CAVALIER HOSPITAL
Chief Complaint: Preparing for the Board Meeting
Dr. William Harrison, a cardiologist prominent in the community, peered over the
balance sheets and income statements in Cavalier Hospital’s annual report for 2010. Due to his
role as the director of the recently opened Rotunda Cardiovascular Center, Harrison had been
promoted to Cavalier Hospital’s board of directors, whose next meeting was two weeks away.
Harrison was hoping to bring himself up to speed on the hospital’s overall financial condition.
Past Medical History: Cavalier Hospital
Founded in 1955, Cavalier Hospital was a 610-bed nonprofit hospital whose mission was
to provide high-quality health care to the growing patient population in southern and central
Virginia. Originally set up to serve the poor, nonprofit hospitals now accounted for the majority
of U.S. hospitals. Their nonprofit status granted them an exemption from paying taxes, thus
enabling them to channel the income they generated back into the hospital’s operations—rather
than saving the profits as cash or distributing them to shareholders—with the goal of
encouraging hospitals to continue to expand and provide benefits to the local community.
Most of Cavalier Hospital’s patients were Virginia residents. Nearly 50% of the patients
seen at Cavalier Hospital lived within 30 miles of the facility; another 25% came from the five
surrounding counties, and 10% lived elsewhere in Virginia. About 15% came from out of state,
mostly from West Virginia and North Carolina.
Cavalier Hospital competed for patient traffic with two other regional hospitals, one of
which was the recently expanded Hamilton Hospital. Formed by a merger between the
Washington and Adams hospitals in 2000, Hamilton approached private physician groups with
offers to buy their practices and hire the physicians on salary. Given the growing influence of
health insurers and declining reimbursement rates for physicians’ services, many private
practitioners saw this as an opportunity to partner with a larger hospital system that would have………..