical
residency program at Memorial Medical Center in Savannah. After his residency, Chris returned
to Concord and joined the surgical practice of Flowe, Crooke and Chalfant. Two years later, Chris
entered the Cardio-Thoracic and Vascular Fellowship program at Carolinas Medical Center in Charlotte,
North Carolina. Under the tutelage of Dr. Frances Robicsek, a well-known and respected pioneer in
open-heart surgery, Dr. Christy developed the expert cardiac surgery skills that he wanted to bring
to Cabarrus Memorial Hospital.

T H E C A R D I A C P R O G R A M AT C M H

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Exhibit 19/3: Cabarrus Memorial Hospital – Duke University Medical Center Education
Affiliation

As early as 1966, the United States government launched a series of planning grants for regional
medical programs for heart, cancer, and stroke patients. Under this federal proposal Cabarrus Memorial
Hospital was to be affiliated with Duke University Medical Center. The Duke – CMH program began in
1968 with Duke faculty members leading training sessions for CMH’s doctors and nurses at Salisbury’s
Rowan Technical Institute.

Dr. George Engstrom recalled, “CMH medical staff wanted a more direct educational affiliation
with Duke. Dr. Ladd Hamrick, CMH internist, talked with Dr. Eugene Stead at Duke and a stronger
affiliation was proposed. After the discussions with Duke, CMH president Wall, Dr. Bob Hammonds,
and Dr. Hamrick took the proposal for the expanded educational affiliation proposals to George
Batte, chairman of CMH board’s executive committee.” Dr. Engstrom continued, “They presented the
program in 15 minutes and Mr. Batte’s response was, ‘Do you think it will work?’ The answer was
‘yes’ and his response was, ‘I think we can get the money . . .’ The critical funding for the program
came from The Cannon Foundation through the leadership of Mr. Batte.”

As Dr. Hamrick said, “The affiliation forged in 1972 became ‘a powerhouse.’” The successful
Duke –Cabarrus liaison was to become a model program for other health centers, for it brought not
only Duke medical specialists to CMH, but also spurred seminars, classes, and studies with other
nationally recognized physicians and researchers.

The basic agreement was that fellows “from five of Duke’s divisions of internal medicine began to
travel for two 48-hour periods per month to function as educational consultants to the general internists.”
Actually, Duke faculty members from other departments began to travel to Cabarrus. The affiliation
required that patient contact with Duke physicians be educational for Cabarrus doctors. The Cabarrus
activities were to include consultations on educational matters, presenting conferences, reviewing clinical
studies, assisting in surgery, and teaching new or different procedures and techniques, among others.

In 1973, Dr. Galen Wagner of Duke’s Cardiology faculty, was appointed Department of Medicine
coordinator. In 1974, Dr. Tom Long of Duke’s gastroenterology faculty was named Cabarrus-based
coordinator for the Department of Medicine. He ultimately moved to Cabarrus County where he con-
tinued his medical practice and affiliation work.

Under the affiliation, visiting medical professors from such highly regarded universities as Harvard,
Stanford, Vanderbilt, University of Pittsburgh, and even medical leaders from foreign countries, came
to teach and consult at Cabarrus Memorial Hospital.

According to Dr. Long, “By 1992 there had been 14,703 Duke visits to Cabarrus; 55,826 clinical
consultations; 7,636 physicians conferences; and 77,792 continuing medical education hours credited
to CMH physicians.” He further noted the many benefits to CMH: “Cabarrus doctors received con-
tinuing education through Duke conferences; quality physicians were attracted to the community;
conferences between Duke and Cabarrus doctors about patients were free; medical expertise and
new skills were provided; doctor interest in sophisticated patient care was maintained; and new
‘cutting edge’ technology was developed.”

internists that specialized in treatment of heart diseases. A second invasive
cardiologist and another noninvasive cardiologist were expected to join the staff
in the next year. Dr. Christy would potentially become the first cardiovascular
surgeon on the staff if the board elected to proceed and was successful in receiv-
ing the CON.

