Case of Perpetual Mercy Hospital

Problem The broad focus of this case is one of strategy planning. Perpetual Mercy Hospital has to determine the best course of action to help the Downtown Health Clinic achieve its stated objectives of expanding the hospital’s referral base, increasing referrals of privately insured patients, establishing a liaison with the business community, and becoming self-supporting within three years of its opening. This last objective is jeopardized by the possibility of a competing clinic opening 5 blocks north of the DHC’s location.

The underlying problem is that the DHC may not be self-sufficient within the projected timeframe, regardless of competition. Alternatives The following alternatives have been identified for this case: 1. Selling the Downtown Health Center to competitor 2. Adding gynecology services 3. Developing employer services through promotion 4. Extending hours of operation 5. Combining options 2-4 Recommendation Our recommendation is option 5. This alternative presents the DHC with the best possibility of achieving its stated objective of self-sufficiency in 2 more years.

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Customers TARGET MARKET: The potential users of DHC consist of 11,663 office workers, young people or upwardly mobile families from the cities, that are expected to grow 6% per year. CUSTOMER ATTITUDE: Increase of new family/young people in downtown. Among 400 people interviewed, 64% would use or try DHC if necessary, even if they have a regular physician.

The expected frequency of DHC use for personal illness/exam is once every other year for 60% of the patients (both female and male), once per year for 25%, twice per year 10% and three or more times per year for 5%. Furthermore, people interviewed in total are 256, composed of 160 (male) and 240 (female), said that they would use or try the DHC if necessary. CUSTOMER PROFILE:

Office workers (employees/workers) are divided into clerical 48%, professional/technical/managerial 23%, operator 19% and other 10%. They are composed of 30% Male and 70% Female (most are 35-years old). The distance between them and DHC are 28% to two Blocks, 25% to one Block, 22% to three Blocks, 15% to four Blocks, 8% to five blocks and 2% to more than five blocks.

The direction from 25% of them is south of DHC, 20% east of DHC and 15% southwest of DHC. The majority (82%) does not have a regular physician. CUSTOMER BEHAVIOUR: Working hours (9am – 5pm) From Monday to Friday, lunch hours from 11am to 2pm. Their offices are located nearby the DHC. SEGMENTATION OF MARKET: The most frequent reasons for patient visits from the first 11 months of operations of DHC is presented in details as follows: personal illness exams (53%); worker’s compensation exam/treatment (25%); employment/insurance physical exams (19%), and; emergency (3%).


The current market for DHC is limited to an urban area comprising 11,663 office workers during the work week. The expected population growth rate is 6 percent annually. A random survey indicated that approximately 50% of workers in the area would be willing to try the DHC, and 40% of those so inclined expected to visit the DHC at least once per year. Worker population11,663 people Willing to try DHCx50% Expecting to go at least once per yearx40% Expected annual patient base2333 people Female proportionx60% Average annual gynecological visitsx1.

5 Expected annual gynecological visits2100 visits Average charge per visitx$104 Expected annual revenue$218,369 Gynecologist cost (2 days times 52 wk times 8 hr/day at $70/hr)-$58,240 Expected annual profit from gynecological service$160,129 Promoting employer services is expected to gain an additional 65 physical examinations over the existing 50 exams per month.

The advertisements would not feature any pricing and be paid on an annual basis. Additional employment physicals per year (65 x 12)780 Employment physical examination revenuex$101. 52 Annual advertising cost-$10,400 Employer service profit$68,786.

Expanding office hours from 9 hours to 12 hours would increase personnel costs by 33%, as well as the cost for another physician to help cover the overlap during lunch hours. Revenue reflects an expected 8% increase in charges across the board. Personnel costs($168,376) Incremental personnel costsx33% Additional physician (260 days times 8 hr/day at $66/hr)+($137,280)

Cost for expanded coverage($192,844) While costly, the expanded hours would also allow the DHC to support scheduling more employment physicals. Competition All nearby ambulatory care clinics are servicing suburban patients.

Another firm, believed to be Medcenter, has sponsored a study to determine if enough demand exists to establish a new clinic five blocks north of the DHC. This new clinic would compete directly with the DHC for patients in an overlapping area covering 3,424 workers. Medcenter is fairly successful in its current location, and has a reputation for being aggressive and market-oriented.

Their current facility already offers 12-hour office days and has 2 physicians on 8-hour shifts. Medcenter appears to be interested in developing employer services of its own. Annualized patient visits3,807.

Current physical exam visits in northern regionx20% Estimated loss due to competitionx33% Personal illness/exam chargex$54 Total estimated loss to competition$13,705 Company PROFILE Perpetual Mercy Hospital is a 600-bed, independent, not-for-profit general hospital. It is located on the southern periphery of a major western city. It represents one of the six general hospital in the city and twenty in the county. Its financial situation is stronger than most of the metropolitan-based hospitals in the United States. It is debt-free and has the highest overall occupancy rate among the city’s six general hospitals.

It is in charge of the hospital’s Downtown Health Clinic. CULTURE Customer-oriented, DHC culture focuses on fulfilling customer requests, offering specific services, and improving the image of DHC and PMH to the community. VALUE SYSTEM The value system of DHC is dependent on inner-city residents. The income of new families and young people will be definitively the key point for increasing the value of the clinic. DHC is based on Customer Value, which is determined by the relationship between benefits (recovering the expenses for clinic expansion) and the sacrifices necessary to obtain those benefits.

DHC is furthermore very focused on customer satisfaction. Often they conduct marketing research in order to understand if the services proposed would fit the needs of their customers (e. g. , illness visits during lunch time). Environment PPOs and HMOs have restricted the use of inpatient care, which led to the establishment of ambulatory health care facilities like the Downtown Health Clinic. The lack of 24-hour physician staffing prevents the DHC from depicting itself as an emergency care center. Expectations of ambulatory care facilities include extended hours and short waiting times.

This makes it more critical that the DHC be open for at least 12-hour days in the face of possible competition, even if the extended hours do not lead directly to increased profits. The 2-physician overlap during lunch hours would also contribute to shorter waiting periods. The DHC is restricted in its advertising and solicitation by the Perpetual Mercy Hospital staff. Their concern is that the appearance of crass commercialism would negatively impact the hospital’s image. As a result, solicitations are disguised as community relations calls and advertisements are devoid of prices or any commercial appearance.


The alternative of adding gynecological services, promoting employer services, and expanding office hours more than makes up for any possible loss of revenue from competition. Coupled with the expected 6% annual growth in population and the 8% increase in charges, the Downtown Health Clinic should be fully self-sustaining within the next 2 years. Appendix SWOT ANALYSIS United States: 2002Issued August 2005 EC02-62A-1US 2002 Economic Census Health Care and Social Assistance Geographic Area Series United States: 2002Issued August 2005 EC02-52A-1US 2002 Economic Census Finance and Insurance Geographic Area Series.

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