A Strategic Case Study of Hospital Administration: hospital consolidation

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Strategic Management For Health Care Manager

Agenda of Case Discussion

Information from the case1. The characters2. External and internal

analysis3. Alternative Scenario4. Stakeholder analysis5. Other issues

The Questions 1. What would your

recommendation be? Why?2. How would you recommend

the hospitals proceed?3. How would you propose the

consultants communicate their recommendations?

4. What strategy should them adopt with to potential opposition groups?

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INFORMATION FROM THE CASE

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Environmental scan of Gorsich

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Holy Family Hospital

GorsichGeneralHospital

Gorsich Clinic

Consult Team

Characters- Consult Team

• The Team is hired by the board of the hospitals for assisting the consolidation.

• John Tortini: Leader of the consult team• Bill Dean: Review the financial situation and

environment of the hospitals.• Dustin Robbs: Take charge of the interviews

and surveys.

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Characters- Gorsich General Hosp.

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President of the chamber of the commerceWell respected in the communityCommit the consolidation

Characters-Holy Family Hosp.

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Manager of the construction companyActive in community affairsCommit the consolidationa

Holy Family Hospital

8O: opportunity, T:threaten, U:uncertainty

Implications of external analysis

• Although there is a pessimistic prediction in economics issues, but the competitiveness of Gorsich is low. I propose the 2 hosps can consolidate in a progressive ways.

• There is a substantial demand in preventive medicine services, esp. in employee wellness, elderly health services and temperance services.

• Oligopoly in inpatient service in Gorsich and surrounding area means they could grow the service volume and scale of the economy by consolidation, but they might invite disaster in anti-trust.

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Overview of the hosps.:

--: complementary, --: clash with the other hosp if consolidation occur.

Alternative Scenarios

• Implications:– According to internal analysis, consolidation has many

benefit to both hosps in operation and market share, but different managerial style and organizational culture will be a problem.

– #4 & #3 have substantial effect in cost saving, but the risk and complexity of them are much higher than #2

– In order to achieve the best effect in cost saving, implement #3 or #4 is still worthy in the long run.

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Stakeholder Analysis

• Implication:– Independent MDs and Employees might be the potential oppose

forces to consolidation.– Board members are the most eager to consolidation.– Clinic MDs might be the opposition group if full consolidation occur,

although they seems to support somewhat collaboration.

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Agree degree of collaboration

No Collaboration

Minimum Collaboration

Mid Collaboration

Maximum Collaboration

Community 0% 3% 25% 72%

Ind. MDs 17% 11% 19% 53%

Clinic MDs 0% 7% 29% 64%

Board Member 0% 0% 15% 85%

Mgmt. and Emp.

5% 7% 23% 65%

Stakeholder Analysis

• Implication:– The opposing reason of Ind. and clinic MDs are due to fear of competition.– The opposing reason of employees are different values and the fear of layoff.

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Other Issues

• Implications– Board members’ ambition: Lowering the

operating cost is the ultimate goal. But fully consolidation and abandon one campus is unfeasible.

– In order to avoid anti-trust, make a acceptable decision is critical and essential.

• How to make a strategy of the collaboration that fit with this two conditions?

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THE QUESTIONS: #1

1. What would your recommendation be? Why?

2. How would you recommend the hospitals proceed?

3. How would you propose the consultants communicate their recommendations?

4. What strategy should them adopt with to potential opposition groups?

DECISION OF THE DECISION OF THE

CONSOLIDATIONCONSOLIDATION

HOW TO EXECUTE HOW TO EXECUTE THE THE

CONSOLIDATIONCONSOLIDATION

COMMUNICATE COMMUNICATE WITH THE WITH THE

STAKEHOLDERSSTAKEHOLDERS

DEAL WITH THE DEAL WITH THE

RESISTANCERESISTANCE15

#1 Decision of the consolidation

• If I were Mr. Tortini, I would recommend the consolidation in a progressive way.– Because the opposition group can introduce anti-trust

actions.– To ensure the collaboration can be effective, both hosps

need time to know and learn to each other.– But reduce operating cost is the ultimate goal, the

collaboration should have substantial imrovement in cost reduction.