The scope of the CMH cardiology services included an emergency room staffed
and equipped for treatment of cardiac emergencies, an eight-bed coronary care
unit, cardiac catheterization, and cardiac rehabilitation. (See Exhibit 19/4 for a

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glossary of related medical terms.) In addition, the hospital had capabilities
for numerous cardiovascular diagnostic and therapeutic services. Electro-
diagnostic services included electrocardiograms, cardiac Doppler studies, echo
EKGs, exercise EKG studies, and Holter monitoring. The magnetic resonance imag-
ing (MRI) unit had cardiac imaging capabilities. The nuclear medicine department
had equipment for nuclear cardiac and thallium scanning. Temporary and perma-
nent pacemaker insertions, thrombolytic therapy through streptokinase and TPA
infusions, and Swan Ganz catheter insertions were examples of the hospital’s
treatment capabilities.

The new program being considered would include one open heart surgical suite
for adult procedures, with the capacity for 400 procedures per year. Angioplasty
would be offered in the existing cardiac catheterization laboratory. It was
projected that by the end of the third year, three dedicated cardiac surgical ICU
beds and seven telemetry beds would be required to support the open heart

Exhibit 19/4: Glossary

Angioplasty – The insertion of a catheter into the coronary arteries including inflation of a balloon
to squeeze coronary artery plaque formation to decrease blockages

Cardiac Doppler Studies – An imaging study of the heart using ultrasound that involved measure-
ment of pressures in different chambers of the heart, also used to evaluate the valves of the
heart

Cardiologist – A physician who attained fellowship training in diseases of the heart and cardio-
vascular system

Certificate of Need (CON) – Authorization by the State of North Carolina, Department of Health
and Human Services, Division of Facility Services to proceed with expenditures for new health
facility/equipment

Echocardiography – Diagnostic heart study using ultrasound technology to demonstrate the physical
functioning of the heart

Electrocardiogram (EKG) – A trace of the electrical currents that initiated the heartbeat; used to
diagnose possible heart disorders

Epidemiology – The study of the health and diseases of populations
Exercise EKG – An electrocardiogram performed when the patient was exercising, usually on a

treadmill
Holter Monitor – A diagnostic tool that utilized an extended wearing of an electrocardiogram mon-

itor with which the patient transmitted events telephonically
Intensive Care Unit (ICU) – A specialized patient care unit within a hospital utilized by patients who

required constant, high level of care
Invasive Cardiologist – A cardiologist who performed invasive procedures such as angioplasty
Noninvasive Cardiologist – A cardiologist who specialized in medical treatment of heart disease rather

than performing invasive procedures
Nuclear Medicine – A field of diagnostic imaging that utilized nucleotide particles injected into the

patient, then evaluated with a nuclear camera to produce an image
Swan Ganz Catheter – A pressure catheter that was inserted into the right side of the heart to

measure the performance of the heart
Telemetry – The monitoring of the conduction patterns of the heart through radio wave transmission

from a remote area to a central location
Thrombolytic Therapy – The use of “clot dissolving” drugs to open blocked arteries

T H E C A R D I A C P R O G R A M AT C M H

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surgery program. Existing space would need to be renovated to accommodate
the various service components.

The additional cardiac service being considered would provide patients of
CMH with a full-service cardiology program consistent with programs available
at other community hospitals and with service areas comparable in size to the
CMH service area. The programs and large expenditures would assure continuity
of care for patients who received initial cardiac care at CMH. If the board decided
not to commit to expanding the cardiac program, CMH patients needing open
heart surgery or coronary angioplasty would continue to be transferred to another
hospital in the region, such as Duke.

Decision Factors

A major part of the board of trustees’ consideration was whether or not there
existed a large enough service area to sufficiently support open heart surgery
and the expansion of the existing cardiac services. They wanted to know what
population threshold would be required. Did they have enough population in the
hospital’s existing service area? The trustees, in making their expansion decision,
looked at a number of factors. They included: (1) the primary and secondary service
areas based on historical data; (2) population growth; (3) population epidemiology;
(4) availability of existing open heart surgery medical centers; (5) accessibility
to cardiac surgery programs; (6) continuity of cardiology care; and (7) rate of
demand for open heart surgery. The hospital’s planning staff, directed by vice
president Glenn Reed, provided data on each of the areas.

1. Primary and Secondary Service Areas

To determine the service area for the proposed heart program expansion, the
existing service area for the hospital was identified by examining the hospital’s
patient database and noting the patients’ residential addresses, particularly zip
codes. Second, they mapped this service area and evaluated the road and trans-
portation network, travel times, and other hospitals in the region. (See Exhibits
19/5 and 19/6.)

