Hospital Corporation
of
CPT Christopher F. Drum, CPT Scott Stokoe, LTJG Ann-Marie Noad
A paper submitted in
partial fulfillment of
the requirements for HCA 5325
Strategic Management of
Health Care Organizations
12 December 2003
Executive Summary
Hospital Corporation of America (HCA) is a well-established, international health care industry leader that provides patient services on two continents. Ranked number one in both sales and profit rankings, HCA continues to provide quality health care as it expands into new markets. HCA provides its primary services through a variety of venues. In addition to its patient care mission, HCA has joined with the Federal government to provide education and scholarship programs.
A strategic assessment of HCA was conducted to examine its current business strategies. A strengths, weakness, threats, and opportunities (SWOT) analysis indicated that HCA’s internal strengths outweighed its weaknesses and the external threats outweighed the opportunities. HCA’s current mission and values statements are sufficient to support its success, but improvements can be made in each. Primary strategic emphasis is through an application of expansion and maintenance of scope adaptive strategies. Secondary efforts include a limited application of market entry and competitive strategies. Applying a threat, opportunity, weakness, and strength (TOWS) matrix to analyze their strategies indicates that HCA should be focusing their efforts in the future quadrant, or more specifically on related diversification, vertical integration, and penetration strategies. Application of these strategies will allow HCA to better meet the needs of its communities and maintain a competitive advantage over its competition.
Table of Contents
Introduction
Environmental Analysis
External Environmental
Analysis pages 6-10
Service Area Competitor
Analysis pages 10-13
Internal Environmental
Analysis pages 14-17
SWOT Analysis pages 17-18
Strategic Formation
Adaptive Strategies pages 21-23
Market Entry Strategies page 24
Competitive Strategies pages 24-25
Evaluation of Strategic Alternatives pages 26-28
Implementation Strategies
Service Delivery pages 29-30
Support Activities pages 30-31
Unit Action Plans pages 31-32
Strategic Control pages 33-34
Conclusion page 35
References pages 36-37
Appendices pages 38-43
Introduction
Hospital Corporation of
America, Inc. (HCA), is a healthcare services company that, as of December 31,
2002, operated 179 hospitals, comprised of 166 general, acute care hospitals,
six psychiatric hospitals, one rehabilitation hospital, and six hospitals
included in joint ventures. In addition, HCA operated 78 freestanding surgery
centers. HCA is an international organization with facilities in 23
Figure 1: Location of HCA Facilities
Among these facilities,
HCA operated 39,932 licensed beds and 1,925 licensed beds through its joint
ventures. Its six psychiatric hospitals operated 608 licensed beds (Reuters,
2003).
HCA’s primary objective is to provide the highest quality,
cost-effective, comprehensive healthcare services to the communities in which
its facilities are located. HCA’s general, acute care hospitals provide a full
range of services to accommodate such medical specialties as internal medicine,
general surgery, cardiology, oncology, neurosurgery, orthopedics, and
obstetrics, as well as diagnostic and emergency services. Additionally, HCA’s
general, acute care hospitals, its freestanding surgery centers, diagnostic centers,
and rehabilitation facilities provide outpatient and ancillary healthcare
services such as laboratory, radiology, respiratory therapy, and physical
therapy. HCA’s psychiatric hospitals provide a full range of mental healthcare
services through inpatient, partial hospitalization, and outpatient settings.
These therapeutic programs include child, adolescent, and adult psychiatric
care. Additionally, the psychiatric hospitals provide adult and adolescent
alcohol and drug abuse treatment and counseling (Reuters, 2003).
Environmental Analysis
HCA operates in a healthcare market that is undergoing major
challenges and financial constraints. Plunkett (2002) noted that there are five
major, interrelated external factors affecting HCA current operations.
