Community hospital healthcare system: a strategic management case study.

Choudhary, Amod

CASE DESCRIPTION

The primary subject matter of this case concerns strategic management of community hospitals in the United States. This case has a difficulty level of five; appropriate for first year graduate level students. This case is designed to be taught in four class hours and is expected to require twenty-four hours of outside preparation for students. For the graduate student, it should be a half semester long group project with a presentation and report at the end of the semester.

CASE SYNOPSIS

This case study analyzes the turbulent social, legal and technological issues that are affecting today's suburban community hospitals in United States. The soaring health care costs, increasing number of uninsured or underinsured patients, reduced payments by government agencies, and increasing number of physician owned ambulatory care centers are squeezing the lifeline of community hospitals whose traditional mission has been primary care. Furthermore, with the enactment of Patient Protection and Affordable Care Act in March 2010, community hospitals are facing new challenges whose full impact is unknown. This case study would help students learn about Strategy Formulation including Vision and Mission Statements, internal and external analysis, and generating, evaluating & selecting appropriate strategies for a healthcare organization.

INSTRUCTOR'S NOTES

Questions

Task 1: Prepare a revised Vision and Mission Statements for Community Hospital.

The vision statement seems appropriate, while the Mission Statement can be revised to read "To provide the best healthcare for our patients and make available resources for healthy living for our communities through the use of innovative medical technologies by the efficient operations of our facilities by employing and empowering well compensated renowned physicians, nurses and other healthcare professionals."

Task 2: Prepare the External Factors Evaluation (EFE) Matrix for
Community Hospital.

EFE Matrix

Key External Factors                      Weight   Rating   Weighted
                                                             Score

Opportunities

1. Median Age, population and per          0.05      3        0.15
capita income of Monmouth County is
expected to increase.

2. Passage of Healthcare Act by Federal    0.10      2        0.20
Government.

3. Continued pressure by health            0.05      2        0.10
insurance companies to decrease costs.

4. High medical malpractice costs for      0.10      2        0.20
physicians.

5. Advancement in portable personal        0.05      2        0.10
electronic equipment such as iPads and
Tablets.

6. Societal trend towards healthy          0.10      4        0.40
living.

7. Hospital consolidation and closures     0.05      4        0.20
on rise.

Threats

1. Physician owned surgery centers on      0.10      3        0.30
rise.

2. Insurance Companies, government and     0.05      3        0.15
corporations' health care
reimbursements decreasing.

3. Medical malpractice lawsuits remain     0.05      2        0.10
constant at a high rate.

4. The rate of U.S. medical graduates      0.05      2        0.10
expected to be less than needed.

5. Non-paying patients likely to rise      0.05      2        0.10
or remain the same.

6. Increased rate of unknown viruses       0.10      2        0.20
and infections.

7. Rising cost of medicine and medical     0.10      2        0.20
equipment.

TOTAL                                       1                 2.50

Task 3: Prepare the Competitive Profile (CP) Matrix for Community
Hospital.

CP Matrix

                                                     CMC

                                                        Weighted
Critical Success Factors              Weight   Rating    Score

Net of Patient Service revenue
  and expenses                         0.15      4        0.60
Management/Board of Trustees           0.20      3        0.60
Specialty Care                         0.10      2        0.20
Quality of Patient Care                0.20      2        0.40
Community Relations                    0.07      2        0.14
Medicaid/Medicare Receivables          0.08      3        0.24
Emergency Services                     0.20      4        0.80
Total                                  1.00               2.98

                                            SUMC

                                               Weighted
Critical Success Factors              Rating    Score

Net of Patient Service revenue
  and expenses                          3         45
Management/Board of Trustees            3        0.60
Specialty Care                          3        0.30
Quality of Patient Care                 4        0.80
Community Relations                     2        0.14
Medicaid/Medicare Receivables           3        0.24
Emergency Services                      3        0.60
Total                                            3.13

                                            UH

                                               Weighted
Critical Success Factors              Rating    Score

Net of Patient Service revenue
  and expenses                          2        0.30
Management/Board of Trustees            2        0.40
Specialty Care                          4        0.40
Quality of Patient Care                 3        0.60
Community Relations                     2        0.14
Medicaid/Medicare Receivables           4        0.32
Emergency Services                      3        0.60
Total                                            2.76

Task 4: Prepare the Internal Factor Evaluation (IFE) Matrix for
Community Hospital.

