Central hospital

The following framework/structure provides an overview of the case:

Information that can be shared if inquired by the candidate:

Revenue

• Revenue is fixed for several years through contracts with insurers.
• So far, revenue has dropped 13% this year.
• Contracts with insurers were signed this January and are binding for 3 years and are non-negotiable.
• The contracts signed are managed care contracts that are fixed in nature - there was some aggressive pricing performed to get those contracts.

The candidate should start off by asking for information on revenue to see where the problem might lie. In doing so, the candidate should ask for more background info on how revenue is earned. If the candidate wants to start with cost, just move to the second component and start there.

Information that can be shared if inquired by the candidate:

Cost

• The hospital deals with fixed costs and variable costs.
  • The fixed cost cannot be altered.
  • Variable cost consists of payroll as its largest component.
  • The second-largest component is the utilization of resources by medical staff.
  • Third and final cost components are basic overhead.
• Laying off staff and thus saving on payroll is not an option.
• The cost of utilization of resources is 18% higher than what was anticipated when those contracts were negotiated.

If the candidate moves to cost or starts with cost, he should ask for more information on cost structure.

The candidate should note that the hospital made some strong assumptions when negotiating those contracts with insurers, but the real-life situation seems to be far different from the assumptions made. So we need to look into reducing the costs of the utilization of resources.

The candidate should lay out possible solutions on both the revenue and cost side and discuss these options. The interviewer should challenge the candidate on these options and brainstorm with the candidate.

• On the cost-side, the client can stimulate staff to be more efficient with resources and pressure vendors/suppliers to lower prices of materials & medication.
• On the revenue side, clients can sign more contracts with additional insurers or create niche centers of excellence to bring in more revenue that falls outside the managed care contract.