These factors are: increases in health care costs, an increase in the number of
uninsured Americans, political and regulatory changes affecting health care
reimbursement, the competitive environment of the healthcare industry, and
changes in the
While the introduction of managed care helped to control health
costs, these costs are on the rise again, and are significantly influencing
health care premiums. From 1994 to 1997, health coverage premiums increased
between 2% and 4% annually. In calendar year 2002, large firms found their
health insurance premiums rise between 9% and 12%, while small firms had to
bear increases between 15% and 20% (Plunkett 2002). As employers try to combat
these increases, they find themselves in a precarious position. In order to
bear the responsibility of providing health insurance, employers are attempting
to trim health care expenditures by reducing the health care coverage offered
to employees or by transferring some of these costs to employees. The outcry for change is evident across
In the past, health care organizations overlooked their
competitors because through cost-plus Medicare and Medicaid reimbursement
practices (Shi & Singh, 2001, p. 206), federal and state governments
paid the majority of health care bills.
Changes in Medicare and Medicaid reimbursement practices, and better
audit control from the Center for Medicare and Medicaid Services (CMS) has changed
the emphasis on competitor analysis. CMS
now routinely audits the billing practices of health care organizations to
identify potential fraud and abuse. Numerous facilities have had to reimburse
and modify internal billing and accounting procedures to comply with federal
and state requirements. CMS’ tighter control and monitoring of health care
expenditures has encouraged health care organizations to operate in a more
efficient manner. This new focus on efficiency is not only contributing to
financial stewardship but also toward a more competitive environment. Though
temporary, Congress’ approval of an 18-month moratorium on the opening of new
physician-owned specialty hospitals helps to avoid pressure to the already
existing health care organizations.
Changes in population demographics also contribute to the
challenges faced by the health care industry. As reported by Plunkett, the
aging baby boomer generation and the increase in life expectancy among
Americans has caused an increase in the percentage of elderly Americans and
therefore put a further strain on the healthcare delivery system.
As the largest general hospital / clinic organization in the
HCA’s service area competitor analysis was conducted using the
strategic thinking map illustrated in Ginter, Swayne, and Duncan’s text (2002,
p. 104). Use of this thinking map defines the service categories and service
area, creates a service area profile, conducts service area structure analysis
and competitor analysis, and culminates with a strategic grouping and a
analysis of the information obtained.
HCA’s service categories include 179 hospitals, 78 surgery centers, and
various ancillary centers in 23 states in both western and eastern regions of
the
HCA’s primary service area encompasses the entire
A Porter’s Analysis (Appendix C) was used to assess the service
area structural analysis. Overall, HCA competes on a national health care
level, but must also monitor local competition in the markets it serves. New
entrants into this market would be restricted based on their ability to quickly
acquire capital assets, earn name recognition, and gain alliances with HMOs and
healthcare suppliers. These would be significantly difficult feats to
accomplish in a short time. National-level health care market entry threats are
high for potential entrants, however, local level threat of market entry is
moderate. A new competitor in a local market may be able to compete with one
HCA’s facilities, but would have to contend with HCA’s supply and purchasing
advantages with equipment suppliers, HMOS, and employers. The intensity of
rivalry among existing organizations is high. The health care industry is
comprised of many organizations that strive to improve their financial
standing, service image, and service mix in an effort to dominate the market.
This strategic maneuver has promoted rivalry in the industry.
Threat of substitute services is moderate. The health care industry
is experiencing a growth in alternate health care venues, as demonstrated by
patient’s preferences to home health care, and forms of alternative medicine.
Patients are demonstrating a preference to home health care. While HCA should
explore the growth of this segment, the threat to their main line of business
is insignificant. In addition, the government’s decision to place a moratorium
on the opening of new physician-owned specialty hospitals has further reduced
the threat to HCA. The bargaining power
of the customers, both patients and physicians, is moderate. Managed care
standards inhibit the power of physicians due to utilization controls. Patients
feel the same limitations due to a lack of control over their health care
choices as a result of health management organizations.
HCA’s three primary competitors in the general hospital / clinic
business line are Tenet Healthcare Corporation (Tenet), Universal Health
Services (UHS), and Health Management Associates (HMA). These competitors were
identified and ranked based upon annual sales and profits (Plunkett, 2002).