In board discussions, president Wall advised the trustees that hospital plan-
ners had looked at patient origins for an existing tertiary program – radiation
oncology. This study showed that its major source of patients had been Concord
and Kannapolis, with the remainder widely spread over 23 other communities.
Mr. Wall asked, “Does this give us reason to believe we can expect referrals to
CMH for open heart surgery to come from a wider service area than the hos-
pital average?” (See Exhibits 19/7 and 19/8.)

To further look at the question of patient origins, CMH studied zip code
origins for its cardiac catheterization patients. Again, a large number of patients
had Concord and Kannapolis zip codes and generally reflected patient origins

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Exhibit 19/5 Cabarrus Memorial Hospital Patient Origin

County % Patient Origin

Cabarrus 80.

1

Rowan 9.4
Stanly 7.2
Other 3.

3

TOTAL 100.0

Note: “Other” includes Union, Mecklenburg, Davie, Davidson, Iredell, and Lincoln counties.

Source: Hospital Patient Origin Report (North Carolina Medical Database Commission).

R O W A N

C A B A R R U S

S T A N L Y

M E C K L E N B U R G

U N I O N

Charlotte

Salisbury

Concord

Monroe

Albemarle

Kannapolis

Mooresville

3
9
6
1
7
8

*

*
*

**
*

*4

*

29

*
5

49

2 29

601

601

77

601

85

85

I R E D E L L

Exhibit 19/6: Map of CMH Service Area

Key: 1. Cabarrus Memorial Hospital
2. Rowan Memorial Hospital
3. Stanly Memorial Hospital
4. Union Memorial Hospital
5. University Memorial Hospital
6. Mercy Hospital
7. Presbyterian Hospital
8. Carolinas Medical Center
9. Lowrance Hospital

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similar to those of the radiation oncology program. Again the board wondered if
this indicated the open heart program would draw patients from a service area
that would include parts or all of six counties: Cabarrus, Rowan, Stanly, Union,
Iredell, and Mecklenburg. The outside boundaries of these counties are within
60 miles of Concord, the site of CMH.

Mr. Wall questioned, “What would further analysis of the historical data lead
planners to conclude about the program’s primary service area? Could it serve as
much as 70 percent of Cabarrus and a third of Rowan County? Would the second-
ary service area include parts of Stanly, Union, Mecklenburg, and Iredell Counties?
What percentage of the population in those counties lived within 40 miles of CMH?
Would this comprise a secondary service area large enough?”

A major demographic factor driving the perceived demand for open heart
surgery at CMH was population growth. According to the Government and
Business Services Branch of the State Library of North Carolina, total population
for these six counties was expected to increase 18.3 percent over the next ten years.
Therefore, even if open heart surgery usage rates remained constant each year,
counties in this service area could have expected at least 18 percent more open
heart surgery cases over the ten year period. (See Exhibit 19/9.)

2. Growth of At-Risk Population

A second major demographic factor driving the demand for open heart sur-
gery was growth of the at-risk population. According to projections from the
recent census, the number of people aged 45 to 64, the population most likely to

Exhibit 19/8: Proposed CMH Open Heart Service Population

County Population Market

Cabarrus 69,255 70.0
Rowan 40,813 36.9
Stanly 7,661 14.8
Union 1,516 1.8
Mecklenburg 1,534 0.3
Iredell 651 0.7

Exhibit 19/7: CMH Patient Origin (%) Previous Year

County Radiation Oncology Heart Catheterization

Cabarrus 57.4 59.3
Rowan 16.0 30.4
Stanly 19.7 7.3
Other 6.9 3.0

TOTAL 100.0 100.0

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suffer occlusive coronary artery disease, was predicted to grow by 38.3 percent
in the next ten years, a rate more than twice that of the general population. (See
Exhibit 19/10.)

3. Population Epidemiology

Based on the latest available data, all the proposed service area counties, with the
exception of Union and Mecklenburg, had evidence of a heart disease mortality
rate higher than that of the state as a whole (see Exhibit 19/11). According to
the data that had been recently reported by the North Carolina Database
Commission, open heart surgery usage rates in Cabarrus County were higher
than that of the entire state. The previous year North Carolina had experienced a
procedure rate of 1.39 per 1,000 population.

