In a move that ran counter to the nationwide hospital consolidation trend, Marin General Hospital in Greenbrae, Calif., split from Sutter Health six years ago amid charges the large system had drained funds from the 254-bed community hospital that serves one of the nation's wealthiest counties just north of San Francisco. The hospital is now government-run. CEO Lee Domanico recently spoke with Modern Healthcare reporter Beth Kutscher about the benefits of independence. The following is an edited transcript.
Modern Healthcare: What else besides its wealth makes Marin County unique?
Lee Domanico: We have probably one of the fastest aging and largest percentage-wise aging populations in California.
MH: Why did you decide to sever ties with Sutter?
Domanico: The hospital is owned by the community through an elected five-member board, and they decided to bring the hospital back directly under community control to take on the task of rebuilding the new hospital based on the new seismic regulations in California. With the lease with the prior operator nearing its conclusion, there was a discussion about how the new hospital would get built and who would pay for it. It was decided that the Marin Healthcare District, the owner of the buildings and land, would take that on and operate the hospital directly.
MH: How is managing a stand-alone hospital different from being part of a system?
Domanico: The biggest difference is that the decision tree is much shorter and the speed with which you can make decisions is much faster. The buck stops here. The decisions we make are not compromised by what else is going on within a large healthcare system. The decisions are strictly for the benefit of this hospital and this community. So while it's higher risk when you're stand-alone, it is higher reward in terms of the kind of care and service you can offer the community.
MH: Why was it possible to make this part of your DNA?
Domanico: Marin is a very independent-minded community, and so having an independent hospital matches up with that philosophy. Because we are a public healthcare district, it offers an alternative source of revenue through the tax base, which other hospitals, even in systems, do not have. We can use that alternative revenue source to recapitalize the hospital if the community supports that, which they do. Second, this community has some geographic barriers to entry. To the west we have the ocean. To the east we have the Bay. To the south we've got the Golden Gate Bridge. And to the north it kind of goes into the California wine country. And third, we have here an independent and loyal physician community where the vast majority only practices at Marin General Hospital. They wanted to partner with their local hospital. This was an opportunity to be successful as a free-standing organization in an otherwise competitive market here in the Bay Area.
MH: Do you see outmigration of patients for specialty care to some of the larger academic medical centers?
Domanico: We do have some migration into the city. How do we see our niche? We see ourselves ... as resisting the trends in the marketplace. We have chosen to ... provide a higher value for a higher price.
MH: Higher value for a higher price?
Domanico: We get good reimbursement from the commercial payers because we're the only full-service hospital in Marin, and because we offer a service and a product that I would define in three ways. One is a customer experience that is unparalleled in terms of safety, outcomes and service. The second is through collaboration. We have developed numerous academic partnerships with UCSF and Stanford Medical Center. We are able to bring academic level medicine and sophistication to Marin so that people can choose to stay in Marin rather than leave the community. The third issue is through superior technology and facilities. We built a new hospital. We just put together a 15-year, $90 million partnership with Philips Corp. for early access to technology. We are redefining what a community hospital can offer.
MH: What's the nature of the Philips deal?
Domanico: It is a creative way to finance investments. It includes a service agreement, and it gives us access to technology through the services agreement that has a formula in it allowing us to access the technology without having to commit all the capital from the hospital. It's an interesting way to stay on the cutting edge. We buy all the technology through them, but we pay for it through a management service agreement over a 15-year period.
MH: Many systems are moving to a hub-and-spoke model. What's your outpatient strategy?
Domanico: We grew from six physicians to about 90 over a one- to two-year period. That solidified our inpatient referral base for the hospital. We then decided to diversify and went on an aggressive acquisition of outpatient services that were in the community. So we are joint venture partners with our physicians in cancer, cardiology, outpatient surgery and imaging. We also expanded the lab from one draw station to several out in the community so that we have multiple access points. And we've begun to go farther south toward San Francisco and farther north toward Sonoma with outpatient locations. We were able to do that through owner financing. We bought into these businesses that already existed and financed it through the improvement of the revenue stream that resulted from the hospital's involvement.
MH: How do you view the transition to value-based payments and the importance of creating clinically integrated networks?
Domanico: About three years ago, we entered into three capitated agreements: one for Medicare, one for Medi-Cal, Medicaid here in California, and a commercial product. We're getting experience in-house of managing and being paid on a per capita basis. The second thing that we are looking at is being a part of an insurance product that would come with a larger strategic relationship in the Bay Area. We are a need-to-have hospital for any insurance product or accountable care organization that wants to have subscribers in Marin. Our hope is that we will participate in a network that is developed by one of the other large systems in the area.
MH: What's your next big challenge?
Domanico: We've just broken ground on rebuilding our hospital, so the challenge that I see is continued access to capital. The inpatient market in Marin has actually declined. The use rate is very low. The cost of supporting physicians in Marin is extremely high because of the cost of land and overhead. Marin is a high cost-of-living market. The challenge of a free-standing hospital is maintaining pricing that's equivalent to larger systems so that you can remain competitive, and then making sure that we have access to population health management products in the future.