Each of these competitors utilizes different organizational strategies. Tenet is the closest operation in size and
financial composition. Tenet appears to have an expansion strategy. Tenet
offers a wide variety of services and is currently shifting focus to the aging
baby-boomer generation. This shift has resulted in Tenet’s focusing on cardiac,
orthopedic, and neurological services. UHS is the second largest HCA rivalry,
which operates 100 facilities in 22 states and one hospital company in
The mission of HCA is “Above all else, we are committed to the
care and improvement of human life. In recognition of this commitment, we will
strive to deliver high quality, cost effective healthcare in the communities we
serve. In pursuit of our mission, we believe the following value statements are
essential and timeless:
·
We
recognize and affirm the unique and intrinsic worth of
each individual.
·
We
treat all those we serve with compassion and kindness.
·
We
act with absolute honesty, integrity, and fairness in the
way we conduct our business and they
way we live our lives.
·
We
trust our colleagues as valuable members of our
healthcare team and pledge to treat
one another with loyalty, respect, and dignity.”
A comparison of HCA’s mission statement to the components
identified in Ginter, Swayne, and Duncan’s textbook reveals the following:
Target customers and markets – The mission statement identifies a commitment to improving
human life in communities in which it serves. Neither “human life” nor
“communities in which we serve” clearly articulates the target customer or the
market.
Principle services delivered – HCA does not clearly articulate the services it offers to its
communities. Being a national-level organization, however, this could be
somewhat difficult.
Geographical area where the organization intends to concentrate – HCA is an international
organization, but makes no reference to this in the mission statement.
Organizational philosophy – The mission statement makes reference to delivering high
quality, cost effective healthcare, but does identify any unique beliefs,
values, aspirations, or priorities. Similar language could easily be used by
one of HCA‘s competitors.
Organization’s desired self-image – HCA does establish any particular
self-image.
Organization’s desired public image – As with the self-image, HCA does
not specify a particular public image.
HCA’s competitive advantage is that it is one of the largest
health care providers with sales in 2001 of nearly $19 billion, and profits of
nearly $886 million (Plunkett, 2002). A better mission statement might help HCA
reinforce its uniqueness amongst competition and further legitimize its
presence in the health care environment.
Revised
“Above all else, we are committed to the care and improvement of
human life. In recognition of this commitment, we will deliver the highest
quality, cost-effective health care across the entire continuum of care. As a
global leader in health care, we are sensitive to the communities we serve. In
pursuit of our mission, we believe the following value statements are essential
and timeless...”
HCA does not have a vision statement to describe what the
organization will be like or and look like when it is carrying out its mission.
In lieu of a vision, HCA uses a set of strong values statements, which are
integrated into the mission statement. As guides for ethical and responsible
decision-making, organizational values represent the ideals that the
organization and its employees stand for. They are the “guideposts” for the
organization and provide a sense of meaning to establish and carry out the
mission, vision, and goals of an organization.
HCA’s value statements were listed previously.
Each of HCA’s values is well developed and clearly articulates a
set of organizational beliefs that supports the current and revised mission
statements. Key values that stand out are compassion, kindness, honesty,
integrity, fairness, loyalty, respect, and dignity. These are noble and
appropriate values for a health care organization. As long as HCA remains
committed to and charges its employees with carrying out these values, it will
continue to provide valuable, quality care for its patients. A proposed vision
for HCA is: “HCA proudly carries on its international role of providing the
highest quality health care to the communities we serve, and will become the
first choice of care for the citizens in these communities. HCA will accomplish
this by providing the best, most responsive, and compassionate care possible, and
will empower its employees to ensure effective and equitable care for each and
every patient we treat.”
HCA has several key strengths, weaknesses, opportunities, and
threats that provide a framework for evaluation (see Appendix D). HCA has long
been an innovator and was one of the first national hospital chains. This
organization is the current industry leader in the general hospital / clinic
delivery of health care as seen by the number of facilities it operates and its
widespread reach across
HCA certainly
has solid infrastructure and financial strengths, yet the organization does
have weaknesses. HCA recently announced a tentative agreement to settle several
shareholder class action lawsuits for $49.5 million, and is still under
scrutiny by the federal government for its business practices. Further
tarnishing its image, HCA has been accused by advocacy groups of overcharging
uninsured patients $2.1 billion last year, and an investigation is sure to
result from these accusations (Srimedia, 2003). There are also several threats
HCA must address. As the cost of health care increases and the nation tackles
unemployment, the number of uninsured patients continues to increase. This
increase in uninsured impacts HCA’s bottom line. HCA self-pay patient accounts have
increased and in the last three years the organization’s bad debt expense has
steadily increased (HCA Annual Report, 2002). Additional threats include the
national nurse shortage, changing landscape of healthcare delivery, and
continued increase in health care costs.
