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S t r a t e g i c M a n a g e M e n t
o f H e a lt H c a r e
o r g a n i z a t i o n S
e i g H t H e d i t i o n
S t r a t e g i c M a n a g e M e n t
o f H e a lt H c a r e
o r g a n i z a t i o n S
P e t e r M . g i n t e r
University of alabama at Birmingham
W. J a c k d U n c a n
University of alabama at Birmingham
l i n d a e . S W a y n e
University of north carolina at charlotte
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© 2018 Peter M. Ginter, W. Jack Duncan, Linda E. Swayne. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Names: Ginter, Peter M., author. | Duncan, W. Jack (Walter Jack), author. |
Swayne, Linda E., author.
Title: Strategic management of health care organizations / by Peter M.
Ginter, University of Alabama at Birmingham, W. Jack Duncan, University of
Alabama at Birmingham, Linda E. Swayne, University of North Carolina at
Charlotte.
Description: Eighth edition. | Hoboken, New Jersey : Wiley, [2018] | Includes
bibliographical references and index. |
Identifiers: LCCN 2017051205 (print) | ISBN 9781119349709 (hbk)
Subjects: LCSH: Health facilities—Administration. | Strategic planning. |
Mission statements. | BISAC: MEDICAL / Nursing / Management & Leadership.
| HEALTH & FITNESS / Health Care Issues.
Classification: LCC RA971 .D78 2018 (print) | DDC 362.1068—dc23
LC record available at https://lccn.loc.gov/2017051205
ISBN 978-1-119-34970-9 (hbk)
ISBN 978-1-119-34969-3 (ebk)
ISBN 978-1-119-34971-6 (ebk)
Printed in the United States of America
10 9 8 7 6 5 4 3 2 1
v
c o n t e n t S
Preface xiii
Features of the Text xiv
Organization of the Text xvi
To the Students: Why This Book About Strategic Management Is Important xviii
The Author Team xviii
Acknowledgments xix
Chapters
Chapter 1 The Nature of Strategic Management 1
Chapter 2 External Analysis 37
Chapter 3 Service Area Competitor Analysis 79
Chapter 4 Internal Analysis and Competitive Advantage 121
Chapter 5 Directional Strategies 163
Chapter 6 Identifying Strategic Alternatives 205
Chapter 7 Evaluation of Alternatives and Strategic Choice 259
Chapter 8 Value-Adding Service Delivery Strategies 313
Chapter 9 Value-Adding Support Strategies 359
Chapter 10 Communicating Strategy and Developing Action Plans 401
Resources for Strategic Thinkers
Resource 1 Analyzing Strategic Health Care Cases 431
Resource 2 Health Care Organization Accounting, Finance, and
Performance Analysis 443
Resource 3 Health Care Acronyms 463
Resource 4 Glossary of Strategic Management Terms 471
vi contentS
Cases in the Health Care Sector
Case 1 Cottage Senior Living
Case 2 Asian Health Services: Rediscovering a Blue Ocean
Case 3 Community Blood Center of the Carolinas: Building for a Better
Community
Case 4 Navigating Change at Alaska’s Southcentral Foundation
Case 5 LINET Americas: This Bed Is Just Right!
Case 6 West Kendall Baptist Hospital: Meeting the Demand of Community-
Based Health Care in the New (and Stormy) Regulatory Environment
Case 7 Humana’s Bold Goal: 20 Percent Healthier by 2020
Case 8 Pricing the EpiPen: This Is Going to Sting
Case 9 Cavalier Hospital
Case 10 Pleasant Bluffs Hospital: Launching a Home-Based Hospital Program
Case 11 Kaiser Permanente: Creating a No-Wait Emergency Department
Case 12 ExAblate Neuro
Case 13 Huntington Hospital
Case 14 Valley Health
Index 495
vii
c a S e S
For book adopters, the following cases from the health care sector are available on
the book’s website, www.wiley.com/go/ginter8e.
Case 1 Cottage Senior Living
Andrew C. Rucks, PhD
School of Public Health, University of Alabama Birmingham
Cottage Senior Living (CSL) was a family owned assisted-living company
headquartered in Huntsville, Alabama. CSL had developed or acquired nine
continuing care retirement communities (CCRCs) in seven locations in Alabama
and one each in Mississippi and Tennessee. CSL operated in a highly-controlled
environment with regulations stipulating staffing and building requirements.
The leadership team of CSL assembled at a strategic planning retreat to move
the business “to the next level.” The purpose of the retreat was to answer three
questions: (1) How to grow? (2) Where to grow? and (3) Do we have the organi-
zational capacity to grow?
