Market Position of Riverview Regional Medical Center - Case Study Example

Case Study: Riverview Regional Medical Center Introduction Riverview Regional Medical Center (RRMC) is a general medical, surgical, acute care hospital with 281 licensed beds located in Gadsden Alabama. Founded in the early 1930s it was a faith based hospital operated by an order of Catholic nuns until 1991 when it was sold to Health Management Associates (HMA), a national health administration company that owns and operates in excess of 50 similar facilities located around the country. Since they were founded in 1977, HMA has experienced steady growth by focusing on a core group of hospitals located in rural communities in the Southeast and Southwest with 30,000 to 400,000 in population. During the period of 2001 to 2004, both HMA patient revenue and HMA's earnings per share increased by approximately 70 percent. However, during this same period, RRMC experienced a significant downturn in patient volume in several key areas. Open heart surgery, cardiac catheterization, and outpatient visits were all down significantly. In addition, the hospital was forced to close its Women's Pavilion in 2003 and no longer operates an obstetrics department. Adding to this low rate of growth is the declining population in the area. Etowah County is 103,000 people, the same population it had in 1980, while Gadsden's population has steadily declined by 50 percent since 1960 and today has fewer than 40,000 people. RRMC executive director Matt Hayes faces significant challenges in the next few years, as he tries to maximize his resources and find areas for growth. This paper will analyze RRMC's market position and make recommendations for Matt Hayes and RRMC to help guide them into an uncertain future. The Operating Environment The general operating environment that RRMC is in is very competitive both locally and regionally. Several large urban areas are a short drive from Gadsden and they have numerous health care facilities available with state of the art care. These include Atlanta Georgia, Chattanooga Tennessee, Birmingham Alabama, and Huntsville Alabama. It has been estimated that Birmingham alone draws as much as 25 percent of the business out of the Gadsden area. The patient revenue lost due to the combined out migration could be responsible for as much as half of RRMC's potential business. Locally, RRMC competes with Gadsden Regional Medical Center, with 248 beds, and to a lesser extent Mountain View Hospital, which specializes in addiction and psychiatric services. In addition to the competitive market, the factor of poverty also plays a significant role in the management of RRMC. Eighty percent of RRMC's patients are Medicare or Blue Cross, and Alabama has the lowest Medicare reimbursement rate in the nation. Blue Cross's near monopoly on insurance prevents RRMC from being able to negotiate more favorable patient rates. While RRMC is facing several difficulties in generating revenue, they have several advantages that are in their favor. The parent company, HMA, is a highly experienced and successful company in this field. They continue to be profitable and this will help RRMC expand and develop through the near future and the temporary economic downturn. One of the most significant advantages that HMA and RRMC have is their executive experience. Most of HMA's Board of Directors has been in place for over 25 years and have substantial experience in finance, medicine, and corporate management. Matt Hayes, named RRMC executive director in 2003, has a 10-year working relationship with RRMC and was previously the executive director of Stringfellow Memorial Hospital, another HMA facility. These years of experience, long working relationships, and financial success will greatly benefit RRMC in their plans to carve out a niche market based on specialization. In addition to the management expertise, RRMC has a state of the art emergency department, Heart and Vascular Center, a modern Diagnostic Center, and undeveloped space for future expansion. Porter's Five Forces One of the critical factors that RRMC is faced with is the need to attract and maintain top talent in the physician and nursing fields. There is currently a nationwide nursing shortage, which will place a strain on the bottom line as RRMC attempts to be competitive in regards to nursing pay. In addition, a shortage of qualified nurses could lead to a diminished quality of care and demoralization of the nursing staff. Attracting qualified nurses to RRMC may mean paying above the prevailing national or regional rate. Similar problems will be encountered with physicians as they work towards specialization, such as cardiac catheterization and heartburn. It may be increasingly difficult to attract top specialized talent without a national brand image or additional economic incentives. These factors could make staffing a significant barrier to future growth. The ability to continue to attract patients in the future will become more difficult if RRMC does not take some action to turn around the out migration and loss to urban area competitors. They have already closed the obstetrics department, and patient admissions are off significantly. Patients currently have several opportunities to get high quality care, and they will choose a facility based on brand recognition or product differentiation. Currently, outside their few specialties, RRMC has little to offer a patient in the way of differentiation. In fact, the negative impression left by closing the Women's Pavilion continues to linger, and there is little in the way of brand identification or corporate culture that a patient can attach themselves to or identify with. Patients will continue to migrate to the larger urban areas with the impression that they are more financially sound and better equipped. The current environment that RRMC is in does not make it likely that competitors will enter the local market. The cost of entry would be substantial in an area that has significant financial obstacles. The economic realities of Alabama, the urban competition, and the Medicare/Blue Cross situation does not present a favorable financial climate for any health care organization to want to expand into the geographic area. Increased competition will continue to come from the urban areas that are able to operate large, state of the art, specialized departments such as transplant, pain, or respiratory care. RRMC's Competitive Advantages In many ways, RRMC is well situated for future expansion and sustainable growth, and many of their weaknesses can be used to their advantage going forward. While RRMC may be experiencing a financial slowdown, the parent