• In my opinion, the consolidation should be implemented in alternative#2 in short-term and adopt with#3 as 2-year goal than #4 as 5-year goal.

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Analysis of Alternative2

• Consolidation by strategic alliance and JV:

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Pros:•Low cost and low risks•Low resistance from opposition group

Pros:•Low cost and low risks•Low resistance from opposition group

Cons:•No substantial benefit in operating cost reduction•There are little differential services they can cooperate in a complemental way.

Cons:•No substantial benefit in operating cost reduction•There are little differential services they can cooperate in a complemental way.

Uncertainties:•Financial problem can be solved by this insignificant action?•In this JV, which hosp is the accountable leader?•If the JV fails, maybe both of them will lose other collaborative opportunities.

Uncertainties:•Financial problem can be solved by this insignificant action?•In this JV, which hosp is the accountable leader?•If the JV fails, maybe both of them will lose other collaborative opportunities.

Analysis of Alternative3,4

• Consolidation by merge and acquisition:

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Pros:•Huge improvement in operating costs reduction.•Satisfy the expectation of community and the board.

Pros:•Huge improvement in operating costs reduction.•Satisfy the expectation of community and the board.

Cons:•Clash between 2 hosps may come up with M&A.•Huge investment capital•Anti-trust agencies’ intervention

Cons:•Clash between 2 hosps may come up with M&A.•Huge investment capital•Anti-trust agencies’ intervention

Uncertainties:•The degree of resistance from MDs could be strong.•Can the new organization operate in a mission-oriented and high-efficiency way or in a self-interest and low-efficiency way?

Uncertainties:•The degree of resistance from MDs could be strong.•Can the new organization operate in a mission-oriented and high-efficiency way or in a self-interest and low-efficiency way?

Compare Alter3 & Alter4

• If alternative#2 goes well, which one should be recommended as the next step?

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THE QUESTIONS: #2

1. What would your recommendation be? Why?

2. How would you recommend the hospitals proceed?

3. How would you propose the consultants communicate their recommendations?

4. What strategy should them adopt with to potential opposition groups?

DECISION OF THE DECISION OF THE

CONSOLIDATIONCONSOLIDATION

HOW TO EXECUTE HOW TO EXECUTE THE THE

CONSOLIDATIONCONSOLIDATION

COMMUNICATE COMMUNICATE WITH THE WITH THE

STAKEHOLDERSSTAKEHOLDERS

DEAL WITH THE DEAL WITH THE

RESISTANCERESISTANCE20

Figure out the collaborative strategy

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Both of 2hosps need know each other since the initial of JV. They have to build up a common mission, value and vision from the leadership.When they have sufficient understand in vision, the consolidation should start.

They have to plan a complemented ,feasible, and progressive strategy in align their business units.

They have to choose a promising market, and know how to compete. Then each BU have to set the functional policy in service, HR, and marketing area.

#2 How to execute the consolidation

Timeline of the collaborative strategy implementation:

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ArrangeJV

0~6M

ArrangeConsolidation

18~24M

ArrangeService

Concentration42-48M

Year 1 Year2 Year3 Year4 Year5

Why do I recommend this strategy?

1. To start up from the most feasible alternative, and avoid the opposition groups boycott.

2. In first two years, both hosps have sufficient time to know each other, cooperate the JV and infuse their common values and vision

3. In order to solve the financial problem completely, the consolidation should be implemented with a lower objection since year3.

