Vitas Hospice Case study Analysis


Hello, I have a submission due on Saturday Midnight and need help for: – Porter (5+2) – SWOT(TOWS) analysis – Financial Analysis- Option analysis- Balance Scorecard (based on option analysis)- Action Plan with Gantt Chartrelevant examples are attached.VITAS®: Innovative Hospice Care
Deirdre Lawe, Senior Vice President and Chief of Hospice Operations at Vitas Healthcare Corporation,
summarized the situation facing Vitas’ top executives in 1999:
How does the largest hospice provider in the United States continue to grow in a highly
fragmented industry? Do we build or buy to compete in the hospice market? Should we be
selling management services and our technology to other hospices? How do we uphold our
mission throughout the growth process?
Over a 20-year period, Vitas transformed itself from a regional not-for-profit hospice care organization
to a for-profit company acquiring for-profit and not-for-profit hospices nationwide. The acquisition process
presented a range of integration challenges in a segment of the healthcare industry relatively unaccustomed to forprofit service providers. Simultaneously, Vitas opened a number of new hospices in attractive markets. In the
coming years, Vitas planned rapid expansion in this relatively-young and still-evolving segment of the healthcare
The Hospice Movement
Hospice services provided an alternative to traditional hospital treatment for people who were terminally
ill with fewer than six months to live. Hospice was designed to offer palliative, rather than curative, care allowing
a patient to live his or her last days with dignity and in as much comfort as possible at home or in a home-like
setting in a hospital or nursing facility. Hospice provided holistic care—physicians and nurses managed physical
discomfort, home health aides supported day-to-day activities, and chaplains and social workers helped patients
and their families deal with spiritual and interpersonal issues. Bereavement assistance was offered to families as
Most hospice services were provided in a patient’s home. When patients were in great pain or discomfort,
or on the rare occasion when a patient’s primary caregiver (often a spouse or grown child) needed a respite from
providing care, patients could be temporarily admitted to a hospice facility with beds. Alternatively, twenty-four
hour at-home care could also be arranged for limited periods.
Hospice supporters believed that the decision to chose palliative care (hospice) rather than curative care
was entirely personal. A patient and his or her advisors (generally physicians and close family and friends) were
usually involved in the decision-making process. After hospice was chosen,
Research Associate Tonicia Hampton prepared this case under the supervision of Professor Roger Hallowell as the basis
for class discussion rather than to illustrate either effective or ineffective handling of an administrative situation.
Copyright © 1999 by the President and Fellows of Harvard College. To order copies or request permission to reproduce
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all curative therapies were stopped, although medications increasing the patient’s comfort were continued,
sometimes being increased or modified.
In contrast, terminally ill patients in the last six months of their lives who did not opt for hospice services
(the vast majority according to the national hospice organization) generally received curative care until the time
of their death. While some patients did ultimately recover and others extended their lives due to curative
treatments, in many cases the treatment decreased the patient’s quality of remaining life (for example, some
chemotherapy treatments for cancers had dramatic and highly unpleasant side effects). Curative care was not
holistic unless the patient arranged for home health assistance and spiritual and interpersonal counseling him or
The Hospice Industry
During the 1970s and 1980s, many small, independent not-for-profit hospices were founded throughout
the U.S. creating a highly fragmented industry. By the early 1980s, regulatory changes enabled hospices to
become, or to be founded as, for-profit corporations, not unlike for-profit hospitals, which also grew during this
According to the National Hospice Foundation, two thirds of the 2.3 million people who died in America
each year were candidates for hospice and increasing numbers of patients chose hospice services. In 1990,
210,000 individuals chose hospice; by 1998 that number increased to 540,000. Hospice managers generally
expected increases in demand to continue as more physicians and patients became familiar with the hospice
option. Demographics were also favorable. In 1999, there were approximately 40 million senior citizens in the
United States. That number was expected to double over the following three decades.
Exhibit 1 illustrates some results from a national survey of Americans 45 years of age and older
conducted by the National Hospice Foundation in April of 1999. Key findings included the facts that few
Americans discussed death (even when impending), fewer provided instructions about their care preferences,
many believed that honoring a dying relatives wishes about end-of-life care was important, and very few were
aware that hospice was fully covered by Medicare. 1
As of 1999, there were more than 3,100 hospice programs in the United States: 66 percent notfor-profit,
four percent government organizations, 18 percent for-profit, and twelve percent unidentified. A typical hospice
had a daily census (patient population) averaging between 40 and 45 individuals. In 1998, a hospice patient’s
average “length of stay” in a program was 51.3 days and the median length of stay was 25 days. 2 Most hospices
were independently organized operations with one physical location (or very few).
