11 to 7.5, indicating that their administrative cost structure is going to increase dramatically as a result of their current expansion strategy. Whether or not this represents a weakness that can be exploited by MCMPC remains to be seen, but it may materialize as a weakness in the future. There is the threat, however, that given the declining morale at MCMPC some of the clinic's physicians may defect to Innovative in order to advance their careers and improve the professionalism of their working environment. The external environment provides a number of challenges for MCMPC. The unfortunate reality is that the company is ill-equipped to address many of these challenges. They have proven unable to build the key resources in specialists and referrals, and they have no answer for the looming threat represented by Innovative. The facility does have some strengths upon which to strengthen its existing business, but the antecedents for a long-term survival and growth strategy do not really exist. A new strategy and strong managerial attention to building resources, strengths and capabilities is required to restore strength to MCMPC.

Partner Analysis Memo

There are two possible partners for MCMPC, Good Sisters and Riverside. This memo will evaluate these two in context of a potential partnership with MCMPC. Riverside has perhaps the best potential, given that MCMPC needs to be able to differentiate itself from Innovative in order to survive over the long-term.

Riverside is not a high-performing hospital. On many major metrics, Riverside lags the national average. Patients are given the right antibiotic only 76% of the time compared with 92% for the national average. Riverside lags on hair removal, and is also lags on the treatment of blood clots. This comes despite the MDs ordering preventative treatment more often than other hospitals. Indeed, in both blood clots and antibiotics Riverside has the tendency to overprescribe and to execute this strategy poorly, indicating that training levels are low.

However, Riverside does perform reasonably well (above the national average) on a number of other metrics. It also performs well on financial measures. In the past year, Riverside has improved admissions by 8.35%, patient days by 6.2%, ER visits by 8.5% and surgeries by 9.9%. This strong growth indicates that despite what appear to be some training and performance issues, Riverside is an increasingly popular choice.

Riverside also has one key specialty in bloodless surgeries, which are required for the Jehovah's Witness market, which is of a sizeable minority in the area. This market is loyal and has in general not been courted by any other facility. It is believed that if Riverside moves into Middletown it can capture a greater share of this market. Innovative, much like Riverside's main competitor Western State University Medical Center, does not appear particularly interested in serving this niche. Indeed, the strategy of Innovative appears to be geared specifically to the mass market, leaving many niches open, including seniors, who prefer a high standard of personal service.

A partnership with Riverside therefore offers mutual benefits. Riverside can help to build MCMPC's competency in bloodless surgery, which would allow Dr. Balko's clinic to build a market share in a potentially valuable niche market. For Riverside, some of the patient focus and customer care issues could be addressed with MCMPC's medical expertise. Furthermore, Riverside could lend some managerial talent to help clean up the administrative malaise that exists under Dr. Balko. Ideally, Dr. Balko would be able to drop the administrator role altogether and simply return to the practice he loves. As well, this deal would allow Riverside to use MCMPC as overflow, shifting some of its rapidly growing customer base to Middletown, where patient volumes are falling.

Riverside is, in the face of strong competition, adopting a differentiated strategy and moving to service niche markets. Given the situation in which MCMPC is currently, they should also be considered to focus on niche markets. That both firms have the same opportunities and have complementary strengths makes Riverside a good fit for building growth at MCMPC.

Good Sisters is operationally excellent. This is its primary advantage -- it beats the national average in almost all key performance metrics. This operational strength belies its underlying problems. Good Sisters appears to have been the beneficiary of high quality leadership from Jim Gallagher. Since Gallagher is now gone, Good Sisters has seen its performance decline. Indeed, there is no leadership at Good Sisters at present, the Board being seemingly unable to address the...

In addition, morale at Good Sisters is low as the result of this uncertainty, a situation similar to that at MCMPC.
While Good Sisters has an interest in a deal with Dr. Balko, it does not appear that they are able to make such a move at this point, as they have a number of internal issues that they need to address before tackling any type of expansion, partnership or joint venture. In addition to leadership and morale problems, Good Sisters is facing declining patient volumes. It appears that Good Sisters has many of the same problems as MCMPC. What this would seem to indicate is that these two working together would be unable to address the majority of the weaknesses that plague each one. As a result, there appears to be little common ground from which a partnership can be justified. The combined company would be larger, but would still be facing a host of internal issues in addition to declining revenues and profits.

Value-Based Competition

The principles of value-based competition are no restrictions to competition and choice, accessible information, transparent pricing, simplified billing, nondiscriminatory insurance, treatment coverage and fewer lawsuits. On paper, this system has a number of positive impacts on the customer. The customer would receive a wider range of choices for treatments. For example, a customer would not be compelled to go to Innovative either through the terms of their health plan or for the fact that Innovative has all of the specialists -- MCMPC would be able to win customers on a treatment-by-treatment basis. Both transparent pricing and accessible information would help with this. The JW market has developed because of a particular need, the freedom of choice among that group to pursue that need, and the high level of information among that demographic with respect to its medical service. If such freedom of choice, information and pricing transparency was applied to the broad public, the quality of care would improve and the price of care would decrease.

In addition, simplified billing would allow for an easier patient experience with the administrative side of health care. For the patient, the health care system would become easier to understand and easier to use. There would be more onus on the patient to acquire knowledge about treatments and their costs, but the patient would also be able to conduct this research more easily than has been possible in the past.

Competition at present is done at the plan level or provider level, when for the best outcomes it would be done at a procedure level. Value-based competition would also allow MCMPC to successfully differentiate from Innovative, without the need to cultivate multiple specialist relationships. The customer would simply have the choice to acquire health care where it is offered at the best combination of quality and price, no different than when the customer chooses a restaurant for dinner.

Recommendations

It is recommended that MCMPC pursue a deal with Riverside. At present, Riverside's financial performance is strong, so they have the fiscal capability of making a deal happen. In addition, they have distinct competencies from which MCMPC can benefit, in particular in bloodless surgery. The deal benefits both parties, because Riverside has the opportunity to expand into Middletown, which would grow its share of the bloodless surgery business.

Internally, Riverside may have some operational weaknesses which are not in evidence at MCMPC. The company overall, however, has strong management with regards to building the business. The management teams therefore are complementary. In addition, the patients are complementary as well, as each serves a different geographic region. MCMPC can be used as overflow for the growing Riverside business. The two clinics together can become a differentiated player, leaving some of the mass market business to Innovative and Western University. This fits with the strengths in customer service at MCMPC that can help build business among the elderly in the area. In addition, just making the deal will resolve some of the managerial issues at MCMPC and much of the low morale issue.

Good Sisters was rejected because it seems to have many of the same strengths and weaknesses as MCMPC -- there is little room for synergy. Instead, the combined entity would have two staffs with low morale, no true leader and no turnaround plan. Selling to Innovative has been ruled out because of the apparent personal stake for Dr. Balko against Innovative. Also, with the new CRMC facility in Middletown, there is only limited strategic fit between Innovative and MCMPC, and a poor organizational cultural fit. The best fit for expansion…