Emanuel Medical Center and the health care industry crisis

Health Care

Describe the following strategic options available to President Moen: a) merge the hospital with a competing health maintenance organization (HMO), b) sell the hospital, c) close the ED, d) close the hospital, or e) do nothing and try to maintain the status quo while dealing with the hospital's myriad operational issues.

Merging the hospital with a competing health maintenance organization would allow the hospital to best meet the competitive pressures in its environment. It would mean that the hospital is sold and the current management group might lose control, but it would have several advantages. 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. Selling the hospital would have a similar impact, but with the ownership situation being different. External management by an HMO or selling to another health care provider have similar advantages; the differences are technical.

Closing the ED would have a significant negative impact. While the patient crisis is focused on the ED, this department also generates almost 50% of business in more profitable parts of the hospital. The closure would create major revenue problems for the hospital. However, closing the ED has the benefit of reducing a major headache, relieving the nursing staff shortages and reducing the amount of customers coming to the hospital who are having trouble paying.

The status quo is also challenging. The problems at EMC are systemic in nature. The company has a long-term funding crisis. Whereas previously it had been able to reinvest profits into expanding and restructuring the business, the current tight margins do not allow for this reinvestment. Therefore, the facilities are aging and unable to meet capacity. This leads to gaps in service, such as that in the Eckman case. While the amount of fully-insured patients is slowly growing, it still sits at only 49% of admissions to ED, and this contributes to the funding crisis since most other patients are unable to pay for the cost of their treatment.

2. Describe the six most pressing operational issues President Moen should address.

The first issue is the funding problem. The government and insurance companies are using their buying power to reduce payouts, and costs associated with running the hospital are increasing. This creates a long-term disconnect between revenues and costs. The second issue is that there is a chronic nursing shortage. This increases costs and increases turnover. The current solution, temporary nurses, is a very expensive solution that does not address this issue in the long run. The third issue is the gap in patient care. As seen in the Eckman case, sometimes patients fall through the cracks and this leads to adverse health outcomes.

The fourth issue is that the hospital is faced with the inability to invest in technology. This makes it difficult to build for the future. It also makes it difficult to attract key talent as well as patients. There is no capital left over for investment in technology. The fifth issue is a lack of ability to fill key doctor positions. Several such positions remain unfilled, for a variety of reasons, but ultimately this makes the patient suffer and reduces the ability of the hospital to meet the needs of the community. 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.