Medicare and most state Medicaid 3 as well as the vast majority of private insurers covered hospice
benefits once two physicians certified that the patient had fewer than six months to live (74 percent of individuals
dying in the United States were over 65 and thus eligible for Medicare). Hospices were paid a fixed rate per day
per patient, which varied only if the patient had to be admitted to an in-patient facility or if twenty-four hour care
was provided at the patient’s home.
Although there was some debate over hospice’s cost effectiveness in contrast to curative care, the
industry felt strongly that if used appropriately, hospice was less costly than the alternative. This was largely
because hospice reduced the number of days a patient spent in an acute care hospital.
The Company
Founded in South Florida in 1978 by Methodist Minister Hugh Westbrook and Registered Nurse Esther
Colliflower, Vitas Healthcare Corporation was originally a not-for-profit hospice care agency. It initially served
Miami and the surrounding area. Westbrook played a leadership role influencing the politics surrounding the
development of the hospice movement in the United States and the creation of the Medicare hospice benefit in
1982.4 In the early 1980s Westbrook needed capital to implement technology that would allow Vitas to reduce
Government provided medical coverage for individuals over the age of 65.
National Hospice Foundation.
Government provided medical coverage for low-income individuals.
Westbrook remained politically active, being an overnight guest at the White House during the Clinton presidency.
costs and enhance the quality and reach of service. After several requests for funding were rejected by foundations,
Westbrook decided that a for-profit structure would enable Vitas to raise the necessary funds. In 1983, Vitas
(working with Don Gaetz) started another entity as a for-profit, which later became today’s Vitas Healthcare.
By 1999, Vitas owned hospice operations in 27 offices and 19 markets throughout seven states including
California, Florida, Illinois, Ohio, Pennsylvania, and Texas. Its total daily census averaged 4,900 patients. A
typical Vitas Hospice had a census of approximately 300. Vitas provided care in nursing homes (35 percent), inpatient units (6 percent), and patients’ homes (59 percent). Vitas’ corporate values were prominently displayed
at its Miami headquarters:
VITAS Values:
Patients and Families Come First.
We Take Care of Each Other.
I’ll do my best today and even better tomorrow.
I am proud to make a difference.
Establishing a Relationship with the Patient
Terminally ill patients referred to Vitas were often unaware that they had fewer than six months to live.
Many doctors were uncomfortable breaking this type of news to patients. The patient’s first contact with Vitas
was in the form of a phone call from an admissions coordinator who explained to the patient that their doctor had
referred them to Vitas. The admissions coordinator (often a registered nurse) always asked the patient to explain
what the doctor had told him or her about his condition. If the patient’s doctor had not given the patient a specific
prognosis, the coordinator explained to the patient that the doctor suggested that he or she might benefit from
Vitas’ services. The coordinator then inquired as to whether the patient would like an admissions nurse to go to
his or her home to explain the program more fully. Admissions coordinators spent all of their time on the phone
with patients.
Within 24 hours of speaking with the patient (who sometimes took one or two days to reach), an
admissions nurse visited the patient. The admission nurse typically spent an hour and a half with the patient and
his or her family explaining the terminal nature of the illness; describing the hospice process; illustrating the roles
of hospice team members; making an assessment of the patient’s physical and emotional condition; and evaluating
the care environment and support systems available to the patient. Exhibit 2 reproduces the flip chart admissions
nurses used as a guide for this process.
During the visit the admissions nurse called the team physician and patient’s physician to describe the
patient’s condition. In this discussion it was determined if the patient was “Vitas Appropriate” (had fewer than
six months to live) based upon criteria listed in Exhibit 3. If the patient met these criteria and wanted the hospice
option, patient consent and benefits forms were completed during the visit. If patients did not have insurance they
paid the same fixed fee as Medicare of approximately $100 per day (this varied based on region). If the patient
truly could not afford to pay, Vitas provided charity care. In 1998, Vitas provided $1.7 million in charity care to
terminally ill patients.