IFE Matrix

                                                           Weighted
Key Internal Factors                     Weight   Rating    Score

Strengths

1. High Total Margin Ratio.               0.10      4        0.40
2. Diversified portfolio-retirement
   and adult living centers.              0.05      3        0.15
3. Residency in Family Medicine.          0.05      3        0.15
4. Stable Management.                     0.10      4        0.40
5. New Fitness and Wellness Center.       0.05      4        0.20
6. Good mix of Medicare and insured
   patients.                              0.05      3        0.15
7. High Utilization Ratio.                0.05      4        0.20

Weaknesses

1. Increase in bad debt/charity care
   expense.                               0.05      2        0.10
2. Increase in number of patients
   going to physician owned surgery
   centers.                               0.15      1        0.15
3. Lack of well-known specialty care
   area.                                  0.15      1        0.15
4. Average quality of Patient Care.       0.05      2        0.10
5. Not part of a health care system.      0.15      2        0.30
TOTAL                                      1                 2.45

Task 5: Prepare SWOT Strategies for Community Hospital.

SWOT Strategies

                       Strengths              Weaknesses

                       High Total Margin      Increase in bad
                       Ratio.                 debt/charity care
                                              expense.
                       Diversified
                       portfolio-retirement   Increase in number
                       and adult living       of patients going to
                       centers.               physician owned
                                              surgery centers.

                       Residency in Family    Lack of well-known
                       Medicine.              specialty care area.

                       Stable Management.     Average quality of
                                              Patient Care.
                       New Fitness and
                       Wellness Center.       Not part of health
                                              care system.
                       Good mix of Medicare
                       and insured
                       patients.

                       High Utilization
                       Ratio.

Opportunities          S-O Strategies         W-O Strategies

Median Age,            Invest in new          Hire employees with
population and per     medical equipments     quality care and
capita income of       to treat diseases      statistics expertise
Monmouth County        faster and with        (W4, O3, O4, O5,)
expected to            better reliability
increase.              (S1, S3, S4, S7, O2,
                       O3, O4, O5)

Passage of             Establish alliance
Healthcare Act by      with a similar
Federal Government.    hospital which has
                       expertise in a
Continued pressure     specialty area (S1,
by health insurance    S4, O2, O7)
companies to
decrease costs.

High medical
malpractice costs
for physicians.

Advancement in
portable personal
electronic equipment
such as iPads and
Tablets.

Societal trend
towards healthy
living.

Hospital
consolidation and
closures on rise.

Threats                S-T Strategies         W-T Strategies

Physician owned        Provide office space   Form alliances with
surgery centers on     at reduced rates to    corporations for
rise. Insurance        Physician groups       research and
companies,             (T1, S1, S3, S7)       insurance companies
government and         Star other residency   (W1, T2, T3, T7)
corporations' health   programs (T4, T6,
care reimbursements    S3)
decreasing.

Medical malpractice
lawsuits remain
constant at a high
rate.

The rate of U.S.
medical graduates
expected to be less
than needed.

Non-paying patients
likely to rise or
remain the same.

Increased rate of
unknown viruses and
infections.

Rising cost of
medicine and medical
equipment.

[ILLUSTRATION OMITTED]

Task 6: Prepare Strategic Position and Evaluation (SPACE) Matrix for
Community Hospital.

Financial Position (FP)

Debt/Equity Ratio                         4
Current Ratio                             7
Total Margin Ratio                        3
Net Patient Revenue                       5
Days cash on hand                         7
Financial Position (FP) Average          5.2

Competitive Position (CP)

Quality of Service                       -4
Total Income                             -3
Emergency Visits                         -4
Surgeries                                -6
Family Medicine Visits                   -4
Competitive Position (CP) Average       -4.2

Stability Position (EP)

Unemployment                             -5
Technological Changes                    -2
Price Elasticity of Demand               -2
Competitive Pressure                     -4
Barriers to Entry                        -2
Stability Position (EP) Average         -3.0

Industry Position (IP)

Growth Potential                          3
Financial Stability                       5
Ease of Market Entry                      3
Resource Utilization                      4
Profit Potential                          3
Industry Position (IP) Average           3.6

Task 7: Prepare Grand Strategy Matrix for Community Hospital.

[ILLUSTRATION OMITTED]

Task 8: Prepare Internal-External Matrix for Community Hospital.

                           Internal-External Matrix

                           The IFE Total Weighted
                                Score (2.45)

                         Strong   Average     Weak
The EFE                  3.0 to   2.0 to      1.0 to
Total                    4.0      2.99        1.99
Weighted
Score      High          I        II          III
(2.5)      3.0 to 3.99

           Medium        IV       IV          VI
           2.0 to 2.99            Community
                                  Hospital

           Low           VII      VIII        IX
           1.0 to 1.99

Hold and Maintain: Market Penetration, Product Development

Task 9: Prepare Quantitative Strategic Planning (QSP) Matrix for
Community Hospital.