HMA has significant resources available to develop a long-term strategy for RRMC. RRMC has shown its willingness to be flexible in the face of adversity as evidenced by closing the Women's Pavilion and opening the Heartburn and Cardiac Catheterization units. They have exhibited a willingness to innovate based on patient needs. In addition, they have facilities that are currently underutilized and could be used for future expansion and growth with little additional investment. This flexibility and innovative spirit will be the advantage that RRMC will have going into the future. RRMC also has a weak company culture and a weak brand identity. While this currently works against RRMC by limiting patient awareness and reducing the ability to attract qualified staff, these could be viewed as an advantage in the future. With a weak company culture, Matt Hayes is in an ideal position to create a culture based on RRMC's vision of the future. The relatively small size and limited number of employees could easily be oriented into a stronger culture based on specialization and quality. In addition, creating a marketing campaign that would identify RRMC as the regional leader in specialized health care could begin to attract customers away from the urban areas. Regional recognition, strong branding, and a company culture that builds pride in the employees would attract top talent from the region and nation, rather than just the local area. Matt Hayes is in an ideal position to implement these activities into a long-term strategic plan that identifies and differentiates RRMC from the other health care facilities in the area. By re-acquiring the market share lost to the urban areas in the recent years, and the growth that can be realized from future specialization, it could sustain revenue growth well into the future. Competitive Advantage and the Value Chain RRMC and HMA have made some strategic moves, which have added value to their product. They have been pro-active in attracting the government contract for Tri-Care and serving the military retirees in the area. In addition, Matt Hayes has been able to utilize the MedKey program to enhance the patient database through a system of rewards and incentives. While RRMC has made a broadcast advertisement, Hayes believes the MedKey program is more cost effective than mass advertising. RRMC has also simplified the admissions process for physicians, and the 'Nurse First' program is not only cost effective, but also bolsters customer confidence in the health care system. These pragmatic moves have been made in conjunction with HMA's management philosophy, which calls for leaving the day-to-day operations of the hospital in the hands of the executive director. This expedites decision-making, and reduces the tension in management that could form from redundant managers and unclear management roles. Recommendations RRMC needs to formulate and implement a long-term strategic plan that is based on three specific recommendations for action. The activities include strengthening the company culture based on high quality care, expanding their specialization opportunities, and creating a strong brand identity that emphasizes the culture and their quality products. RRMC should continue expanding and improving their Heartburn Center, Heart and Vascular Center, and Diagnostic Center. In addition, they should investigate the feasibility of expanding into the area of Back Pain, which could more fully utilize the diagnostic capabilities and add another dimension to their high quality specialties. These four specialties will need to be state of the art centers on par with anything available in the regional urban centers. Having formed their core business growth around these four specialties, RRMC needs to actively create and strengthen a culture of quality and specialization within the staff. RRMC needs to make extraordinary effort to assure that their specialty centers are the best available and that the employees identify with the pride of working for a progressive and quality oriented organization. This will help attract top physicians from around the country as well as mediate the effects of the ongoing nursing shortage. Along with the internal culture and recognition of their market position in specialty care, RRMC needs to launch an extended marketing campaign to identify their brand as a regional and national leader. This campaign should be aimed at the regional urban areas, where a large market share has been lost in recent years. Along with attracting patients to the specialty areas, it would also improve revenue throughout the entire spectrum of services. Patients will be willing to travel to Gadsden in search of quality care, as they will have the image of a small provider's individual attention, with the capabilities of the large urban hospital. This would create a patient friendly atmosphere and serve to build patient confidence in RRMC. These patients could potentially double the current patient volume within the next 10 years. This will have the additional effect of attracting long-term investors and shareholders. Overall, the plan would attract top physicians, qualified nurses, investment capital, and a steady growth of new patients. In conclusion, RRMC is at a junction in its business where some changes need to be made to stimulate new growth opportunities. The threats of low Medicare and Blue Cross reimbursement need to be challenged by creating innovative ways to use their resources to differentiate themselves from the competition. RRMC has an excellent facility and superb management that gives it a solid foundation to build upon. Continuing to develop and expand their specialty services will be the niche that will not only be an area of new growth, but will also attract patients for all their services. With a dedication to state of the art quality care, the company culture can be strengthened to be able to attract excellence in their workforce from across the country. An extended marketing campaign can make regional patients excited about the quality of RRMC and further solidify their culture of quality. While RRMC is in a competitive business in a difficult geographic area, it is these conditions that give RRMC the opportunity to innovate and differentiate. Reducing out migration and attracting urban patients will give RRMC a sustainable growth potential well into the next decade and beyond. Bibliography Richardson, Woodrow D., and Donna J. Slovensky. "Riverview Regional Medical Center: An HMA Facility." Strategic Management of Health Care Organizations. Eds. Linda E. Swayne Walter J. Duncan, and Peter M. Ginter. Malden, MA: Blackwell Publishing, 2006. 685-704. Read More