Perpetual Mercy Hospital – Case Study

Perpetual Mercy Hospital (PMH) a 600 bed, independent, not-for-profit, general hospital is one of six general hospitals located in a major western city. Financially stronger than most metropolitan-based hospitals in the United States, it is debt-free and has the highest overall occupancy rate among the city’s of six general hospitals (Rodger and Peterson, 2010, p. 230). In May 1999, PMH formally opened a new Health Clinic in the city’s downtown area.

The reasoning behind opening the new clinic was to help PMH expand its referral base through establishing a connection with the business community, and to increase referrals of privately insured patients. Until the 1960s, hospitals were largely charitable institutions that prided themselves on their not-for-profit orientation. Hospitals functioned primarily as workshops for physicians and were guided by civic-minded boards of trustees.

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Federal intervention in the 1960s changed the concept of health care services from privilege to entitlement (Rodger and Peterson, 2010, p. 228). Since the 1960s, the health care industry has experienced drastic changes that included cutbacks in subsidy programs and cost-control regulations, such as the Balanced Budget Act of 1997 that among other things was aimed to reduce Medicare spending, through reduced payments to providers such as hospitals and nurse practitioners (Wikipedia).

Due to the unfavorable demographic shift that has taken place over the years at PMH a large majority of the hospital’s existing patients are covered under Medicare and therefore alternative health care reimbursement programs need to be added and or pushed through their existing or expanded patient care system. Before opening their new center, PMH collected data to determine the types of patient care services needed within the targeted area.

Resulting from the information collected the hospital’s newly opened Downtown Health Care (DHC) services would include preventive health care, minor emergency care, referral for acute and chronic health care, offers specialized employer services (pre-employment examinations and treatment of workers’ compensation injuries), primary health care services, and basic x-ray and laboratory tests. Initially the center would operate 206 days a year (Monday-Friday) and from the hours 8:00 am to 5:00 pm (Rodger and Peterson, 2010, p. 230).

Recent events have pointed towards the possibility of a privately owned suburban ambulatory facility, Medcenter moving to within five blocks directly north of DHC. Research done by DHC estimated the number of office workers within that five-block radius to be 11,652 in 2001 and 13,590 in 2002, and to grow at an annual rate of 7% through 2005 from new construction and building renovations. DHC and their competitors are believed to be marketing to the same socioeconomic profile, usage and employment characteristics (Rodger and Peterson, 2010, p. 238).

DHC collected the following selected health care and demographic information to assist in monitoring its performance: Profile of Downtown Health Clinic Patients: Personal Illness/Exam Visits Only (Rodger and Peterson, 2010, Exhibit 6, p. 237) • Occupation: 48% – clerical, 23% – professional/technical/managerial , 19% -operator ,and 10% other • Sex: 30% – Male and 70% Female • Referral Source: 35% Friend/colleague, 60% employer, 5% other • Patient Origin (distant): 25% One block, 28% two blocks, 22% three blocks, 15% four block, 8% five block, 2% more than five blocks • Have Regular Physician: 18% Yes, 82% No

In general, some of the things that patients consider when choosing a hospital or clinic for care are the location, waiting times, clinical results and parking facilities. Evidence shows that if you choose a hospital or clinic in which you feel comfortable and confident, you are likely to improve both the result of your treatment and your experience (National Health Care). Specifically, since opening DHC has found from the information gathered from surveys completed by the patient’s visiting, that their concerns lay in three areas related to service: service hours, services offered, and waiting time.

In addition, patients consider whether the hospitals or clinics is convenience, has a good reputation, will accept their insurance coverage, and most importantly on the experiences of their family members and friends. (Seattle Times, Newsource) Over the eleven-months since DHC opened for business on May 1, 1999, the number of patient visiting at DHC has grown from 109 visits to over 400 visits or a 26% increase. The year-to-date operating numbers indicate that for the eleven-months period that on a per patient visit the company has incurred an average cost of $136.

00 per visit with corresponding per visit revenues averaging only $68. 00 (covering only approximately 50% of cost) calculated on total of 3,940 patient visits. Year-to-date operating losses totaled had $237,000 at March 2000, which means the Downtown Clinic reported an approximate $68. 00 loss per patient visit over the periods reported. Then again, during this same period DHC had made 105 referrals to PMH that produced slightly over $378,000 in revenue and an estimated $30,000 in net profits.