Case 2 Asian Health Services: Rediscovering a Blue Ocean
Ken Chung, PhD and Wendell N. Chin, MBA
California State University at Eastbay
Asian Health Services (AHS) is a not-for-profit community health care provider
that focuses on serving ethnic Asians in Oakland, California. With the advent
of the Affordable Care Act (ACA or “Obamacare”), AHS had been preparing
vigorously for significant changes. Now that the initial operational systems were
in place, AHS’s CEO Sherry Hirota must decide what proposals to include in a
coherent blue ocean strategy presentation at the upcoming board meeting that
balanced AHS’s dual mission of social benefit against generating more revenues
than costs. Looming threats included payments moving from pay-for-service to
pay-per-patient or even pay-for-value. As the original founders had identified a
blue ocean (i.e. uncontested markets) in the health care environment 40 years ago,
now Hirota must find another blue ocean.
Case 3 Community Blood Center of the Carolinas: Building for a
Better Community
Linda E. Swayne, PhD
Belk College of Business, The University of North Carolina at Charlotte
In early 2010, Martin Grable, President of the Community Blood Center of
the Carolinas (CBCC), was ready to move the first community blood center in
viii caSeS
North Carolina to a new level. In a strategic planning retreat, he asked the Board
of Directors to evaluate seven strategic options for CBCC. Although all of the
alternatives were needed by the community, CBCC did not have unlimited
resources. Further, health care reform loomed on the horizon. Clearly, to serve
the community, CBCC needed not only to survive, but to thrive in the near term.
Which of the alternatives would allow achievement of that goal for the newest
FDA-licensed community blood center?
Case 4 Navigating Change at Alaska’s Southcentral Foundation
Erin E. Sullivan, PhD, and Jessica L. Alpert
Center for Primary Care, Harvard Medical School
Long-time president and CEO Katherine Gottlieb reflected on a recent meeting
of Southcentral Foundation’s (SCF) board of directors where CEO succession
planning was discussed as she contemplated retirement. The case provides
background information about Alaska, the American Indian and Alaska Native
(AIAN) health care system, and reviews SCF’s mission, vision, and key tenets of
the organization’s culture: customer-ownership, core concepts, and continuous
improvement. SCF’s approach to hiring and developing its workforce and its gov-
ernance structure are highlighted as background for Gottlieb’s concerns in choos-
ing the next CEO: maintaining SCF’s culture, choosing an internal or external
CEO, and identifying the top three qualities that SCF’s next leader must embody.
Case 5 LINET Americas: This Bed Is Just Right!
Linda E. Swayne, PhD
Belk College of Business, The University of North Carolina at Charlotte and Colin Bain,
President and CEO, LINET Americas
LINET was the leading manufacturer of ICU (intensive care unit) beds in Europe.
In 2010 LINET Americas began competing with the two largest U.S. bed manu-
facturers, Hill-Rom and Stryker, by marketing to smaller hospitals based on lower
prices and better safety features for caregivers. Hill-Rom and Stryker noticed and
head-to-head competition began. Hill-Rom lowered its prices and extended its
warranty to match two of LINET Americas’ competitive advantages; however,
the innovative design was much harder to match. President and CEO Colin Bain
needed to determine how he could continue to grow LINET Americas, especially
when the company was blocked out of the largest group purchasing organization
(GPO) that was offering Hill-Rom or Stryker ICU beds.
Case 6 West Kendall Baptist Hospital: Meeting the Demand of
Community-Based Health Care in the New (and Stormy)
Regulatory Environment
Miriam Weismann, PhD, and students Javier Hernandez Lichtl, Heather Pierce,
Denise Harris, Lourdes Boue, and Cathy Campbell
Florida International University
The first three years of operation of the West Kendall Baptist Hospital in Miami
provided a “poster child” for efficient and cost-effective health care delivery to
ixcaSeS
the West Kendall community. The 133-bed facility’s mission was to promote the
preservation of life by improving the health and well-being of its constituents.
WKBH exceeded every budget prediction and showed a profit in year 3; however,
with the passage of the Affordable Care Act, the situation changed almost over-
night. By the first quarter 2016, WKBH started to lose money in excess of budget
predictions, despite its increased patient admissions, careful financial planning,
expense reductions, quality service, and excellence in patient care delivery. A
serious financial crisis loomed with little relief in sight; the management team was
searching for solutions.
