Methodist Healthcare's growth and financial performance in the healthcare industry

¶ … Healthcare Case Study

Having grown in response to the need for patient care throughout northern Mississippi and Western Tennessee since its incorporation in 1981, Methodist Healthcare has grown into one of the top 50 integrated healthcare systems in the nation. This has been accomplished through a varied set of partnerships, alliances, and affiliations with larger integrated networks, most notably the University of Tennessee. Methodist Healthcare hospitals are the primary University of Tennessee teaching hospitals in the Memphis area. This affiliation is infusing Methodist Healthcare with a continual stream of state-of-the-art processes and techniques for treating the wide variety of practices supported by the integrated network of health care providers. The many partnerships and alliances, in addition, create a wide spectrum of services for Methodist healthcare to offer as well.

Methodist Healthcare has been fortunate in its financial performance, and has not had to face the reality of mass consolidation of hospital and care centers as other local healthcare providers have. To the contrary, Methodist Healthcare has seen Total Revenues climb to $933M in 2001 from $865M in 1999, and Net Income or Excess of Revenues and Other Support Over Expenses, climb to $16.3M. In addition Methodist Healthcare consistently has one of the highest occupancy rates of all local hospitals at 43.9% overall in 2001. Methodist Healthcare has also been able to successfully manage its Payor Mix so as to not be overly dependent on just a single source of revenue. In 2001 Medicare was 40.5% of total Gross Patient Charges, with 34.7% coming from Managed Care and Commercial providers. Medicaid/Tenncare was 18.9% of Gross Patient Charges, and Self Pay and other forms of payment were 5.9%. This distribution of Gross Patient Charges by source is a competitive advantage for Methodist Healthcare in that it is not overly dependent on a single source of revenue, including the state-funded Medicaid program. Additionally this translates into greater potential influence nationally due to the need for Medicaid payments to partially underwrite the alliance with the University of Tennessee. Finally, the customer-centric view of both relationships with patients and physicians is a key ingredient in Methodist Healthcare's success.

Environmental Factor Analysis

In scanning the external environment, Methodist Healthcare needs to keep both quantitative and qualitative factors in perspective, as they are in a leadership position in healthcare throughout Northern Mississippi and Western Tennessee. Due to the alliance with the University of Tennessee, Methodist Healthcare is also viewed as an emerging thought leader in many critical care areas including cancer, cardiac, neurologic, obstetric and gynecologic treatment methods. This leadership position connotes a significant level of responsibility and accountability to the public and the continual nurturing of trust in their healthcare expertise. From this perspective of community and thought leadership, here are the most critical environmental factors that Methodist Healthcare needs to continually monitor as part of its strategic planning efforts:

Financial condition of other healthcare providers in the area. This is critical to know constantly as if one of them is either acquired or ceases operations, Methodist Healthcare may be called upon to pick up their patient workloads. The ability of Methodist Healthcare to "flex" and serve these patients is critical, and having an advanced approach to knowing this is going to make their ability to be more responsive to patients and physicians affected by the closures even stronger.

Funding of each Payor Source at the Federal and State Level. This is also critical for Methodist Healthcare to keep monitoring as state programs like TennCare are often cut during budgeting cycles. Methodist Healthcare also needs to know the status of Medicaid over the long-term as well.

Nursing staffing levels and shortages across the region need to be constantly monitored. Methodist Healthcare needs to focus on knowing this situation monthly and also working to retain the nurses they have today, as there is a national nursing shortage that is very acute today.

Changing demographics, sociographics and psychographics of communities served. This is also critical for Methodist Healthcare to continually monitor, as they must know as much as possible about their patients and physicians, who are their primary customers. Knowing about demographic shifts which could include a significant rise in an aging population, rise in baby births for example would be very valuable for allocating resources to the specific communities with these demographic patterns. In addition, psychographics, or how patients see themselves as parts of groups, is also important in the defining of key marketing messages. An example would be the very active 20-30+ extreme sports fans and their medical needs, just as the 40+ weekend warriors and their needs. Lastly this data would be invaluable for defining preventative programs aimed at-risk teens.

Physician's Unmet Needs Survey completed bi-annually. The executive management at Methodist Healthcare discusses often in the case study being customer-centric. To fulfill this vision of being easy for the physician to work with, Methodist Healthcare needs to concentrate on what their unmet needs are and complete a focused series of surveys, including focus groups of physicians, to see what they need. If Methodist Healthcare can find out the unmet needs of physicians they can further their leadership in the medical community and therefore in the broader community.

Trust and transparency measures from the general pubic. It is too easy for many organizations to just think that if there aren't any problems that there is an abundance of trust in the publics they serve. Methodist Healthcare needs to actively seek out, on a regular basis, just how trusted they are and what they could to do be even more transparent.

Methodist Healthcare SWOT Analysis

The following is a strengths, weaknesses, opportunities and threats analysis of Methodist Healthcare:

Strengths

Excellent financial performance controls in place for managing costs relative to expenses.

Excellent distribution of Gross Patient Charges with a minimal amount of risk as there is not an overly strong reliance on just one source of revenue.

Community and thought leadership throughout the Northern Mississippi and Western Tennessee.

Strong following in the physician community including the ability to attract a variety of medical experts from a variety of disciplines to support the many practices in place.

Alliance with the University of Tennessee and the increased national prestige as a result.

Excellent perspective on just who their "internal" and external customers are is reflected in their strategic management process.

Weaknesses

Lack of consistency in gaining feedback from physicians and employees. They could be doing many more activities in this area.

Serving economically depressed areas in Northern Mississippi makes the task of managing risk and Accounts Receivable challenging.

Its IT architecture today is very disjointed and lacks integration. The planned move to a more integrated system is overdue. This lack of information management is a competitive disadvantage and slows responsiveness to customers.

