Dr Ronald Weaver has been the Chief Executive officer of Union Hospital for the past 7 years. He has been affiliated with Union Hospital for the past 25 years and joined the hospital management as he wanted to improve the hospital leadership which he believes is not effective.
Union Hospital is a Not-For-Profit Hospital and has a long distinguished record of providing medical care to the citizens regardless of their ability to pay. Union hospital generates revenue of $125 million annually which are all spend on patient care, community outreach and maintenance of its aging facilities.
In the last few years, Union Hospital impatient admissions had declined by 3% to 5% percent annually. Beside, average payment per impatient case had stayed flat due to pressure associated with managed care and tight regulations by Medicare and Medicaid. Medicare is a federal program which provides care to senior citizens whereas Medicaid is a joint federal and state program which provides care to certain indigent residents. Both Medicare and Medicaid have been under significant pressure to remain flat or decline in their payment rates. At the same time, healthcare cost had been increasing steadily particularly due to nationwide shortage of nurses.
On the other hand, due to Union Hospital Not-For-Profit mission, it had been providing free medical care to many area residents without any healthcare coverage and to those who do not qualify for the Medicaid program.
About 10 years ago, Union Hospital issued a major bond of $75 million used to renovate the facility and to purchase latest technology for the clinical departments. The bond principal payments are due in 30 years and $5 million had been paid to date. However, advancement in healthcare and surging cost of the latest diagnostic and surgical equipment posed a serious challenge to Union Hospital financial standing.
Albert Case, Union’s Chief Financial Officer proposed a new $80 million bond to refinance the outstanding $70 million bond and use the balance $10 million to buy the latest clinical equipment. He feels that current all time low interest rate will increase next year thus the reduced interest costs will pay off the debt service on the additional $10 million debt. Without this financing, it will be difficult for Union to keep its equipment up to date and may risk shutting down certain programs.
Union Hospital has a relatively high bond rating of BBB compared to rating of other similar size hospitals. This enables Union to receive favorable interest rate from bond markets. The BBB rating is based on large measure on stability of Union Hospital operating results even during difficult circumstances as compared to other hospitals that made poor investment decision and suffered financial setback. This resulted in Union Hospital management team gaining significant credibility from rating agencies and others in the bond market.
SWOT Analysis
We begin the case study; by performing a SWOT analysis on Union Hospital to understand what are Union’s Strength, Weakness, Opportunity and Threats currently.
Below table shows summary of SWOT analysis of Union Hospital:
STRENGTH
|
WEAKNESS
|
Excellent record in providing medical care to the poor
Renowned for positive labor relations
Famous for its healthcare awareness and community outreach programs
Gained good reputation and trust among rating agencies
|
Provides free medical care even to those unqualified for the Medicaid
Aging/Outdated medical equipment and technology
|
OPPORTUNITY
|
THREATS
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Focus on right-sizing operation and reduce cost
Identify improvement areas to build up operating fund
|
Declining demand for impatient services
Declining income and weak financial position
Shortage of nurses and increase in labor cost
Advancement in medical equipment and technology
Increase in medical care cost
|
STRENGTH
Following are Union Hospital notable strengths :
- Long and distinguished record in providing care to the citizens in its service area regardless of their ability to pay
- Renowned for positive labor relations
- Actively sponsors health awareness and prevention activities
- Famous for its community outreach programs
- Has high bond rating from rating agencies
- Receive favorable interest rate from the bond market
- Gained significant credibility with rating agencies and bond market in making the right decision and sailing through successfully even during difficult period.
WEAKNESS
Among the weakness seen in Union Hospital are :
- Provides free medical care even to those who do not qualify for the Medicaid
- Aged/Outdated medical equipment and technologies
OPPORTUNITY
- Revamp entire Union Hospital operating strategies by right-sizing the operation and reduce operating cost
- Identify areas of improvement to build up their operating fund/cashflow
THREATS
Following are the current and potential THREATS for Union Hospital :
- Declining demand for impatient services
- Declining income and weak financial position which could lead to bankruptcy
- Shortage of nurses and increase in labor cost
- Advancement in medical equipment and technology
- Increase in medical care cost
Source: case study group, Finance & Accounting for Management Class_2008.
