Anthony R. Kovner
Harvard Business Review
Anthony R. Kovner
The Case of the Unhealthy Hospital
Bruce Reid, Blake Memorial Hospital’s new CEO, rubbed his eyes and looked again at the 1992 budget worksheet. The more he played with the figures, the more pessimistic he became. Blake Memorial’s financial health was not good; it suffered from rising costs, static revenue, and declining quality of care. When the board hired Reid six months ago, the mandate had been clear: improve the quality of care and set the financial house in order. Reid had less than a week to finalize his $70 million budget for approval by the hospital’s board. As he considered his choices, one issue, the future of six off-site clinics, commanded special attention. Reid’s predecessor had set up the clinics five years earlier to provide primary health care to residents of Marksville’s poorer neighborhoods; they were generally considered a model of community-based care. But while providing a valuable service for the city’s poor, the clinics also diverted funds away from Blake Memorial’s in-house services, many of which were underfunded. As he worked on the budget, Reid’s thoughts Anthony R. Kovner is professor of health policy and management at the Robert F. Wagner Graduate School of Public Service at New York University. He is the author of numerous books and articles on health care management, including Really Managing: The Work of Effective CEOs in Large Health Organizations (American College of Health Care Administrators, 1988). HBR’s cases are derived from the experiences of real companies and real people. As written, they are hypothetical, and the names used are fictitious.
drifted back to his first visit to the Lorris housing project in early March, just two weeks into his tenure as CEO. The clinic was not much to look at. A small graffiti-covered sign in the courtyard pointed the way to the basement entrance of an aging six-story apartment building. Reid pulled open the heavy metal door and entered the small waiting room. Two of the seven chairs were occupied. In one, a pregnant teenage girl listened to a Walkman and tapped her foot. In the other, a man in his mid-thirties sat with his eyes closed, resting his head against the wall. Reid had come alone and unannounced. He wanted to see the clinic without the fanfare of an official ´ visit and to meet Dr. Renee Dawson, who had been the clinic’s family practitioner since 1986. The meeting had to be brief, Dawson apologized, because the nurse had not yet arrived and she had patients to see. As they marched down to her office, she filled Reid in on the waiting patients: the girl was 14 years old, in for a routine prenatal checkup, and the man, a crack addict recently diagnosed as HIV positive, was in for a follow-up visit and blood tests. On his hurried tour, Reid noted the dilapidated condition of the cramped facility. The paint was peeling everywhere, and in one examining room, he had to step around a bucket strategically placed to catch a drip from a leaking overhead pipe. After 15 years
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as a university hospital administrator, Reid felt unprepared for this kind of medicine. The conditions were appalling, he told Dawson, and were contrary to the image of the high-quality medical care he wanted Blake Memorial to project. When he asked her how she put up with it, Dawson just stared at him. ‘‘What are my options?’’ she finally asked. Reid looked again at the clinic figures from last year: collectively they cost $1.1 million to operate, at a loss of $256,000. What Blake needed, Reid told himself, were fewer services that sapped resources and more revenue-generating services, or at least services that would make the hospital more competitive. The clinics were most definitely a drain. Of course, there was a surfeit of...