The Case of the Unhealthy Hospital: Blake Memorial Hospital

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The Case of the Unhealthy Hospital Anthony R. Kovner Harvard Business Review No. 91506 SEPTEMBER–OCTOBER 1991 HBR Anthony R. Kovner The Case of the Unhealthy Hospital Bruce Reid, Blake Memorial Hospital’s new CEO, rubbed his eyes and looked again at the 1992 budget worksheet. The more he played with the figures, the more pessimistic he became. Blake Memorial’s financial health was not good; it suffered from rising costs, static revenue, and declining quality of care. When the board hired Reid six months ago, the mandate had been clear: improve the quality of care and set the financial house in order. Reid had less than a week to finalize his $70 million budget for approval by the hospital’s board. As he considered his…show more content…
And that was just scratching the surface. Without some of these investments, Blake’s ability to attract paying patients and top-grade doctors would deteriorate. As it was, the hospital’s location on the poorer, east side of Marksville was a strike against it. Blake had a high percentage of Medicaid patients, but the payments were never sufficient to cover costs. The result was an ever-rising annual operating loss. Reid was constantly reminded of the hospital’s uncompetitive position by his chief of surgery, Dr. Winston Lee. ‘‘If Blake wants more paying patients—and, for that matter, good department chiefs—it at least has to keep up with St. Barnabas,’’ Lee had warned Reid a few days ago. Lee complained that St. Barnabas, the only other acute-care hospital in Marksville, had both superior facilities and better technology. Its financial condition was better than Blake’s, in part because it was located on the west side of the city, in a more affluent neighborhood. St. Barnabas had also been more savvy in its business ventures: it owned a 50% share in an MRI unit operated by a private medical practice. The unit was reportedly generating revenue, and St. Barnabas had plans for other such investments, Lee had said. While Reid agreed that Blake needed more

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