Case ten. Should two competing neighboring hospitals consolidate their emergency services?

Abstract

Two hospitals sit together on a medical campus located in a large metropolitan area. The larger (746 beds) of the hospitals, St. Catherine's, was established in 1887 by a Catholic congregation of religious women. The other hospital (527 beds), Martindale, was established by a group of Lutheran pastors in 1916. The missions of the two hospitals are very similar. The hospitals are strategically located in the center of a metropolitan area. The marketplace is one which has been characterized as fiercely competitive, with 40 percent of the market enrolled in prepaid plans. The demand for hospital services continues to decline each year. There is significant over capacity in the metropolitan area, with an average occupancy around 50 percent. The hospitals have had a varied history of both cooperation and competition. In 1975, a joint venture organization was established to jointly share expensive technology and develop new shared programs. After a brief study of the declining volumes and profitability in both hospital emergency rooms and identifying that both were perceived as substandard by the public and by the physicians, the question became--"should two competing, neighboring hospitals consolidate their emergency services?" The case reports a problem commonly experienced by hospitals today--when to compete, when to collaborate and how to balance the two in pursuit of organizational competence and advantage.