4. Availability of Existing Services for Patients in CMH
Service Area

North Carolina had 16 open heart surgery programs located in 11 counties.
None of these programs was in the proposed CMH primary service area. Those
closest to the CMH service area were located in Charlotte. They were Mercy

Exhibit 19/9: Ten-Year Projection: Service Area Population Growth

County Year 1 Year 2 Change (%)

Cabarrus 98,935 112,802 14.0
Rowan 110,605 122,268 10.5
Stanly 51,765 55,185 6.6
Union 84,211 99,644 18.3
Mecklenburg 511,433 630,005 23.2
Iredell 92,931 103,820 11.7

TOTAL 949,880 1,123,724 18.3

Exhibit 19/10: Growth of At-Risk Population: Aged 45 to 64

Previous Year 10 years Change (%)

Cabarrus 20,419 26,797 31.2
Rowan 22,729 28,348 24.7
Stanly 10,691 12,761 19.4
Union 16,458 23,290 41.5
Mecklenburg 91,747 135,154 47.3
Iredell 19,950 25,504 27.8

TOTAL 181,994 251,854 38.4

D E C I S I O N F A C T O R S

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Hospital, Presbyterian Hospital, and Carolinas Medical Center, all located about
25 miles from CMH.

Only one of the state’s 16 programs had claimed Cabarrus County in its primary
service area. That claim had been made eight years earlier by Carolinas Medical
Center when it opened its service. Since that time, Carolinas Medical Center had
drawn only 5.6 percent of its patients from Cabarrus County, suggesting to the
CMH board that Cabarrus patient volumes at Carolinas Medical Center did not
warrant being included in Carolinas Medical Center’s primary service area.

The three Charlotte programs had reported previous year operating room uti-
lization for cardiac surgery as follows: Mercy Hospital, 36.3 percent; Presbyterian
Hospital, 78.5 percent; and Carolinas Medical Center, 84.5 percent. Procedure
volume had increased yearly at both Presbyterian and Carolinas Medical Center.
Presbyterian, with its two open heart surgery suites operating at 78.5 percent of
nominal capacity, apparently needed its operating rooms.

Carolinas Medical Center, with its six rooms classified as combined “open heart
surgery/thoracic suites,” had submitted a CON application for an additional open
heart surgery room. However, earlier in the year, it had subsequently withdrawn
its application for a CON. For the Department of Facilities Services to award a
CON, the existing utilization rate for the cardiac surgery suite was required to
be at 80 percent or higher.

Procedure volume at Mercy Hospital had not followed a year-to-year growth
pattern. Room utilization had been well under 50 percent each year for the pre-
vious ten years. Moreover, Mercy did not appear to reach the proposed CMH
open heart service area. In the previous year only 9 percent of the 174 people
from Cabarrus County, and none from Rowan County, had received open heart
surgery at Mercy. The pattern indicated a perceived or real barrier to access at
Mercy by people in the CMH area counties. Generally, Mercy appeared to serve
a population that was more south and east of Charlotte.

5. Accessibility to Cardiac Surgery Programs

The existing open heart surgery programs in Charlotte, Winston-Salem, and
Greensboro were 25 to 60 miles from the service population. Although this seemed

Exhibit 19/11: Heart Disease Mortality Rates: Two Years Previous

County Death Rate/1,000 Population

Rowan 375.8
Cabarrus 320.7
Stanly 326.0
Union 246.5
Mecklenburg 225.0
Iredell 325.2

North Carolina 288.6

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relatively close for a one-time procedure, it was inconvenient for persons traveling
repeatedly for diagnosis, family support, and follow-up care.

“Driving to Charlotte is becoming more and more of a problem,” commented
a board member. “I am often asked why we can’t provide more care in Cabarrus
County.”

Heart patients from the CMH area had to travel to existing services along com-
binations of country roads and heavily congested traffic arteries. Travel time was
from one to two hours. Congestion and delay were expected to further increase
the time as the Charlotte metropolitan area continued to grow 3 percent per year,
a rate triple that of the state.

Moreover, to many residents of the CMH service area, Charlotte was a big
city and confusing for drivers from out of town. Its perceived distance was
farther than its actual distance because of the delays in city travel. This had
been noted with the opening of radiation oncology at CMH. Patient volumes
were much higher than expected. Surveys of patients and families cited dis-
tance, lack of transportation, and fear of the city as reasons for not having
obtained radiation treatments at distant sites that had been recommended by
their physicians.