4. To collaborative effectively, the concentration in BU should be executed during year5

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Corporate strategy of 2 hospitals

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New JV

Preventive Services:wellness, Health checkupBob acts as leader of JV

Coordinative Stage Coordinative Stage year1- year2year1- year2

Cooperative stageCooperative stageyear3- year4year3- year4

Original G.G.HOriginal G.G.H Original H.F.HOriginal H.F.H

Coordinative Stage Coordinative Stage year5- afteryear5- after

Original G.G.HOriginal G.G.H Original H.F.HOriginal H.F.H

Jeff act as CEO, Bob act as the mentor/ senior consultant,

maintain their administration individually

Outpatient services are provided in original G.G.H campus, inpatient and ER services are provided in

H.F.H

Projected operation cost saved

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THE QUESTIONS: #3

1. What would your recommendation be? Why?

2. How would you recommend the hospitals proceed?

3. How would you propose the consultants communicate their recommendations?

4. What strategy should them adopt with to potential opposition groups?

DECISION OF THE DECISION OF THE

CONSOLIDATIONCONSOLIDATION

HOW TO EXECUTE HOW TO EXECUTE THE THE

CONSOLIDATIONCONSOLIDATION

COMMUNICATE COMMUNICATE WITH THE WITH THE

STAKEHOLDERSSTAKEHOLDERS

DEAL WITH THE DEAL WITH THE

RESISTANCERESISTANCE26

#3 Communicate with the stakeholders

• Goals of the communication– Let mgmt. of 2 hosp. commit to collaboration– Erase the doubt from potential opposition group– Let community understand the new JV service will

help them

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Proposed process of communication

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Board Meeting

CEO meeting to gain a common view

Approve

Executives of 2 hosps. meetingPlan the preparation of JV

Assign a cross-organization project team to build the JV

services

Outsource part services to Ind. MDs

Advocate the JV to their community

Communicate with employees

Communicate with mgmt

Arrange the press conference to spread to public

Suggestion for G.G.H

1. Keep an attitude in arranging collaborative activities

2. Let H.F.H lead the JV and offer the staff or professions.

3. Communicate with Jeff to adjust his aggressive attitude, see Bob as his mentor and respect him.

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Suggestion for H.F.H

1. Be responsible for leading the marketing, facility, and initial operation of the JV.

2. Set the JV location in their campus.3. Assign Bob work as the leader of the JV, Jeff

and other executives provide assists.

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THE QUESTIONS: #4

1. What would your recommendation be? Why?

2. How would you recommend the hospitals proceed?

3. How would you propose the consultants communicate their recommendations?

4. What strategy should them adopt with to potential opposition groups?

DECISION OF THE DECISION OF THE

CONSOLIDATIONCONSOLIDATION

HOW TO EXECUTE HOW TO EXECUTE THE THE

CONSOLIDATIONCONSOLIDATION

COMMUNICATE COMMUNICATE WITH THE WITH THE

STAKEHOLDERSSTAKEHOLDERS

DEAL WITH THE DEAL WITH THE

RESISTANCERESISTANCE31

Government:Monopoly is discouraged

#4 Deal with the resistance • Environmental scan: Who are potential opposition groups?

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Holy Family Hospital

GorsichGeneralHospital

Gorsich Clinic

Consult TeamLay off?

Clash in values?Heavy work

load?Micro-

managing?

Monopoly?How to survive?

How to leverage the change of 2

hosps?

Lay off?Religious

difference?

Opposition group: Employees

• Doubts: Lay-off, Different leadership and managerial style, and impact in belief

• Who: The executives of both hosps should communicate with their staff and lay down related policies to promise and clarify the span of change.

• How: Promise no lay-offs, hold OJT in the other side, establish a cross-org. project team.

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Opposition group: MDs

• Doubts: monopoly or deprive of their niche• Who: Executives and Cross-org. project team • How: They could arrange some of the

preventive services that outsource to Ind. MDs. And executives should visit ind.MDs and clinic to emphasis that the collaboration is complementary to their service, this won’t harm their niche.

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Opposition group: Government

• Doubts: Monopoly• Who: CEOs and boards of the hosps• How: Strive for everyone of the community is

really critical to ensure the collaboration. They should start their consolidation from JV to minimize the opposition voice and maintain good relations to other stakeholders.

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~Thank You~~Thank You~