FM002 Marketing Strategies

profileMbide
Casestudyone1-5.pdf

Healthcare M arketing: A Case Study Approach

and seeminglyendlesssocialgatheringscharacteristic of the time of year. It wasdissimilar in one respect,however: Dallin was full of anxiety and could not shake it. Three months carlier, Dallin's Rocky Mountain-based healthcare systemGreat Western Hospital Cot- poration (GWHC) initiated merger/consolidationtalks with the county-basedoperators of his hospital's chief rival, Tanner Medical Center, and a December 31 deadline to for- mally initiate negotiations or walk awaywas looming. Dallin understood that hispersonal recommendation to his corporate supervisors and community-based board would greatly influence their eventual decision to press ahead with consolidation talks or continue the more than 40-year practice of offering competitive but duplicative healthcare servicesto the comnmunity. Dallin's recommendation and the ultimate decision to consolidate or not would be the most important local healthcare market decision in a generation or moreand would greatly impact the lives of numerous healthcare professionals and the nature and quality of healthcareservices for arearesidents for years to come.

MERGER AND CONSOLIDATION TRENDS

In general, the local market mirrored the healthcare issues and challenges observed nation- ally, including a trend toward hospital mergers, acquisitions, and consolidations brought about by myriad organizational and market forces (Cuellar and Gertler 2003; Haleblian et al. 2009). In the decadepreceding GWHC% deliberations, the healthcare industry under- went a wave of consolidations that transformed the hospital marketplace. By the mid- 1990s, hospital mergers and acquisitions had increased by ncarly tenfold the rateobserved only five ycars earlier (Vogt and Town 2006).

From hisreadingsandobservations, Dallin noted that some of the more important advantages to hospital mergers and consolidations included much needed access to capital and elimination ofnon-value-addedduplication ofexpensivehealthcareservices.Mindful that consolidation was rarely apanacea, however, Dallin identified a handful ofconcerns and potentialdisadvantages, including the potential for higher costs and prices andlower quality followingreducedcompetition (Tenn 2011; Vogt and Town 2006).

THE LOCAL MARKET AND DEMOGRAPHICS

Pratville's highdesertcommunity of50,000generally supported two competinghospitals for more than 70years. About 75 percent of one hospital's clinical programs andservices were duplicated by its cross-town rival, and local citizens traveled to out-of-area hospitals to receive roughly $40 million peryear in healthcareservices either not provided or poorly delivered by local hospitals.

From early 2000 through mid-2001, important changes in the leadership and governance of Prattville's rival hospitals set the stage for the important talks that soon

Created with Scanner Pro

Part I:Foun dations of Healthcare Marketing

followed. Among these leadership changeswas the appointment of new hospital board chairmen, new hospital administrators/CEOS, new Blade County commissioners, and new regional and systemwide leadership at GWHC. Moreover, each hospital's respective plans to introduce an even greater array of duplicate services or expand on existing duplicate services prompted Dallin to ask himself three important questions: Was his hospital's mis- sion focused on what was right and best for the Prattville community or GWHC? Would a consolidation of hospital operations improve Prattville arearesidents'accessto services and thecostand quality ofhealthcare?And which organization-Kimball Hospital (GWHC) or county-owned/operated Tanner Medical Center was best positioned toassumeleader- ship, ownership, and management of the community's hospital/healthcare system?

1

Mindful of the sea change in local and central office leadership and increasingly troubled by anawareness that each hospital's strategic plan called for more and more non- value-added duplication of hospital services, Dallin contacted his immediate supervisor and suggested the time might be right to revisit the idea of hospital cooperation-even consolidation. The most recent serious attempt at merger/consolidation talks failed in 1983, and authorities revisited the idea in 1990 without success.When merger/consolida- tion talksresurfacedin 2001, GWHC wasever mindful of its longstanding, publicly stated commitment to the communiy. Yet GWHC was cognizant of important political and marketplacerealities. A profile ofkeyownership, market, financial, operating, and political dimensions of Prattville's hospital/healthcare community is presented in Exhibit 1.

OTHER PROVIDER AND COMMUNITY CONSIDERATIONS Sinceits inception in 1975, GWHC hadestablishedasystemof more than 20 hospitals in three neighboring states with highly sophisticated central office support services, includ- ing health information technology, central purchasing, laboratory, laundry, marketing/ advertising, physician recruitment, quality/risk management, and more. By implementing evidence-based medicine, the system had reducedcosts and improved quality and received national acclaim for its remarkable focus on this initiative.

Because of its local ownership and control, employees and supporters of Tanner Medical Center touted the hospital's ability to chart its own course and make its own decisions, independent of out-of-state officers who may or may not haveshared the com- munity's healthcare goals and views. Tanner Medical Center enjoyed a measure of "sys- tem" support through its afiliation with Voluntary Hospitals of America (VHA), the nation's largest not-for-profit hospital asociation. Importantly, and for a combinaion of reasons, local physicians generally favored and supported Tanner over Kimball, reflected by a nearly2:1 ratio of annual patient admissions to Tanner over Kimball. Manysupposed that notwithstanding Kimball's/GWHC's reputation asa high-quality, lower-cost provider, area physicians resisted the corporation's centralized, systematic approach to planning and