In
light of these external threats, several opportunities promise HCA a strong
future. Nationwide trends toward sub-acute facilities and home health care
provide HCA substantial opportunities for future growth and expansion. The
recently approved Medicare Reform Act also serves as an opportunity for HCA.
The act increases governmental reimbursements to facilities and 49% of HCA’s
revenue comes from Medicare patients. Finally, the 18-month federally mandated
moratorium of new physician- owned hospitals gives HCA time to improve working
relations with physicians serving within the geographical areas of their
facilities.
Strategy formulation encompasses the development of strategic alternatives, evaluation of those alternatives, and strategic choice. A comprehensive situational analysis sets the stage for strategic formulation. Once an organization conducts its environmental analysis, it can establish its directional strategies. It is critical that an organization develops solid directional strategies, as these are the foundation for the other strategies: adaptive, market entry, competitive, and implementation strategies (Ginter, Swayne, and Duncan 2002).
As noted earlier, HCA possesses an adequate mission that is supported by its value statements. HCA’s current position in the health care industry indicates the directional strategies are adequate, for continued success. However, revising or adopting the proposed mission, vision, and values will strengthen its current directional strategy and enhance its future success. A review of HCA’s current operations indicates that it is executing adaptive strategies and moderately executing market entry and competitive strategies. Ginter, Swayne, and Duncan (2002), indicated the sequential nature of strategy formulation, and how the different strategies build upon each other (p. 215). HCA’s strategies appear to fall in accordance with this process.
Adaptive strategies suggest three course of action
for an organization: expansion of scope, contraction of scope, or maintenance
of scope (Ginter, Swayne, & Duncan, 2002, p. 217). HCA is primarily engaged in expansion and
maintenance of scope strategies. Vertical integration and diversification
strategies are being employed by HCA to build integrated health care networks,
increase patient volume, and increase the number of services and capabilities
available in highly concentrated communities. With the intent of guiding
patients to its services, HCA is utilizing a backward vertical integration
strategy by providing a broad range of services in order to establish a
comprehensive local health care network. The acquisition of select new services
and an expansion of current specialty and emergency room services facilitate
the growth of the integrated health care network. An overall increase in
patient demand or volume through vertical integration will enable to HCA
realize its goal of growing as a health care provider. HCA employs a related
diversification strategy because it is adding new, but similar products. One
current example is HCA’s decision to support two disaster medical teams. Such
support utilizes many of its existing resources and is not profitable, but
helps strengthen HCA’s position in the local communities and legitimacy with
the federal government (HCA Annual Report, 2002).
The maintenance of scope strategy, in particular the enhancement strategy, appears to be the focus of HCA’s efforts. HCA emphasizes a “patient first” strategy, and wishes to be recognized as the employer of choice by maintaining positive relationships with physicians and other medical providers. An enhancement strategy is the best way for HCA to realize these goals. Enhancement focuses on improving operational efficiency and reducing costs. HCA executes the following business strategies, which relate to enhancement (HCA Annual Report, 2002, p. 14).
· Improve operating efficiencies through enhanced cost
management, better resource utilization, and the implementation of shared services and other initiatives.
· Effectively allocate capital to maximize return on
investments.
· Streamline and decentralize management, consistent with
HCA’s local focus.
Using these strategies, HCA has implemented best practice initiatives, leadership development programs, and formed a group purchasing organization to control costs. HCA expects to experience economies of scale as it continues to expand and gain market share. A longer-term cost-reduction strategy involves increasing and improving working relationships with health maintenance organizations, preferred provider organizations, and employers. To improve employee relations and maintain a highly qualified and experienced staff, HCA establishes competitive compensation and benefits packages for its employees (HCA Annual Report, 2002).
