A case paper on SWOT Analysis.
Community Health and University Health are two healthcare organizations in a state that has
recently seen the continued growth and rising market power of a large health system, as well as
physician and insurer changes and challenges. Both organizations have been financially healthy,
but downturns in the past three months suggest that the good times may be at an end.
Like many other markets, the state in this scenario has experienced widespread consolidation of
providers over the past 10 years. One system, in particular, based in the largest metropolitan area
in the state, has been especially aggressive in functioning as a consolidator. This system has
captured a 45 percent share of the metro market (population of 1.5 million), is a significant
presence throughout the southern and most populous half of the state, and now has about 15
percent to 20 percent of that market, too. A case paper on SWOT Analysis.
The provider landscape has changed dramatically in this metropolitan area. As a result of
closures and consolidations, only one independent hospital (Children’s) remains where there had
previously been 20. In addition to the large system (which comprises five hospitals), the four
other players, all of which operate essentially exclusively in the metro area, are:
• Community Health with three hospitals and a 13 percent share
• University Health with two hospitals and a 12 percent share
• Catholic Health with four hospitals and a 17 percent share
• North Suburban Health with two hospitals and an 8 percent share
The physician market is also consolidating. Each system has a large employed group that is
roughly in proportion to its size and mostly, but not exclusively, primary-care-based. The only
exceptions are University Health and Children’s, where physician groups are dominated by
specialty-oriented faculty practice plans. There are still a few large independent multispecialty
groups and many single-specialty groups, but here, too, these groups are increasingly migrating
to a relationship (employment or tight joint venture) with one of the systems. A case paper on SWOT Analysis.
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The insurance market has been relatively benign until the past few years. The commercial
insurers’ favored product has been the preferred provider organization (PPO). But here, as well,
the market is changing. Three years ago, there were six commercial insurers, and not one
had more than a 25 percent share of the market. Since then, the two smallest have merged, and
two of the remaining four have been bought by national companies. As a result, the competitive
ante has been raised and providers have begun to be squeezed; and the competitive pressures are
expected to become much more intense in the next two to three years. A case paper on SWOT Analysis.
In this environment, six months ago, the CEOs of University Health and Community Health
began discussing a potential relationship. Concerned about the increasing market power of the
large system and the developments involving physicians and insurers, both CEOs thought the
time may be right to merge their organizations.
ALTERNATIVES CONSIDERED AND ANALYSIS
Initially, the two CEOs discussed a range of organizational affiliation options, from a shared
services company or a full merger. As a result, they charged financial staff and consultants early
on to define financial benefits in four categories (see exhibit):
• Low-risk, relatively easy-to-implement cost-reduction opportunities
• High-risk, relatively difficult-to-implement cost-reduction opportunities
• Capital cost avoidance opportunities
• Revenue improvement opportunities
Because both systems are themselves the product of previous mergers and had six and nine years
of experience, respectively, functioning as merged entities, there was some skepticism as to the
potential for significant additional economies. A case paper on SWOT Analysis.However, these two systems largely operate in
different parts of the metro area, so combining could improve geographic coverage while
avoiding conflict between the two organizations (for the most part) over the same markets.
Although the numbers may appear large in absolute terms, the combined entity has annual
revenue of $1.3 billion. And the two CEOs recognized that achievement of the financial benefits
estimated would not be without extremely hard work and major organizational change and pain.
So the question for the CEOs and the joint board oversight committee that will receive this
analysis is: What would you do and why?
View exhibit 1
* All estimates are in constant 2016 dollars. A case paper on SWOT Analysis.
Estimated 40% margin on all incremental revenue
FY 2016 Profile: University Health
Acute beds: 650
Inpatient admissions: 35,000
Outpatient visits: 550,000
FTE employees: 4,500
Net patient revenue: $750 million
Operating margin: 8.0%
Unrestricted cash: $500 million
Debt to capitalization: 29.4%
Age of plant (years): 6.4
FY 2016 Profile: Community Health
Acute beds: 500
Inpatient admissions: 26,000
Outpatient visits: 850,000
FTE employees: 4,200
Net patient revenue: $575 million
Operating margin: 7.5%
Unrestricted cash: $200 million
Debt to capitalization: 29.0%
Age of plant (years): 10.5
A case paper on SWOT Analysis
Please identify and explain at least three strengths and three weaknesses of each organization. Please include some of the financial information identified in the case with this analysis. (15 Points)
4: Please identify and explain at least three opportunities and three threats associated with each organization and the market it operates in. Please include some of the financial information identified in the case with this analysis. (15 Points) A case paper on SWOT Analysis.