Lack of a broader strategic care plan that makes a consistent strategy out of the many affiliations, alliances, and partnerships.

Opportunities

Expanding the ability to attract world-class researchers with the University of Texas affiliation needs to be explored.

Better physician listening and customer listening systems is a great opportunity to better understand how Methodist Healthcare can improve performance.

More of a monitoring of community demographics and health trends to align preventative programs to the needs of the community.

Making Methodist Healthcare one of the top 100 places to work for healthcare professionals in the U.S. To alleviate turn-over and increase retentions of top nursing and physician talent.

Threats

Funding cutbacks for Medicaid at the national level and Tenncare at the regional level would force a significant financial hardship in the company.

Becoming too invested in Northern Mississippi and potentially having to write off investments in that specific area of service. Methodist Healthcare needs to work with the University of Mississippi and Mississippi State University to get alliances created and bring greater levels of investment and healthcare to this economically challenged region of coverage.

Trying to be all things to all people given the breadth of coverage in the complete network today. The board of Methodist Healthcare needs to decide on just a few objectives and convincingly accomplish them.

The lack of a strong rural healthcare strategy has the potential to significantly increase costs over the long-term for Methodist Healthcare.

Evaluating the Marketing Mix at Methodist Healthcare

Of all aspects of what Methodist Healthcare is dealing with, their marketing mix needs just as much help as their IT platforms and infrastructure. While today the healthcare provider is experiencing success with key programs, they could be much more effective if they made better use of the classical marketing concept of the 4Ps. In evaluating their mission statement, the voice of the customer needs to come out much more clearly. Based on an assessment of its vision statement and the foundational role it plays in marketing, it is suggested that the vision statement be amended to say the following:

Methodist Healthcare is centered on the values of being a trusted advisor and source of excellent healthcare for our patients and a responsive resource for physicians. Our aim is to be a world leader in our chosen practices, enhancing the lives of our patients, physicians and associates in the process.

Products or Services

Methodist Healthcare needs to create a consistent series of services strategies and align with a core set of practice areas. Today they are too diffused through many alliances and partnerships.

Focusing on outpatient services and how to become a national leader in terms of best practices is badly needed as a competitive position.

Pricing

Aligned with the economic level of patients and underwritten by Medicaid nationally and Tenncare regionally, this is a strength today for Methodist Healthcare.

Consider patient outcare services analysis and the pricing needed to be competitive in rural markets served.

Promotion

Focusing on success stories in cancer research for example and furthering thought leadership is critical for Methodist Healthcare to make the most of its partnership with the University of Tennessee.

Promotion of "big enough to meet your needs but small enough to care" to counter any perceptions of being too big to care for every single patient. The focus on accountability also needs to be clear from this messaging.

A messaging of transparency and trust must also be continually stressed to ensure growth of Methodist Healthcare long-term. The company must pursue the role of trusted advisor to patients.

Place or Distribution

Making the Memphis hospital a thought leadership campus with U. Of T. is critical, as Methodist Healthcare must continually look to underscore thought leadership through its many locations.

Considering the consolidation of facilities to make more efficient use of the more efficient locations, or the conversion of inefficient locations to outpatient centers by re-engineering them for an entirely different purpose.

Methodist Healthcare's Financial Condition

Fortunately for Methodist Healthcare their financial health is very strong in an industry known for consolidation and drastic cost reduction strategies. Starting with a $75.1M increase in net patient service revenues between 2000 and 2001, in conjunction with a net reduction of $28.5M in net accounts receivable dramatically increased Net Current Assets including Cash, Cash Equivalents, and Short-Term Investments from $172M in 1999 to $234M in 2001, signaling the processes of recovering claims from both Medicaid and TennCare are excellent. This process efficiency in terms of getting paid quickly is a major competitive advantage long-term for Methodist Healthcare and it needs to be continually enhanced and strengthened.

Despite the University Hospital incurring a loss of $2.8M in 2001, the near doubling of revenues from the Germantown Hospital more than offset the loss. Germantown posted Net Income of $5.2M in 1999 rising to $10.3M in 2001, which was the greatest Net Income growth of any hospital in the Methodist Healthcare network. The most challenging area of the integrated network however is the performance of the Mississippi Operations. This points to the need to get strategies in place for both connecting with Mississippi-sponsored programs comparable to Tenncare and also partnering with universities in this state. Ultimately Methodist Healthcare made the right decision to sell these facilities and retain just two clinics and minimize their losses in this area. From a more strategic financial perspective however Methodist Healthcare needs to create a series of dashboards where they can better manage those hospitals experiencing declining Net Incomes and see what corrective action they can take quickly.

Recommendations for Methodist Healthcare

There are many possible strategies for Methodist Healthcare to take, yet these are the most critical to take action on immediately:

Completely re-vamp the IT architecture of Methodist Healthcare to include a Services-Oriented Architecture that can deliver integrated financials and a 360 degree view of the patient. What's lacking in the current IT architecture is integration between the many systems in the network. This is a pressing need as it will eventually impact patient satisfaction and potentially the diagnoses completed by physicians who need the specific results of each test and need this 360 degree view of the patient.

Develop Voice of the Patient Advisory Panel and have the Board meet with them quarterly. This is also critical for understanding the needs of the patients, and specifically what they are looking for in a hospital. It's important from a service planning perspective to have this defined. Developing a Physician Advisory Council is also critical to understand their unmet needs.

Define a market positioning strategy that supports the revised vision statement. Methodist Healthcare needs to focus on time-to-value with patients and physicians both, and this starts with looking first at how to re-define broken processes that associates and physicians know about. Methodist Healthcare must use this market positioning strategy to further drive lasting change into the organization, looking to alleviate roadblocks to associates in doing their jobs.