Created with Scanner Pro

4 Healthcare Marketing: A Case Study Appro ach

EXHIBIT 1

Select Financial, Operating, and

Other Indicators: Kimball Hospital

and Tanner Medical Center

(Fiscal Year 2000)

Kimball Hospital Tanner MedicalCenter GWHC Blade CountyHospital ownership and

Control

Ownership type

Licensed beds

Government/county

150

24,240/25,380/23,725

501(c)3) corporation

110

10,150/10,925/12,775Total patient days-trend (1998/1999/2000)

Average daily census

Annual gross patient services revenue

68

$97 million

$54.6 million

s2%

$310,000

2%/4%/6%

35

$49 million

Annual net patient services $31.5 million revenue

26%

$141,000

3%/5%/3%

Market share

Annual marketing/ advertising budget

Net operating income percentage-trend (1998/1999/2000)

Total debt $73 millionNJA (consolidated with GWHC)

$2.3 billion (GWHC) $9 millionFinancial reserves (savings)

Employed physicians 8

Percentage of local physi- cians whose first loyalty was to this hospital

35% 65%

Services unique to hospital in local market

Cardiology, acute rehabilitation

Pediatrics, neonatal level

II, cancer

Percentage of physicians who favored hospital consolidation

80% (based on fall 2001 Survey of Kimball/ Tannermedl cal staffs)

Public preference for local (versus out of area) owner- ship and control

68% (based on spring 2001 Kimball Hospitalcommunity telephone survey)

Created with Scanner Pro

Part l: Foundations of Healthcare Marketing 5

delivering patient care. Indeed, many physicians relocated to Prattville because of the region's laissez-faire approach to medicine, including a lack of managed care and other insurance mechanisms that limited physician reimbursement and autonomy.

A TIME FOR DECISION

As CEO, Dallin was also chief marketing manager and promoter of his hospital/health- care organization. Positioning his organization for immediate and long-term growth and financial success was an ever-present mandate; orchestrating a well-balanced, integrated,

community-wide healthcare system to improve access, cost, and quality of care to the entire Prattville community was no less important. In his heart, Dallin believed the timne was right to consolidate or merge the community's two competing hospitals, and the lead- ership, financial, and other strengths of his company made Kimball Hospital/GWHC the prefered owner/operator of the new entity. Yet, Dallin knew ofhis community's underly- ing preference for local ownership and control and of the physician community's long- standing reluctance to embrace his company's philosophy and approach to organizing and delivering care. Although Dallin's organization and community board leaders were independent, critical thinkers, they looked to him for guidance in this matter.

DISCUUSSION OUESTIONS

1. What key organizational and marketplace issues reopened the door to a potential

2. In what ways could Dallin balance the interests of the community with the interests

3. From a patient and community perspective, what might be some of the pros and cons

4. From this case, can you identify and describe some of the forces that shape a

5. Who are the key decision makers and other stakeholders (individuals and groups) in

hospital merger/consolidation?

of his employer/corporation?

to consolidating the community's hospitals?

hospital's mission, vision, culture, growth, and development?

this case? What issues and concerns do they have about consolidation, and what are their relative positions of power and influence in Prattville's healthcare community? Would you recommend consolidation of Prattville's two community hospitals? Why or why not? If you would recommend consolidation, which organization should assume ownership/control? Why? What would be the strategic marketing implications of your decision?

6.

7.

Created with Scanner Pro

6 Healthcare Marketing: A Case Study Approach

REFERENCES

Cuellar, A. E., and P.J. Gertler. 2003. "Trends in Hospital Consolidation: The Formation of

LocalSystems."Health Affairs (Millwood) 22 (6):77-87.

Haleblian, )., C. E. Devers, G. McNamara, M. A. Carpenter, and R. B. Davison. 20o9. "Taking

Stock of What We Know About Mergers and Acquisitions." Journal of Management 35 (3): 469-502.

Tenn, S. 2011. "The Price Effects of Hospital Mergers: ACase Study of the Sutter-Summit

Transaction." International Journal of theEconomicsofBusiness18(1) 65-82.

Vogt, W. B., and R.Town. 2006. "How Has Hospital ConsolidationAffected the Price and Qual-

ity of Hospital Care?" RobertWoodJohnsonFoundationResearchSynthesis Report No. 9. Published in February. www.rwjf.org/content/dam/farm/reports/issue_briefs/2006/ rwjf12056/subassets/rwjf12056_1.

Created with Scanner Pro

PART I

FOUNDATION$ OF HEALTHCARE MARKETING

FEATURE CASE: HOSPITAL CONSOLIDATION

This real-life case invites students to consider the dynamic relationship healthcare providers have with their local and regional market and to appreciate the need to balance organizational and community interests when making important decisions that affect the healthcare market- place. Participant and facility names and various numerical values have been modified to pre- serve anonymity and accentuate points of learning.

The case also encourages students to consider the long-term impact certain strategic ini- tiatives have on healthcare organizations and their stakeholders, including patients, physicians, payers, and the public, and to actively consider stakeholder expectations in connection with these decisions. Finally, this case introduces students to important healthcare industry issues and trends, including forces that shape a healthcare organization's mission, vision, and market- basedstrategies for growth and development, asdiscussed in Partl of this text.

INTRODUCTION In many ways the 2001 holiday seasonwas no different than any other. Dallin Call chief executiveofficer of Kimball Hospital- genuinely enjoyed the traditional music, decorations,

Created with Scanner Pro