Case Study – Background Reading – Strategic Management – Banks
The CEO of St. Sebastian Health System, a moderate-sized hospital system in a mid-sized, Midwest city
has hired you to help turn things around. The CFO is projecting an $8.9 million operating loss this year,
which will be more than offset by non-operating income. However, the board has made it clear that the
situation must improve. If the system cannot produce a positive operating margin in 2017, someone else
is going to be the CEO. The CEO and CFO have asked you to recommend strategic approaches to selling
their services in the community that will help turn the financial ship around.
Your Health System
St. Sebastian is a community-based health system. The senior management team has an average tenure
of 17 years. The exception is the Chief Medical Officer (CMO). She has been in her position for two years
and is the fourth CMO in that role in the past ten years. The CEO and COO have each been in their
current roles for ten years. The system is comprised of the following:
1. Two large, acute care hospitals
2. Two long term care facilities
3. Two skilled nursing facilities
4. One long-term acute-care hospital (LTAC)
5. Four geographically distributed outpatient centers
6. Four Urgent Care Centers
7. Two free-standing ambulatory surgery centers (ASCs)
8. A 400 member employed physician group that includes 180 Primary Care Providers (PCPs). All 28
PCP practices are certified Level III Patient Centered Medical Homes by NCQA.
The remainder of the 1,000 member medical staff is generally comprised of large, independent groups
who have varying degrees of ‘loyalty’ to the system. The Radiology and Emergency groups, for example
do 100% of their work at St. Sebastian and have no ownership of any outside facilities. The
Gastroenterology group, on the other hand, does work at the hospital, but also owns their own,
freestanding endoscopy center. The orthopedic group does 75% of their work at St. Sebastian, but
maintains privileges at other facilities. They do not own their own ASC.
In the current year, St. Sebastian is projecting 221,700 patient visits (combined IP and OP) with an
average cost per visit of $1,727. They have an average charge per visit of $4,600.
Over the past ten years, St. Sebastian has been active in pursuing a number of different strategic
1. They have established ‘clinical institutes’ in cardiovascular, orthopedic, oncology, maternity and
neurologic care. Each of these has been built through a co-management agreement between
the system and the internal or external physician group who would be most logical. Each
institute is led by a dyad of an administrator and medical director.
2. Five years ago, they consolidated maternity programs to one facility, a move that justified
investing in a Level III Neonatal Intensive Care Unit (NICU)
3. They have established a research division in the hopes of working with national pharmaceutical
companies and/or tertiary care hospitals in the Midwest.
4. They have established a Physician Hospital Organization (PHO) and intend to become an
Accountable Care Organization (ACO) that can participate in the Medicare Shared Savings
Program (MSSP) and/or enter into global risk contracts with third party payers. The PHO is
currently evaluating whether or not they should purchase an insurance license so that they
could offer commercial, Medicare Advantage and Managed Medicaid insurance products.
5. They have established a Business Health division to service the corporate health needs of the
employers in the region. This would include things like EAP programs, on-site wellness, drug
screening, on-site clinics, etc. This division also recently built two large, full-service fitness