Case 7 Humana’s Bold Goal: 20 Percent Healthier by 2020
Nancy M. Kane, DBA with the assistance of Deborah Milstein
Harvard T.H. Chan School of Public Health
Humana, Inc., headquartered in Louisville, Kentucky, was the fourth largest
U.S. health insurance firm with annual revenues of $54.3 billion, membership
of 14.2 million, and 50,100 employees in 2015. The company served members in
17 states plus the military. Under the leadership of CEO Bruce Broussard, Humana
was attempting to shift its focus from paying claims to improving the health of
beneficiaries. Humana set an “aspirational Bold Goal of improving the health
of the communities we serve by 20 percent by 2020 because we make it easy for
people to achieve their best health.” Dr. Andrew Renda, hired as Director, Bold
Goal Measurement, knew that senior leaders understood that it would take time
to change population health, yet they wanted to see some results quickly.
Case 8 Pricing the EpiPen: This Is Going to Sting
Thomas J. Steenburgh, PhD
The Darden School of Business, University of Virginia
Mylan Inc., a generic drug manufacturer, bought the EpiPen product line from
Merck, invested in marketing, and dramatically increased the price from $100 to
$600 per two-pack, igniting consumer anger and provoking a media firestorm.
Congress was compelled to step in, demanding to know how Heather Bresch,
CEO of the company, could justify the high price of EpiPens. Such health care
companies face a tension between doing good in the world and making a profit.
Is it fair for drug prices to vary so dramatically across countries (as the EpiPen is
priced at $85 in France)? How should such a public controversy be resolved?
Case 9 Cavalier Hospital
Kenan W. Yount, MD MBA under the supervision of Michael J. Schill, PhD
The Darden School of Business, University of Virginia
A midsize (650-bed) community not-for-profit hospital, located in south central
Virginia, chose an expansion strategy in 2008 by bringing all its cardiology under
one roof in a new comprehensive care center. Impressive results drew the attention
of several insurers who approached Cavalier Hospital, each hoping to include the
hospital in its network of physician providers. In preparation for his first board
meeting, the physician director wanted to assess the hospital’s overall financial
condition to determine which strategies should be pursued next: focusing on
acquiring patient volume, expanding investment into integrated care, setting the
reimbursement structure for revenue collection, or moving to a capitation-based
payment system. The evaluation of revenue models would help him understand
which alternatives could best be supported for the business strategy.
Case 10 Pleasant Bluffs: Launching a Home-Based Hospital
Program
Laura Erskine, PhD
Ivey Business School, University of Western Ontario
Pleasant Bluffs Health System was a Level I Trauma Center with 400+ licensed
beds that provided outpatient care, acute and subacute care, biomedical research,
and graduate and undergraduate education. Pleasant Bluffs wanted to create a
pilot program for home-based hospital care. Graft Salot, as the director of the
hospital’s Performance Improvement (PI) department, was asked to recommend
the pilot program’s location, duration, eligible population, and possible changes
to the intake process. Salot must consider issues related to an educational program
about home-based care and an implementation strategy for it as well as a cost/
profit comparison for providing care in the hospital versus home-based care.
Case 11 Kaiser Permanente: Creating a No-Wait Emergency
Department
Edward D. Arnheiter, PhD
Ivey Business School, University of Western Ontario
Kaiser Permanente, based in California, was a vertically integrated health care
system comprised of 38 hospitals, 619 medical offices, and 10.1 million mem-
bers in eight western U.S. states. In 2007, the emergency department at South
Sacramento was experiencing long patient wait times; it became clear that a
better way was needed. Changes were made from 2007 until 2015 by Dr. Karen
Murrell, leader of the LEAN program, and her flow group, to significantly
improve many key performance measures of the emergency department. In
2016, she was wondering whether there were any additional ways to create
capacity in the ED.
Case 12 ExAblate Neuro
Matthew Thames, MBA/MD under the supervision of Robert E. Spekman, PhD
The Darden School of Business, University of Virginia
InSightec, a privately-held Israeli company, developed a new medical device,
ExAblate. Focused ultrasound provided precise concentration of sound waves to
act on a particular part of the body; the guidance of magnetic resonance imaging
(MRI) technology allowed for non-invasive, targeted destruction of diseased tis-
sue. The company required a marketing strategy, navigating a number of barriers
that could impinge on its ability to successfully introduce the new technology. The
FDA approved its use for removing uterine fibroids and bone metastases. Yet the
holy grail of this technology was the application to the brain. InSightec needed to
x caSeS
xi
develop a go-to-market strategy for ExAblate Neuro, which was intended to treat
essential tremor (ET) and other diseases, such as Parkinson’s, for which there was
no cure at present.