HCA has also engaged in a number of external programs to improve internal operations. To address the shortage of qualified and trained medical personnel, especially nurses, HCA implements the Army PaYS program. This program targets and recruits military personnel who are leaving active duty and are seeking employment in the health care industry. HCA Cares is another program that offers national scholarships to lower-income individuals who desire a career in the health care field. The program is unique and provides a competitive advantage by providing support to the local communities, while allowing HCA to overcome its own staffing shortages. As HCA’s competitors struggle to fill nursing positions by typical recruitment methods, HCA has its own internal pool of trained nursing personnel, and can focus its efforts in other strategic areas. All of the programs that HCA participates in are excellent opportunities to control their work force supply pool, reduce medical professional shortages, and control health care costs (HCA Annual Report, 2002).
To execute its adaptive strategies, HCA
engages in two main market entry strategies: acquisition and internal
development. In 2002, HCA received an
invitation to purchase a group of hospitals is
Although
HCA is recognized as a leader of health care services within the
Evaluation of Strategic Alternatives
The
TOWS matrix was used to evaluate HCA’s strategic alternatives (see
Appendix E). HCA’s dominance in the general hospital / clinic business in terms
of sales and profits and its other identified internal strengths clearly
indicate that this organization should operate in the “future” quadrant. HCA’s
largest competitor in this business is Tenet Healthcare Corporation.
Fortunately for HCA, Tenet is undergoing leadership, legal, and regulatory woes
that HCA weathered nearly six years ago. As a result, HCA is in a power
position within the general hospital / clinic business.
Analyzing
the “future” quadrant, HCA should employ expansion, vertical integration,
related diversification, and penetration strategies. HCA should focus its
efforts in this quadrant. As mentioned earlier, one of HCA’s goals is to be the
leading provider in large urban and suburban areas. An analysis of the location
of current HCA’s facilities (see Figure 1), indicates that HCA has not ventured
into the urban population-dense states such as New York, the New England
states, Pennsylvania, Ohio, Maryland, and New Jersey. HCA should seriously
consider moving into these markets after a thorough analysis of these
particular markets. Additionally, HCA operates within a fairly specific niche
of the health care market. To capitalize on the aging population of Americans,
HCA might consider vertical integration and diversification of product lines
that will care for patients from “cradle to grave.” Due to its prevalence
across the
An
analysis of the “internal fix-it” quadrant indicates that HCA should utilize
some of the same strategies used in the “future” quadrant; namely, vertical
integration and related diversification. Furthermore, HCA already executes an
aggressive and well-planned enhancement strategy, and should continue this
strategy to maintain future growth and sustain its competitive advantage. HCA’s
enhancement strategy focuses heavily on developing leadership and educational
skills of its personnel, and also focuses on the infrastructure and capital
investment projects so critical to sustain a modern, safe environment for
patient care. The educational programs help offset the national provider
shortage and help mitigate this external threat.
Concerning the “external fix-it” quadrant,
the new Medicare bill and the internal efforts towards developing its personnel
allows HCA to effectively deal with many of the external threats. The growing
uninsured population is still a concern, as well as the continuing rise in
health care costs. HCA cannot affect the uninsured population, however, it can
use its sheer size and volume purchasing opportunities to reduce the cost of
supplies and equipment obtained. Furthermore, by offering educational
scholarships and maintaining a high employee satisfaction, HCA is poised to
keep its talent in-house, and reduce employee turnover. This too helps to
reduce health care costs.
Lastly, the only serious consideration in the “survival” quadrant involves potential suits or investigations resulting from business practices. HCA has settled its legal matters with the Federal government from 1997 issues, and has a plan to pay these fines. If HCA truly instills its organizational values, and operates in an ethical manner, it can reduce its risk from investigations of these types. HCA established a comprehensive Ethics and Compliance Program which helps ensure ethical and legal business practices are followed.
