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Case Study: Magnolia Hospitals Strategic Issues
Magnolia Hospital is a 50-bed publicly funded district hospital located approximately 40 miles from a metropolitan area with several hospitals. Following the hospitals bankruptcy, the citizens in the county voted to purchase the hospital and keep it open with county tax support. At the time ownership was transferred to the public, the hospital was debt free with 17.5 days of cash in the bank. The new leadership was focused on survival and having enough money to make payroll each week. Through the hard work of managers and physicians in the community, the hospital was eventually able to turn around financially. Its reputation as a quality provider slowly improved among county residents, although many people still traveled to metropolitan hospitals to receive care. After the CEO retired, the new CEO, Brianna Reeves, began to discuss market share growth options with managers, local physicians, and representatives from health-related community services. During these discussions, Reeves assessed the climate and the willingness of hospital staff and physicians to be more supportive of directing patients to Magnolia Hospital. Because the organization had been facing financial difficulties for so many years, there was an underlying culture of survival of the fittest among individuals, departments, and physician groups. The CEO realized that the past focus on blaming others and putting out fires had to change.
She was also struck by the seeming lack of awareness about the potential for Magnolia Hospital to become the provider of choice for people in the community. For the most part, the previous CEO and board members had set the hospitals strategy, with managers and physicians excluded from these discussions. Among managers and physicians, there was a general sense of inevitability that Magnolia
Hospital would never be able to attract business away from urban hospitals.
Reeves felt strongly that the hospital and its physicians could jointly build an organizational capacity in
which excellence was the way of doing things. This would translate into more business for everyone, since fewer people in the community would travel out of the county for their healthcare needs. To realize this goal, the CEO would need to change entrenched attitudes among hospital employees and physicians.
Key strategic issues identified during the situational analysis conducted with management and key physicians in the community included the following. In order to sustain services in the community, should Magnolia Hospital
focus and possibly reduce certain inpatient services and refer other populations to larger hospitals?
convert some inpatient beds to skilled nursing beds?
sell the facility to a larger health system?
go to the county voters with a bond issue to build a new facility with expanded outpatient services?
stay the same size or grow through joint ventures with urban hospitals?
hire hospitalists to care for inpatients?
add video telemedicine capabilities?
contract with urban specialists to travel to the community once a week to see patients?
By involving physicians and hospital management in discussions of key strategic issues, Reeves began to break down the tensions that had existed for years between these two groups. Although it didnt happen overnight, managers and physicians learned that collaboration rather than confrontation was the best way to advance everyones agenda.
Questions for Critical Thinking and Engagement 1. When you consider the history of Magnolia Hospital, do you believe Reevess initial assessment was appropriate? Why or why not?
2. Based on your reading and analysis of this brief case, was the list of key strategic issues thorough enough? Was anything left off the list that should have been there?
3. The case study ends on a note of success, but what are some alternative endings that could have developed based on the background you were given? Be as specific as possible.
4. Comment on Reevess practice of including hospital managers and physicians in the strategic discussions. Based on your reading of this chapter and your own experience, did she do the right thing? Why or why not?
Source: From Strategic Management for Healthcare Organizations (2nd ed.) (Section 6.1), by P. L. Spath, S. C. Abraham, and J. H. Mishek, 2022, Zovio.

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