Case 13 Huntington Hospital
Davina Drabkin and Sarah Soule, PhD
Stanford Business Graduate School, Stanford University
Located in Pasadena, California, Huntington Hospital (HH) was a 625-bed not-
for-profit organization named among the top-performing hospitals in 2012 by
U.S. News & World Report. To further HH’s focus on high-quality, patient-centered
care, Jim Noble, Executive VP-COO/CFO, was looking for a change in direction,
particularly in the Business Services Office. Accounts Receivable (AR), a key bill-
ing metric, could be lower; Noble hired Kim Markey with the mandate to improve
performance. Markey’s long-term vision involved re-examining the revenue
cycle and the hospital’s processes to ensure that HH would become a stronger
performer. She needed to get her metrics under control as a first step before trans-
forming the departments she oversaw into truly patient-focused business centers.
Case 14 Valley Health
S. Hughes Melton, MBA under the supervision of Alexander B. Horniman, PhD
The Darden School of Business, University of Virginia
Felton Wayne, MD, began his career in private practice with a friend. After
ten years of developing the practice, he sold his share and Dr. Wayne joined
the much larger practice of Valley Health (VH) that had recently merged with
Franklin Memorial Hospital (FMH). He was appointed Chief Medical Officer
(CMO) and was responsible for the North Carolina organization. The medical
staff was unhappy and many physicians left; two CMOs left before Dr. Wayne
took up the position. During a feedback session with John Richmond, from the
South Carolina division of VH, Dr. Wayne was stunned to discover that Richmond
considered him a “cowboy!” Dr. Wayne personally thought he was doing a good
job of developing a better working environment.
caSeS
xiii
P r e f a c e
Almost three decades ago, the three of us agreed that health care was experiencing
evolutionary, and in some segments, revolutionary change. At that time, we wrote
in the Preface for the first edition of this text (1992) that health care organizations
have “had difficulty in dealing with a dynamic environment, holding down
costs, diversifying wisely, and balancing capacity and demand.” Our conclusion
was that only health care organizations with a structured strategic management
approach that recognized the value of emergent thinking could make sense of
such a rapidly changing environment.
Our only surprise has been that the rate of change in the health care system
has been far greater than we imagined and now certainly exceeds the magnitude
of changes initiated with the passage of Medicare and Medicaid in the 1960s and
later in 1983 with the implementation of Medicare’s prospective payment system.
Significant change in health care continues as evidenced, first, by the passage of
the Patient Protection and Affordable Care Act (ACA) in 2010 and more recently
by the election of a new administration focusing once again on changing the
health insurance landscape and subsequently the “rules for success” for health
care organizations. Such regulatory changes, as well as significant economic,
technological, social, political, and competitive changes in health care are likely
to continue.
To cope with such alterations, by the late 1990s health care organizations
had universally embraced strategic management as the primary leadership phi-
losophy and process for understanding and addressing change. The widespread
adoption of strategic management continues today as health care leaders have
found that strategic thinking, planning, and managing strategic momentum are
essential for coping with the dynamics of the health care system. We believe that
strategic management has become the single clearest manifestation of effective
leadership in health care organizations.
In the broadest terms, this text is about leadership; more narrowly, it concerns
the essential strategic tasks of leading and managing health care organizations. As
a result, the eighth edition continues to advocate the importance of strategic think-
ing and clearly differentiates strategic thinking, strategic planning, and strategic
momentum. These concepts represent the central elements of a complete strategic
management process that we believe reflect the realities of conceptualizing, devel-
oping, and managing strategies.
Specifically, our approach depicts strategic management as the processes of
strategic thinking, consensus building and documentation of that thinking into a
strategic plan, and maintaining strategic momentum. Through the management
of the strategic plan, new insights and perspectives emerge and strategic think-
ing, planning, and managing are reinitiated. Therefore, strategic managers must
xiv Preface
become strategic thinkers with the ability to evaluate a changing industry, ana-
lyze data, question assumptions, and develop new ideas. Additionally, through
strategic planning, strategic managers must be able to create and document a plan
of action. Once a strategic plan is developed, managers maintain the strategic
momentum of the organization. As strategic managers attempt to carry out the
strategic plan, they evaluate its success, learn more about what works, and incor-
porate new strategic thinking.
It is our view that strategic control is integral to strategic momentum and can-
not be thought of or taught as a separate process. Therefore, traditional strategic
control concepts are integrated into the strategy development chapters under the
heading of “Strategic Momentum.” We believe that this approach better reflects
how strategic control actually works in organizations – as a part of managing the
strategy, not as an afterthought.
