By Christopher Guadagnino, Ph.D.

Published December 2001

• React to this article in the Discussion Forum.

Joseph W. "Chip" Marshall III is chairman and CEO of the Temple University Health System.

JWM: Rather than the typical hospital or health system CEO or COO, my health care background has been exclusively in the practice of health law. I had a national practice representing clients from physicians and solo practitioners up through large, for-profit hospitals and not-for-profit health systems. I think I’ve had the advantage of cutting across a number of different lines of businesses that make up a hospital or health system enterprise, as well as interacting with a full range of individuals in those endeavors. Having the opportunity to work with a myriad of various individuals, I think I have an appreciation and maybe a different understanding of the sort of day-to-day issues and challenges that are faced by those people and by those institutions. I’ve had the advantage of seeing heavily managed care states, lightly managed care states, populations that were exclusively urban versus a mixture of suburban. I’ve had opportunities to work in towns where there’s one dominant insurer and in places where there were many.

JWM: Our mission is two-fold here at Temple: we have to serve our medical school and we have to serve our community. If you look at medical education in this country, we have an obligation to turn out the finest physicians we can. We need to continue and enhance the culture of a real commitment to medical education and to the students who later become physicians that come through our doors. We’re very well known in this part of the country as a true servant to our community. Our actions have spoken very loudly and I would certainly want to continue that. We have an obligation to the residents of North Philadelphia to make sure that they get the highest quality care possible. What you will find about a place like Temple is that, on a full-time equivalent basis for employees, we’re very competitive, very efficient, very effective. I think that kind of effort deserves a concomitant reinvestment back into the workforce here. We have an obligation to develop and enhance our staff and try to provide opportunity for upward mobility, both in terms of compensation and responsibility. Like any large academic medical center in the year 2001, we have to be cognizant of the opportunities around research. Consequently, I think that our culture should contain an element of being research-friendly. Similarly, in any large institution that has multiple affiliates as we do, we have to be physician-friendly and referring physician-friendly. That means being service-oriented. I think that our mission here at Temple is to allow our medical staff and the medical staffs of our affiliate institutions to have a clinical enterprise of a sufficient quality and effectiveness that they can realize their individual goals around the quality practice of medicine, quality research activities and the ability to generate the clinical portion of their income necessary to sustain their overall competition.

JWM: I am currently involved in a nationwide search for a chief operating officer. I’d like to have somebody in place as soon after the first of the year as I can. My background is not in operations and I think it’s incumbent upon me to go out and find the very best person that I can. So, I would want to answer that question when that person is on board. Speaking more broadly, we have to be looking to do it as quickly as possible because the way that hospital systems, especially non-profit hospital systems, recapitalize themselves is by making a sufficient operating margin so that you have a little left over to reinvent and rejuvenate the enterprise. When I look at monies that we may get through investment income or through enhanced state aid, to the extent that I have to use those to subsidize my operations, that takes away my ability to expand and enhance the enterprise, which then calls into question the obligations that we have to our physicians and to our community.

JWM: We’re budgeted for this fiscal year, which ends June 30th, 2002, to have an operating deficit of approximately $50 million.

JWM: I don’t see it necessarily as a balancing act. The bottom line is certainly relevant to the extent to which an institution can invest in research, teaching and clinical care. The more money you make, the more MRIs you can have, the more free care you can give. We have pretty clear standards and expectations regarding the quality of our teaching and research. We’re always looking to expand and enhance both. The health system is not the only source of funding for the university’s research and teaching efforts. In a lot of places research pays for itself and indeed delivers excess funds. You have tuition. You have endowment. My job primarily is involved in the clinical services. I have to provide a clinical enterprise that allows the medical school faculty here at the university to make that portion of their compensation that’s attached to the delivery of clinical services.

JWM: The first thing you have to do is look at the largest sources of your operating losses. They are fairly easy to find. What we’re looking at is operating loss, not bottom line. For our analysis purposes we look at operations strictly as revenue versus expense. All of our enterprises or lines of business have to do one of two things: provide an educational opportunity for students and residents, or produce income.

JWM: We provide a fairly large amount of uncompensated care, especially in the areas of North Philadelphia where we reside. We have nurse and other staff salary increases escalating faster than we’re receiving increases in reimbursement. We have a fairly challenging reimbursement environment. We have a challenging payor mix. We are not in an area where there’s great competition among payors. For Temple, we are in an area with a disproportionally high share of Medicaid and Medicare. Medical malpractice—stories are legion about that. We are both a provider and a buyer of health care services, so I get the opportunity to see rate increases of 10 to 20 percent for my insurance premiums versus reimbursement increases in the two to three percent range.

JWM: I think the first step is to look at non-essential lines of business—those that don’t provide an educational opportunity or that are economically challenged. We’re pretty efficient on an FTE basis. But nevertheless, you always have to look at expenses and you hope that things like technology can help you on the expense side. The third thing, and the thing that really can’t be overlooked, is that you have to constantly focus on how to generate additional revenue. You run the risk in organizations as big as most hospitals and health systems of being so totally focused on expenses that you begin to strangle the enterprise. You have to spend your capital budget every year so that your infrastructure is maintained, so your physicians can practice safely and effectively. You have to constantly challenge your ability to generate as much revenue out of your service area as you can. We’re all trying to test the assumption that there are new ways to do business. Maybe we don’t have to be all things to all people.

JWM: We will be vigilant and aggressive in looking at all ways to reduce expenses, including the consolidation of services. With respect to closing down facilities or expanding them, we’re always willing to look at both of those issues. That is properly the role of the COO and myself to determine. I would offer one experience that I’ve had while at Temple. We had five hospitals that were within a one-mile radius of each other and we are about to complete something that has taken us over a year to effect. We have restructured the hospital operations in this one-mile radius to be more effective and efficient and provide greater revenue. We were able to do it without eliminating one single job. Each hospital remained open—four as hospitals, one as a health care campus for which we just received a $9.7 million grant from HUD to convert half of the facility into housing for the elderly. We located our adult daycare and two nursing schools there as well.

JWM: I think it would be fair to say that it’s a challenge, although we’re ahead of budget projections. We’re in our third year now and I think we do some things very well. I think, like any kind of enterprise, it needs to be ramped up. You’d love to go out and hire ten pediatric neurosurgeons and all kinds of other physicians, and maybe some day we will. But I think we have an obligation, first of all, to be fiscally prudent and, second of all, we are in that business primarily to meet our education needs. I think you would find we’ve done that wonderfully.

JWM: I have to develop and maintain a clinical enterprise here that allows our physicians to thrive. In an academic medical center, that’s creating an environment that allows them to be the best teachers, researchers and clinicians they can be and also allows them to make income that is rightfully theirs. The market tells you what that number is. I hope to be able to work with physicians in such a way that we can have a relationship that’s based on credibility, honesty, integrity but also in a realistic and reasonable businesslike fashion.

JWM: In the last five years, probably about 60 to 75 practices employing 125 physicians. All of our physicians were offered the opportunity to continue with Temple under a different model. We called our physician practice company, Temple Physicians Inc. We called the second version, Temple Physicians Associates, which was a loosely configured group practice model that had a significant element of incentive compensation.

JWM: Probably 75 or 80, representing approximately 25 to 30 practices. One of the strategies that we employed proactively was to consolidate individual practices as a way of achieving savings and efficiency. I would think that it’s probably stabilized. There will always be some set of physicians and their practices that have sufficient value to an individual institution. This is something that the chief operating officer would delve into pretty quickly, because we’re constantly in search of efficiencies and savings.