Case 1 Analysis: Medical Center of Southern Indiana
The Medical Center of Southern Indiana (MCSI) has had a turbulent tenure as a hospital since its inception in 1973. Unprofitable from the very beginning, MCSI has gone through multiple ownership changes, creating a distrusting atmosphere between Clark County, IN residents, the local medical community, and MCSI. The city of Charlestown purchased the hospital at the end of 1991 in the hopes of turning the facility into a profitable medical center offering key services to the community. An aggressive expansion strategy was developed by management contractor American MedTrust in 1992 and this led to an operating profit in 1998 of $480,545. This marked a turning point for MCSI, as it was the first year in a very long time that the hospital had turned a profit. As they look to the future, MCSI needs to determine if it should continue with the aggressive strategy of expanding services or slow its expansion pace and focus on providing excellent service within its current capacity and looking for ways to reduce cost and enhance revenues.
Key Demographics and Facts
Certain elements of the MCSI case are essential in determining the appropriate strategy to pursue in the future. The external community general hospital environment has not been thriving during this time period. Of the roughly 5,000 community hospitals in the United States in 1997, 22% had bed capacity of 50-99. From the year 1980 to 1997, the number of hospitals with 50-99 beds decreased by 24%. As a 96 bed facility, the national trend does not bode well for MCSI.
When the hospital was purchased by the city of Charlestown, American MedTrust came in with its aggressive “revitalization initiatives” to help MCSI become profitable. Under American MedTrust’s leadership, MCSI spent more than $3 million from 1992 to 1998 to accomplish these aggressive strategies. Two key elements of those initiatives involved expanding the services offered and rebuilding relationships with insurance companies and the local medical community. As a full-service hospital, MCSI already offered a variety of medical services. Because of a consistently low census (occupancy rate around 45%), developing ways to attract new patients was vital. A new inpatient geropsychiatric unit, skilled nursing facility, and a home health agency were added to the mix when hospital executives determined that there was a need in the community for these services and that the competition was not offering these services. By 1998, all three new service lines were bringing in at least $1 million in gross revenue. Other key investments included the creation of an outpatient mall, purchasing new technology, and the creation of satellite specialty and primary care clinics. Finding and expanding sources of revenue was also a key feature in the aggressive strategic plan. MCSI knew that to enhance revenue, the hospital had to contract with managed care companies. Because of sour relationships between MCSI and the insurance companies, MCSI enlisted the help of the state legislature and the state insurance commissioner to pass the Any Willing Provider bill that required insurance companies to work with providers like MCSI and provide written explanations for any declinations of contracts. In 1994, MCSI had two managed care contracts; there were twenty-five managed care contracts in 1998. With 65% of its patient base on Medicare, it was essential for MCSI to increase these managed care contracts if the organization hoped to expand their revenue stream.
Because of the enhanced services offered, the number of full time equivalent employees also increased from 183 in 1994 to 270 in 1998. MCSI has benefited from a low 11% employee turnover and a lean organizational structure. Even with these systems in place however, the salary and wage expense has nearly tripled from $3.3 million in 1992 to $9.88 million in 1998. Of the 270 FTE employees, there are 75 active...
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