Although we present a structured strategic management process, we believe
that strategic management is highly subjective, often requiring significant intui-
tion and even well-informed guesswork; however, intuition and the development
of well-informed opinions are not easily learned (or taught). Therefore, a major
task of the future strategic thinker is to first develop a thorough understanding of
analytic strategic management processes and then – through experience – develop
the intuition, perspective, and insight to consider previously uncharted strategic
issues. Our map and compass metaphor provides a framework for blending
rational, analytical planning with learning and responsiveness to new realities.
We believe this text provides the foundation for effective strategic thinking, plan-
ning, and managing strategic momentum.
Features of the Text
We have incorporated some new features into this 8th edition of Strategic
Management of Health Care Organizations as well as retained features that users of
previous editions have said were informative, interesting, and a pedagogically
sound foundation for understanding and embracing strategic management of
health care organizations.
Retained Features
● Retained from the 7th edition, Learning Objectives direct attention to the
important points or specific chapter elements that students should know
and be able to describe, explain, discuss, clarify, and justify.
● We continue to emphasize analytical models, illustrative examples, and
informative exhibits to aid in learning chapter material.
● As in the 7th edition, the Map and Compass provide a useful metaphor for
conveying the view that strategic leaders must both plan as best they are
able, but also learn, adjust, and establish new direction (develop a new
plan) as they progress.
xvPreface
● Retained from the 7th edition, The Language of Strategic Management –
Key Terms and Concepts, presents a list of the essential vocabulary and
terminology relative to the chapter’s material.
● The Questions for Class Discussion focus on key chapter concepts and assist
the reader in reviewing the material and thinking about the implications of
the ideas presented.
● We have retained our extensive end of chapter Notes, which contain the
references used in development of the chapter materials.
● An even more extensive and easy to access Web-based Instructor’s Support
site is available to verified course instructors using the text. The support
material includes PowerPoint slides for each chapter, chapter lecture
notes that include suggestions for effective teaching, answers to the end
of chapter questions, example assignments and quizzes, the strategic
management case studies, and the instructor’s manual (teaching notes) for
the case studies. In addition, the Instructor’s Support contains a true/false,
multiple choice, and discussion question test bank and can be found at
www.wiley.com/go/ginter8e.
New Features
● Each chapter now begins with Why this Chapter Is Important, a brief chapter
introduction – a call to action, providing a clear and compelling reason for
continuing to read and understand the concepts discussed in the chapter.
● In addition to Learning Objectives, this edition identifies a Strategic
Management Competency that describes the overall applied skill that
students of strategic management should be able to demonstrate after
completing the chapter.
● Each chapter now has a step-by-step process for accomplishing the
elements of strategic management discussed in the chapter. Thus, readers
are guided through a series of detailed steps for performing external
analysis, service area analysis, internal analysis, and so on through strategy
implementation.
● Newly introduced in the 8th edition, Essentials for a Strategic Thinker
are one-page sidebars that provide summaries of contextual concepts
important to understanding health care and the health care system. These
“Essentials” do not concern core strategic management concepts per se, but
rather provide concise descriptions of terms, institutions, or concepts in the
changing health care landscape that every strategic thinker should know.
● New to this edition, Practical Lessons for Health Care Strategic Thinkers
provides bullet points (derived from the chapter content) containing
practical advice for those undertaking strategic thinking, strategic planning,
and managing strategic momentum.
● For this edition we have eliminated the Introductory Incidents, which
provided a practical example of the concepts addressed in the chapter, and
instead included additional in-text examples more specific to the concepts
being discussed.
● For this edition, four Resources for Strategic Thinkers are included at the end
of the text to assist readers:
Resource 1. Analyzing Strategic Health Care Cases
Resource 2. Health Care Organization Accounting, Finance, and
Performance Analysis
Resource 3. Health Care Acronyms
Resource 4. Glossary of Strategic Management Terms
● The new Glossary of Strategic Management Terms (presented in alphabetic
order with the chapter noted) defines all the terms and concepts presented
in The Language of Strategic Management – Key Terms and Concepts section
at the end of each chapter as well other terms referenced in the text that
students of strategic management should know.
● Strategic Management Case Studies are returning to this edition in response
to user requests. These case studies, listed in the Table of Contents, are
unique to this edition and are available for download to verified course
instructors on the Web-based Instructor’s Support site (see www.wiley.com/
go/ginter8e). In addition, favorite case studies from the sixth edition of this
text as well as other selected cases written by the authors are available for
download from the support site.
Through our own teaching, research, and consulting in the health care field,
we have applied the process outlined in this text to physician practices, hospitals,
local and state public health departments, long-term care facilities, social service
organizations, and physical therapy practices. In addition, we have students who …
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