As part of the affiliation between Duke University Medical Center and
Cabarrus Memorial hospital, two Duke open heart surgeons, Jim Lowe, MD,
and Peter Smith, MD, participated in monthly conferences at CMH and con-
sulted on patient candidates for open heart surgery. Those patient consulta-
tions became referrals to Duke when surgery was indicated. The medical staff
suggested that the patient trip of 120 miles to Duke would be eliminated if
open heart surgery of equal quality could be performed at CMH, as was being
proposed. However, it was expected that a few cases needing specialized care
would still be referred to Duke (or other medical centers) after the CMH pro-
gram was opened. Approximately 40 percent of CMH cardiac catheterization
referrals were going to Duke.

6. Continuity of Cardiology Care

Continuity of care for the cardiology patient was critical. Quality was enhanced
when patient transfers were minimized, medical and nursing staff were con-
stant, and staff and technology for diagnostic and therapeutic interventions were
maintained. To obtain the desired level of care, CMH patients were being trans-
ferred to other facilities when cardiac surgery was indicated. This transfer dis-
rupted continuity.

According to the North Carolina Database Commission, for the previous
year, 174 Cabarrus County and 118 Rowan County residents received open
heart surgery in one of the following hospitals: Duke University Medical Center,
Presbyterian Hospital, Carolinas Medical Center, NC Baptist Hospitals, and a
few others. For many of those 292 patients, a CMH-based open heart surgery
service would have avoided transfers and ensured continuity of cardiology care.
(See Exhibit 19/12.)

D E C I S I O N F A C T O R S

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The scope and comprehensiveness of cardiology services at CMH had expanded
yearly. Two years previously, CMH had initiated its cardiac catheterization pro-
gram. In the past year, the CMH program referred 117 patients to open heart
surgery and 82 to angioplasty. In addition, Rowan Memorial Hospital, located in
Salisbury (a half-hour’s drive to the north), had opened a cardiac catheterization
service and could have been considered another referral source for the proposed
CMH program. The next logical step in the continuity of cardiac care was argued
to be the open heart surgery program. Availability of open heart surgery and
angioplasty would have provided invasive options for treatment of coronary artery
disease and reduced outside referrals to a small percentage of patients. A physi-
cian board member commented, “It is time this becomes a full-service hospital.
Cabarrus County deserves it and cardiac surgery will be just the beginning.”

7. Growth in Demand

Over the previous ten years, North Carolina open heart surgery volume
had increased an average of 26 percent a year. Moreover, statistical forecasts had
predicted continued increases in use rate per 1,000 population for the next five
years. The rate of 0.43 open heart surgeries per 1,000 population ten years ago
had increased to 1.39 per 1,000. Cardiac catheterization was the major diagnostic
procedure that resulted in a recommendation for open heart surgery. Changes in
cardiac catheterization volumes were, therefore, important to predict open heart
demand at a particular location. North Carolina cardiac catheterization volume
had grown at an average annual rate of 16.2 percent over the prior nine years.
Although the rate of growth was slowing, anecdotal projections and trended fore-
casts predicted continued growth for the next five years.

The state’s cardiac catheterization to open heart procedure ratio had also
increased annually. Over the past year, the ratio had increased to 4.54 adult
catheterizations for each open heart procedure. Similar to the annual growth rate
for open heart surgery procedures, this ratio was also growing.

Exhibit 19/12: Where Cabarrus-Rowan Residents Received Open Heart Surgery: Previous
Year

Destination Hospital Cabarrus Residents Rowan Residents Total

Duke University Medical Center 28 16 44
Presbyterian Hospital 68 25 93
Mercy Hospital 9 0 9
Carolinas Medical Center 66 44 110
NC Baptist Hospitals 0 28 28
Unknown 3 5 8

TOTAL 174 118 292

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8 1 5

Financial Considerations

In addition to market demand and trend analysis, the board was faced with the
financial aspect of the decision. President Wall asked the CFO to present the financial
data. An open heart surgery program would incur a number of expenses. In addi-
tion to Dr. Christy and his surgical team, there would be a need for 23 additional
employees in year 1, growing to 39 in year 3 (see Exhibit 19/13).

