The Crimson Press Curriculum Center

First Page and the Assignment Questions:
Memorial Hospital in River City was founded in 1876 and is the oldest hospital in the state. It is a 350-bed, tertiary-care facility with about half its revenue coming from cardiology and cancer services. Although it has a history of firsts in the state (kidney dialysis, corneal transplant, heart transplant) it steadily lost inpatient revenue and market share during the 90's. By 1997, its inpatient revenues had fallen over 50% from 1990 and market share had declined from 13% to 10%. Operating margins were also shrinking and the hospital had operated at a loss in three of the past five years.

Memorial Hospital was located in a commercial/industrial area near the center of River City with a recently-established outpatient clinic in a western suburb. For many years, Memorial had been the leading referral hospital, not only in its home state but also in adjacent areas of the surrounding mid-western states. However discussions with physicians indicated that in some cases they had to talk patients into coming to Memorial. The physicians themselves had high regard for Memorial's open-heart surgery and cancer treatment but felt that overall it was no longer a “great” hospital. Although more than 800 physicians registered with Memorial, approximately 300 accounted for 80% of the patients.

River City has a population of 400,000 and the metropolitan area accounted for approximately half of the 2 million people in the state. In the metropolitan area, Memorial competed with seven other hospitals including two affiliated with university medical schools and three specializing in family care (two of these accounted for two-thirds of the 10,000 births recorded annually in the metro area). Three of the hospitals had merged to form a network providing a comprehensive range of care. This network and several individual hospitals had worked to build affiliations with health centers and other organizations providing specialist health services in the metropolitan area.

All of the area hospitals were feeling pressure from the switch from inpatient to outpatient services which contributed to an estimated 25% excess capacity. Price pressures were increasing from the growing proportion of medicare patients, changes in reimbursement and the expansion of managed care organizations whose enrollment had tripled during the previous five years. Some local hospitals had moved to reduce costs and had aggressively sought contracts with HMOs.

Memorial had resisted price reductions but had eventually signed a contract with the state Blue Cross organization. The signing of this contract and the operating losses had forced the hospital to reduce staff and implement other cost reductions. It had also considered forming an alliance with a local community hospital to share costs and increase its bargaining power but was concerned about the impact this might have on referrals. Memorial was also planning to introduce its own IPA-type HMO using its physician network.

Assignment:

1. What are likely to be Memorial's strengths? What are its weaknesses?

2. How could this market be segmented? Which segment(s) would offer the greatest potential for Memorial?

3. Develop a positioning strategy for the hospital using the statement format in the article.

4. How would this positioning strategy be implemented? Please consider:

   What services should the hospital provide?
   How should these services be priced (relative to other providers in the region)
   Should these services be provided at its downtown location or elsewhere?
   How should the availability of these services be communicated and to whom?