By Aaron Moselle

When Chestnut Hill Hospital broke ground on its $40 million expansion in October, it took a giant step forward in cementing the community hospital’s place in the city. The expansion, touted by hospital officials as symbolic of a commitment from owners Chestnut Hill Health Systems and the University of Pennsylvania, was the latest project in a master plan crafted almost 20 years ago when the healthcare landscape looked vastly different than it does today.

While the hospital’s elite chose to see the new emergency department and intensive care unit as a wave of the future, many wondered how a community hospital could expect to survive in today’s healthcare climate. It was just six years ago that the then not-for-profit outfit decided to look for a corporate buyout, citing declining reimbursement rates and changes in the growing role of insurance companies in healthcare costs.

At the groundbreaking ceremony in October, chief medical officer, Dr. John Scanlon, said the new facility with its cutting edge technology would allow the hospital to compete and ensure its future as a sustainable, community healthcare center.

By the numbers it would appear that CHHS agrees. The Tennessee-based company spent $68 million to purchase the hospital, including the capital improvement budget. It was the only way the hospital could and would survive, board members said.

In 1991, while the hospital remained a nonprofit, board members created a list of capital improvements they thought were necessary to keep the organization competitive and viable in the future.

In addition to enhancing the ER, ICU and ED, the plan called for two medical/surgical floors, more medical office space, additional patient care areas and revamping the labor ,delivery and obstetrics unit.

Since the adoption of that plan, the additional surgical and medical office space has been added. Plans to expand patient care areas were scrapped along with the improvements to the labor, delivery and obstetrics unit, which the hospital later discontinued.

But as is often the case in the world of nonprofits, there wasn’t enough cash flow for the remaining elements of the 1991 plan. And so for years, the project languished.

Through the late ‘90s and into the early 2000s, Chestnut Hill struggled to stay on sturdy financial ground. Some years were worse than others. Some years were better than others. But the bottom line always revealed that hospital revenues were too meager to make any serious strides towards completing the expansion.

Scanlon said overall patient volume, a key source for generating operating revenue, was down at the hospital. At the same time, medical malpractice costs started to skyrocket, he said.

Scanlon said there was also too much money tied up in administrative personnel.

“My instincts tell me that we were always a little top heavy with a lot of upper management,” said Scanlon, a podiatrist who began referring patients to the hospital from his private practice in the early 1980s.

Above all, however, Scanlon pointed to a drop in revenue from health insurance reimbursements that, he said, began just before the 1991 plan was released.

In the late ‘80s, managed care plans started to become more popular. In particular, Health Maintenance Organization plans (HMOs) which used capitation fees, provided hospitals with less direct revenue for a given procedure than other plans, like those offered through some Preferred Provider Organizations (PPOs), which used a fee for service system.

“In other words, if I do a certain procedure and get $10 for that procedure with an HMO and I have 100 patients, I may get 25 cents per patient per month guaranteed. But I don’t get anything specific for that procedure when I do it on that patient,” explained Scanlon.

The result, he said, was that the hospital saw an increase in overhead, but a decrease in reimbursement. “We couldn’t maintain our infrastructure, let alone expand,” said Scanlon.

The inability to invest in new medical technology, made it difficult for Chestnut Hill to develop new medical programs that featured the latest surgical procedures. And as a result, hospital physicians weren’t well-versed in those new approaches and it was hard to attract doctors that were.

Other independent, nonprofit community hospitals across the region had similar difficulties. And starting in the mid-‘90s, many of them, including the University of Pennsylvania Hospital and Temple University Hospital, began turning to large umbrella organizations to get the capital they couldn’t get otherwise.

Chestnut Hill tried to remain independent and maintain its nonprofit status. “We held off for a long time, hoping we could stay that way,” said Jean Hemphill, current president of the Chestnut Hill Community Fund and former member of the hospital board.

Vicky Lachman, another hospital board member at the time who remains on the board, said many of her colleagues didn’t want to work in a for-profit environment. Most all, she said they worried that Chestnut Hill would lose a lot of its decision-making power.

In 2004, when the hospital revenues continued to leave little room for making programmatic or capital improvements, the board decided to seek suitors for a sale.

A number of board members walked during the process, said Lachman.

Hemphill said the hospital had no choice if it wanted to remain part of the community. The hospital, she said, was barely breaking even.

“It’s not like a house where you can just let it sit as long as you keep painting the walls,” explained Hemphill. “It’s a very competitive business. If you don’t have good facilities you’re not going to have good doctors who want to work there. And if you don’t have good doctors, who wants to go there?”

With an acquisition on the table, the board considered whether the hospital should join a 501c3 nonprofit health system or become part of a for-profit entity. In the end, Chestnut Hill struck a deal in the early part of 2005 with Community Health Systems, one of the largest for-profit hospital systems in the country.

Hemphill said Chestnut Hill chose Community Health Systems for a few reasons.  The University of Pennsylvania Community Health Network, which had previously joined CHS, would be minority owner of the hospital. This, she said, opened the door to developing strong partnerships with doctors from a well-respected institution — a benefit for Chestnut Hill patients if they needed a complex procedure that UPENN was better equipped to perform.

Above all, however, CHS agreed in a seven-year contract to invest in several capital improvement projects, including the enhanced ER, ICU and ED, which all date back to the late ‘50s.

“It’s the reason why the hospital was sold,” said Chestnut Hill Hospital’s CEO Brooks Turkel, who has headed the institution for almost five years.

To date, the hospital has added a new digital mammography machine, MRI machine, a Da Vinci robot for minimally invasive surgeries, and a new angiography suite, each costing around $2 million, according to hospital spokeswoman Catherine Brzozowski.

“We have the technology in-house already. We have the surgeons. Now we’re going to give them a new place to do their work,” said Brzozowski of the new expansion.