Lastly, the sixth issue is that the hospital has no relationship with an HMO. They have not been able to come to an agreement with Kaiser Permanente. This reduces revenues, reduces traffic flow and creates a problem where Kaiser is building a new hospital in the area that will directly compete with EMC.
3. Perform a financial analysis of EMC. Based on the analysis, where is the company strong and where is it weak?
EMC's financial position is weak. The company is faced with a steep decline in its cash position, which makes it difficult to invest in the future. The company is also relying on its investments for cash flow, and the current investment climate makes this a challenge. EMC has seen a strong increase in net patient revenue in 2002, reversing a flatlining trend. However, operating expenses have been a long-term increasing trend, and ballooned in 2002. Salaries and wages are increasing significantly, without any improvement in the ability of the company to attract and retain talent. Supplies are another cost that is rapidly increasing, having grown at around 25% since 2000. The company has also been relying on its investments for income but tough markets in 2001/2002 have delivered poor performance from the financial portfolio. Ideally, the company would not be dependent on its investments as a source of financing.
4. Recommend the best strategic option available to President Moen?
In deciding a course of action for EMC, Moen needs to be cognizant of the fact that most of the pressures on the hospital are coming from external sources. Internally, the hospital is relatively strong, but the changes in the industry are too rapid and too intense for the hospital to be able to keep up. EMC is too small to operate a high-volume, low-cost model for long, as it will not have enough capital to invest in technology, physicians and nurses. It also needs capital to be flexible enough to restructure its operations to meet changing environmental conditions.
It is likely that EMC will need to become aligned with a larger provider, either a competing organization or an HMO. The hospital has strong ties with the community and a good staff, but it needs to be part of a larger organization in order to address its structural needs. These include better bargaining power, the ability to draw staff from other parts of the country or state, and the ability to better compete for customers. Another good option for the hospital would be to reposition itself as a high-end provider, but this would require a dramatic and risky restructuring of operations, and likely the closure of the ED as well. For those reasons, that options is less attractive that to become an acquisition target. Ceding independence will be difficult, but it will ensure survival. Major competitors are making inroads into the area rapidly -- competing against Kaiser Permanente or another similar company will be difficult in the long-run, because the competitive pressure will be constantly exerted. There is also little opportunity for help from the governments, as they are more likely to reduce payouts than increase them.
Because of this, EMC needs to focus on either improving its ability to reduce its cost structure and increasing patient loads or it needs to improve revenues some other way. Given the demographic situation and competitive landscape, improving revenue seems difficult. Reducing costs is a more likely option for EMC,…