It was projected there would be a need for ten beds licensed as acute care beds,
not then being utilized, to become operational as coronary care beds. Addition-
ally there would be a need for three intensive care unit (ICU) beds, and the one
new open heart operating suite.

A total of 5,811 sq. ft. of hospital space would require renovation. Projected
capital costs, including construction and equipment, were $3,273,180. The hos-
pital had sufficient reserve funds to underwrite the renovation project and the
additional equipment without borrowing money.

Exhibit 19/13: CMH Open Heart Staffing Plan

Year 1 Year 2 Year 3

53 Procedures 106 Procedures 211 Procedures

Operating Room

Nurse Manager 1.00 1.00 1.00
RN 2.50 3.50 6.00
OR Tech 2.00 2.00 3.00
OR Aide/Transport 0.50 0.50 1.00
CRNA 1.00 1.50 3.00
Anesthesia Tech 0.50 0.50 1.00
Respiratory Therapist 1.00 1.50 3.00
Subtotal 8.50 10.50 18.00

Surgery/Recovery

Nurse Manager 0.50 0.50 0.50
RN 4.00 4.00 7.00
Ward Secretary 0.50 0.50 0.50
Subtotal 5.00 5.00 8.00

Telemetry Unit

Nurse Manager 0.50 0.50 0.50
RN 3.00 4.00 7.00
Monitor Tech 3.00 3.00 3.00
Ward Secretary 0.50 0.50 0.50
Subtotal 7.00 8.00 11.00

Nurse Educator 0.50 0.50 0.50
Angioplasty RN 1.00 1.00 1.00
Angioplasty Tech 1.00 1.00 1.00
Subtotal 2.50 2.50 2.50

TOTAL 23.00 26.00 39.50

F I N A N C I A L C O N S I D E R AT I O N S

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C A S E 1 9 : T H E C A S E F O R O P E N H E A R T S U R G E R Y AT C A B A R R U S8 1 6

Direct costs for the open heart program were projected to be $2,364,214 in year
1, $3,217,739 in year 2, and $5,438,392 in year 3 (see Exhibit 19/14). Average length
of stay per open heart patient was projected to be nine days.

Projected average open heart surgery fees per case were $13,000 without
catheterization and $15,000 with catheterization. These estimates represented
full, nonprofessional fees and the surgeon’s fee, as well as other professional
components such as anesthesia, pathology, and radiology.

Average room and board charges were estimated at $826 per day. All ancillaries
were projected at $3,725 per day. Total average projected charge for each open
heart surgery procedure was $40,957.

The Meeting Draws to a Close

President Wall and various members of the hospital staff had presented the
findings to the trustees. The data and information had been collected, tabulated,
and analyzed. It was time to make a decision. Should CMH go ahead with an
application for a certificate of need for an open heart surgery program? As they
sat there waiting for someone to speak, Mrs. West asked, “Mr. Batte, what do
you think we should do? Do we go for the CON?”

Exhibit 19/14: Open Heart Program Costs

Year 1 Year 2 Year 3

Direct Costs
Clinical Personnel $711,793 $910,878 $1,695,457
Administrative Personnel 136,565 147,490 159,289
Support Personnel 52,764 56,985 61,544
Personnel Taxes/Benefits 180,224 223,071 383,258
Medical Supplies 315,947 746,439 1,749,771
Other Supplies 15,950 68,980 75,445
Depreciation, Equipment 243,376 243,376 243,376
Plant Operations and Maintenance 48,087 52,415 57,132
Other Associated Expenses
(Angioplasty) 449,965 534,033 615,723
Other Associated Expenses 99,543 99,212 99,212
Contracted Services 110,000 134,860 298,185
Total Direct Costs 2,364,214 3,217,739 5,438,392

Indirect Costs
General and Administrative 255,966 302,376 416,862
Other Overhead 73,200 88,630 175,473
Depreciation, Building 43,525 43,525 43,525
Other Property, Ownership
and Use Expense 2,036 2,402 2,835
Consultant Services 122,740 153,399 154,699
Rowan Community Outreach 6,183 6,739 7,346
Total Indirect Costs 503,650 597,071 800,740

Total Costs $2,867,864 $3,814,810 $6,239,132

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