To: MGT 705 Consulting Services, Inc.
From: Walter Graham, Executive Manager of Medical Associates
RE: Middleboro Case 6 Assignment Letter
Your reputation throughout the medical community of Hillsboro County is outstanding and because of this our physician Board has asked me to retain your services for a very difficult project. There are a number of issues that the board needs to confront and your assistance is paramount. A number of factors have come to light that we are not sure how to handle. Specifically:
1. A local realtor has approached us about the exercise of our land option, even though it doesn’t expire until 2020. He has indicated the prevailing rate is $2,800 per acre. He believes the parcel could be immediately subdivided and that the 25 acres near the new highway could sell at $20,000 per acre. In light of this, his organization is prepared to buy the entire parcel from us for $1.5M.
2. Swift Health Plan has announced that it has acquired a major competitor that currently serves the county. Swift will significantly expand from 8,000 to 12,000 members, with total covered lives approximating 45,000. Swift has asked us to revise our current per member per month rate for ambulatory services provided (excludes ambulatory surgery). Note: our current PMPM rate is equal to our average gross revenue per visit with a 15% discount times 7 visits per member per year paid in monthly installments.
3. Physician Care Services is for sale and they have indicated to us that they would consider a cash sale to us at 1.5 times its current book value – a number we consider high.
4. Our surgery center in Jasper has hit capacity and the surgeons would like us to build out space in our Middleboro office. This will involve a cost of $750,000 and require the recruitment of 2 new surgeons.
5. Our computer systems are in serious need of an upgrade. System 10.4 costs $120,000 in hardware and software and will reduce our annual expenses by $5,000 per year for the next 5 years. System 15.3 costs $500,000 and reduces operational costs by $10,000 for the 1st 3 years, $20,000 in Year 4 and $60,000 in Year 5.
6. Recent OIG fines in the news and numerous fraud alerts sent by Medicare have the physicians nervous about our current compensation plan.
7. Leadership of Middleboro Community Hospital has also requested a meeting with the board to discuss formal affiliation options, including acquisition of the organization.
We would like to retain your organization to assist us with a long-term strategic plan. We recognize that we are asking a lot, but we need your immediate help to address all the issues above. In order to have a meaningful discussion with the physicians at our upcoming board meeting we are asking you to address the following in your report:
a. Completion of a TOWS analysis.
b. A full review of our current financial situation and the financial impact if we proceed with any or all of the items in 1-5 above. Which would you recommend and over what timeframe?
c. Should we consider a new comp plan and if so, what types of physician compensation plans would you recommend? (Please provide the pros and cons of each)
d. The physicians really do not want to sell the practice and become employees of a hospital or other type of organization. However, they see the benefit of a closer alignment with MCH. What types of affiliation arrangements should we consider, with MCH and why?
Thank you in advance for your assistance.
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