An additional benefit beyond the revenue received by PMH from DHC was that the majority of the patients referred to the hospitals were among their new target group of privately insured patients. As a method for doing business, PMH does not normally promote commercial advertising to market its services to employers and patients. These forms of marketing have been viewed as being, “crass commercialism” by certain individuals on the hospital staff.

Although in support of the new medical center approval was given to run a “informational advertisement” in the downtown weekly newspaper each week in the coming year. This approval was given, not without certain restrictions: the advertisement will not disclose prices or appear to be commercial in its presentation, which will cost $10,400 for the year. The following illustrates the advantages to DHC if they implement several of the employers and patients suggestions: Suggestion 1. Gynecological services Income/revenue 1.

Projected 2,000 new patients at an average charge per patient of $104. 00, the additional revenues would equal $208,000. Expenses 2. Increased personnel costs 33% of approximately $55,000 plus annual cost for additional physician of approximately $58,000, the total additional cost would equal $112,000. Possible return on investment in gynecological services at DHC would equal $96,000. Suggestion 2. Expanded hours of operation to accommodate new employee physicals to be schedule before 8:00 am and after 5:00 pm – New hours would be 7:00am to 7:00pm Income/revenue 1.

Potential for 115 new employment physicals per month which extends to 1,380 physical exams annually or an estimated $129,000 in additional revenue. Expenses 2. The addition of one physician (shifts to be cover by physicians during operating hours would be 7:00am to 3:00pm and 11:00am to 7:00pm) The addition of the additional physician can have a duo benefit by covering the employer employee physical examinations and reducing the wait time now being experiences by many patients who arrive during the peak hours of 11:00am and 2:00pm adding to the positive image of the organization as a whole in the community.

Should the competition decide to open its clinic within the northern five-block radius now served by DHC predictions are that about one third or 3% of the current personal illness/exam patients and about 40% of the potential personal illness/exam patients in that area would possibly switch to the new clinic. The possible impact from the real or potential loss of this section of the patient population to a new clinic will not have a material effect on the overall continued patient growth at DHC.

DHC will still be reaching and serving 60% of the section patient populations. Areas considered: DHC service mix Volume of emergency: Not possible to measure Worker’s compensation: Would not be materially effected Employment/insurance exam: Worse case scenario no increase over the prior year Conclusion: Through the application of the positioning Perpetual Mercy Hospital can create a win-win solution by implementing the patient’s suggestions at its Downtown Health Center.

These strategic moves on the part DHC will build patient loyalty and reinforce the positive image, which the hospital and the center maintain within the community that they now serve. With 82% of the patients now visiting DHC that do not have a regular physician the return visits will increase as well as new patient visits new visits generated by the addition of the centers new offerings. REFERENCES: Rodger, K. and Peterson, 12 Edition. Strategic Marketing Problems: cases and comments. ISBN 13:978-0-13-610706-4 Wikipedia. org.

Article. Balanced Budget Act of 1997. Retrieved September 20, 2010 from http://en. wikipedia. org/wiki/Balanced_Budget_Act_of_1997 The Seattle Times. How do patients choose their care? Article originally published June 7, 2010. Retrieved September 20, 2010 from http://seattletimes. nwsource. com/html/health/2012052172_treat08. html National Health Care (NHC). Hospital choice. Choosing the right hospital. Retrieved September 20, 2010 from http://www. nhs. uk/choiceintheNHS/Yourchoices/hospitalchoice/Pages/Choosingahospital. aspx.

Identified and addressed strengths, weakness, opportunities and threats: Strengths 1. Debt-free 2. Name recognition 3. Services now provided at Down Town Center a. Preventive emergency care b. Minor emergency care c. Referral for acute and chronic health care to PMH d. Specialize employer services i. Pre-employment examinations ii. Treatment of worker’s compensation injuries 4. Primary health care services Weakness 1. Service hours 2. No gynecological services 3. Long wait time 4. The city’s populace is attuned to ambulatory health care facilities 5.

Dependence on inner-city residents, higher median age and higher incidence of Medicare coverage Opportunities 1. Increase in worker’s compensation visits 2. Increase in private medical insurance 3. Increase in employee personal medicals 4. Crass commercialism on the part of the competition 5. No competition Threats 1. Competition moving into the area now served 2. Offering of competition (Ambulatory Care Facilities) a. Branding b. Extended hours c. Lower fees d. No appointment necessary e. Minor emergencies treated f. East access and parking g. Short waiting time.

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