QSP Matrix

Strategic Alternatives

                                          Become part of a Health
                                                  System

       Key Weight          Factors   Attractiveness       Total
                                         Score        Attractiveness
                                                          Score

Strengths

High Total Margin Ratio.    0.10           2               0.20

Diversified in              0.05           3               0.15
portfolio--retirement
and adult living
centers.

Residency in Family         0.05           --               --
Medicine.

Stable Management.          0.10           2               0.20

New Fitness and Wellness    0.05           --               --
Center

Good mix of Medicare and    0.05           2               0.10
insured patients.

High Utilization Ratio.     0.05           1               0.05

Weaknesses

Increase in bad             0.05           2               0.10
debt/charity care
expense.

Increase in number of       0.15
patients going to
physician owned surgery
centers.

Lack of well-known          0.15           --               --
specialty care area.

Average quality of          0.05           2               0.10
Patient Care.

Not part of health care     0.15           4               0.60
system.

SUBTOTAL                    1.00                           1.50

Opportunities

1. Median Age,              0.05
population and per
capita income of
Monmouth County expected
to increase.

2. Passage of Healthcare    0.10           2               0.20
Act by Federal
Government.

3. Continued pressure by    0.05           --               --
health insurance
companies to decrease
costs.

4. High medical             0.10           --               --
malpractice costs for
physicians.

5. Advancement in           0.05           2               0.10
portable personal
electronic equipment
such as iPads and
Tablets.

6. Societal trend           0.10           --
towards health living.

7. Hospital                 0.05           4               0.20
consolidation and
closures on rise.

Threats

1. Physician owned          0.10           3               0.30
surgery centers on rise.

2. Insurance Companies,     0.05           3               0.15
government and
corporations' health
care reimbursements
decreasing.

3. Medical malpractice      0.05           --               --
lawsuits remain constant
at a high rate.

4. The rate of U.S.         0.05           --               --
medical graduates
expected to be less than
needed.

5. Non-paying patients      0.05           --               --
likely to rise or remain
the same.

6. Increased rate of        0.10           --               --
unknown viruses and
infections.

7. Rising cost of           0.10           4               0.40
medicine and medical
equipment.

SUBTOTAL                    1.00                           1.35

SUM TOTAL ATTRACTIVENESS                                   2.85
SCORE

                             Open a Specialty Care Center

       Key Weight          Attractiveness       Total
                               Score        Attractiveness
                                                Score

Strengths

High Total Margin Ratio.         4               0.40

Diversified in                   4               0.20
portfolio--retirement
and adult living
centers.

Residency in Family              --               --
Medicine.

Stable Management.               4               0.40

New Fitness and Wellness         --               --
Center

Good mix of Medicare and         3               0.15
insured patients.

High Utilization Ratio.          4               0.20

Weaknesses

Increase in bad                  3               0.15
debt/charity care
expense.

Increase in number of
patients going to
physician owned surgery
centers.

Lack of well-known               --               --
specialty care area.

Average quality of               3               0.15
Patient Care.

Not part of health care          3               0.45
system.

SUBTOTAL                                         2.1

Opportunities

1. Median Age,
population and per
capita income of
Monmouth County expected
to increase.

2. Passage of Healthcare         3               0.30
Act by Federal
Government.

3. Continued pressure by         --               --
health insurance
companies to decrease
costs.

4. High medical                  --               --
malpractice costs for
physicians.

5. Advancement in                3               0.15
portable personal
electronic equipment
such as iPads and
Tablets.

6. Societal trend                --
towards health living.

7. Hospital                      2               0.10
consolidation and
closures on rise.

Threats

1. Physician owned               4               0.40
surgery centers on rise.

2. Insurance Companies,          2               0.10
government and
corporations' health
care reimbursements
decreasing.

3. Medical malpractice           --               --
lawsuits remain constant
at a high rate.

4. The rate of U.S.              --               --
medical graduates
expected to be less than
needed.

5. Non-paying patients           --               --
likely to rise or remain
the same.

6. Increased rate of             --               --
unknown viruses and
infections.

7. Rising cost of                2               0.20
medicine and medical
equipment.

SUBTOTAL                                         1.25

SUM TOTAL ATTRACTIVENESS                         3.35
SCORE

The QSP matrix indicates that of the two choices, opening a specialty care center is more attractive for Community Hospital

Amod Choudhary, City University of New York, Lehman College