Implementation Strategies
In order to support the expansion, vertical
integration, and penetration strategies discussed above, HCA must aggressively
pursue well-thought out and well-managed implementation strategies. Much of the
implementation strategy should be focused on the service delivery aspect of the
implementation strategy. As part of the pre-service strategy, HCA should first
embark on a market research survey of potential new markets to determine the
feasibility of entering these new markets. With its strong financial footing,
HCA might be able to buy out existing hospitals or regional chains to gain a
foothold in these new markets. An example of this is HCA’s expansion into the
HCA’s investments in medical technology and employee education are part of developing its support activities (strategic resources). These investments ensure that point-of-service care is thorough and effective. The use of the improved IT systems and clinical pathways would also provide mass customization of health care delivery, and help reduce cost and medical errors. High employee satisfaction is also an indicator that the care provided is done in a positive manner, and probably results in positive patient satisfaction survey scores.
HCA must maintain its high quality patient care. This is one of its definite benefits, and the quality care provided will help attract and maintain new patients.
After-service strategies should focus on preventive treatment and timely follow-up for services as required. Expanding its product line to accommodate primary care and other alternative medical treatment allows HCA facilities to provide preventive care in order to avoid more expensive, catastrophic care later. The use of IT systems to track patient’s conditions and schedule appropriate follow-up appointments will allow HCA to maintain the health and well-being of its patients, and also provide a more steady revenue stream.
Support Activities
Concerning strategic resources, HCA has dedicated employees and dedicated patients. HCA must capitalize on its domination in its market niche, while expanding its product lines to attract other types of patients. This organization reinvests heavily in its strategic resources as mentioned in previous areas of this case analysis. Specifically, HCA focuses on developing and improving its human, information, and technological resources. This is one reason HCA has been so successful. HCA adapts to the market with dynamic and current resources. HCA’s overall organization is based on a divisional structure. This structure allows for better responsiveness in local markets, and allows for decentralized leadership and executions. Some of the limitations of this structure, however, are the difficulty for HCA to maintain its reputation, and it requires well-thought out organization-wide policies and decision-making guidelines. This type of structure is complicated to run. Concerning its organizational culture, HCA appears to foster this through inculcating its organizational values to its employees, and the leader training and education programs help foster a positive employee climate. HCA’s mission and value statements recognize the organization’s true purpose; that is, to provide the best health care possible.
HCA
must clearly identify unit action plans with distinct, attainable objectives,
timelines, and responsibilities so that it can manage its vast operations, and
ensure that its subordinate facilities are on the right track. HCA’s objectives
should be focused on becoming a leading provider in large urban and suburban
communities. It is readily apparent where large population centers are located
in the
Strategic
Control
As HCA continues to
implement or alter its strategies, it is imperative that certain control and
feedback mechanisms are in place. Such mechanisms will help maintain focus and
initiate timely actions when needed. The demands of the health care market
continue to increase as competitors vie for valuable market share and health
maintenance organizations continue to broker new deals. HCA cannot afford to
lose its competitive advantage to these environmental forces. Therefore, HCA
must establish a timeline to review its mission, vision, values, goals,
adaptive, market, competitive, and implementation strategies. Whether reviewed
as a whole annually, or by components quarterly, a review will help HCA remain
competitive. If during any of the
reviews, components are identified as outdated or no longer applicable, they
must be changed as soon as possible (Ginter, Swayne, and Duncan 2002).
HCA’s continued growth,
whether within the
HCA has the opportunity to continue
dominating in its niche of the health care industry, and also to expand its
services to take advantage of external market opportunities. It appears that
HCA is being led by a competent, forward-thinking, and dedicated team of
professionals. HCA must maintain its competitive advantage by using its
resources (human, information, and technological) to shape the health care
environment, and respond to changes in the complex health care market.
Utilizing strategic planning and execution processes will allow HCA to continue
to lead in this challenging market.
References
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Swayne, L. E., & Duncan, W. J. (2002). Strategic
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The
Comparative Performance of
sourcebook. Solucient, LLC.
Appendix B
Appendix B (Continued)
Appendix C
Porter’s Analysis
Appendix D
Appendix E