Next the admissions nurse identified what family member or close friend would play the role of
primary caregiver. This person took care of the patient on a day-to-day basis while the patient was at home.
Vitas team nurses would teach the caregiver how to provide basic care, as well as emotional and physical
support. The caregiver kept the team up-to-date on physical and emotional changes the patient experienced.
Patients without a primary caregiver at home and unable to care for themselves were placed in a nursing home.
The next day a primary-care-nurse team member visited the patient and family. During this meeting the
nurse determined the patient’s physical, spiritual, and social needs. As one nurse commented, “We focus on what
the patient and his or her family wants. Some other hospices just do what the doctors tell them. We ask, “What
do you want? How would you like to spend the next few months? What can we do to make your life better?”
We customize our care to the needs of the patient.” This information became the basis of a “care plan.” During
the visit the nurse also determined if a patient had a living will or other advanced directives in case of an
emergency (resuscitation instructions or feeding in the event of a coma), and identified family members who
would need ongoing counseling. Later that week, the team’s social worker conducted a psychosocial assessment
of the patient and family environment. The team chaplain or the social worker attempted to identify any personal
conflicts the patient wanted to rectify with family members. Exhibit 4 provides a timeline for the patient
admissions process.
Patient-Care Team Members
The Vitas team consisted of a team manager, four to five home health aides, a social worker, a chaplain,
four or five registered nurses, a part time physician, a volunteer, a licensed vocational nurse,5 and a team secretary.
The primary care nurse was skilled in pain and symptom management, provided emotional support,
taught caregivers how to provide care, and was reachable 24-hours a day, seven days a week. Each nurse visited
about 5 patients per day. The team physician worked with a patient’s attending physician to assure that clinical
needs were met. He or she conducted patient recertification reviews every two months. By law, patients admitted
to hospice care required reviews to determine if they were still hospice appropriate. 6
The Vitas social worker and chaplain tended to a patient’s social and spiritual needs at the request of
the patient and his or her family. The social worker provided emotional support for patients as well as their
families, and helped to resolve issues and family crises that typically occur during a terminal illness. The social
worker also helped fill out government forms and documents.
The chaplain worked with patients of all faiths. The home health aide assisted patients with personal care (baths,
skin care, and dental hygiene) and daily living activities such as light laundry, house cleaning, cooking, and
running short errands.
Volunteers were trained to provide practical assistance and emotional support to patients and their
families. In order for a hospice to receive Medicare reimbursement, five percent of its total patient-care hours
had to be provided by volunteers. Each hospice had a volunteer manager. One manager commented on having
volunteers work for a for-profit company:
We are fortunate to have so many dedicated volunteers that are committed to our
patients. In my six years at Vitas, we have only had two volunteers leave because we were a
for-profit company.
Licensed vocational nurses worked under the supervision of registered nurses.
Because of past abuses by hospices predominantly located in Puerto Rico, the Federal Government initiated an investigation
into the appropriateness of patients for hospice services in the mid 1990s. Numerous hospices, including Vitas, were
investigated. As of Summer, 1999, a report had not been issued on Vitas although reports had been issued on some of the
other hospices investigated. The Federal Government refused to release any data about the probe under the Freedom of
Information Act citing the ongoing nature of the investigation.
Some volunteers preferred to work in Vitas offices.
The team manager, always a registered nurse, coordinated the delivery of patient care services. He or
she interviewed, selected, trained, supervised, and evaluated members of the team; served as a resource for team
members; and made patient visits.
The frequency of team-member visits depended on the patient’s physical, social, and spiritual needs, as
approved by all team members. Exhibit 5 describes how a team nurse would prepare for a typical patient visit.
A patient generally received about three visits per week from a registered nurse or home health aide, one visit per
week from a volunteer, and a visit every other week from a social worker and chaplain. The team physician saw
patients if their personal physician was unavailable or if a patient’s pain management program was not effective.
Patient care teams typically worked with 45 to 60 patients. Teams met weekly to review patients’ status.
At each meeting the team discussed approximately half the existing caseload, patients whose conditions changed
dramatically, and all new patients.
Teams met at each local hospice’s office. Typical offices were furnished functionally with cubicles,
small private offices, and large conference rooms for team meetings. Hanging from the ceiling at one hospice
were large gold paper stars. Portions of hallway walls were covered with bulletin boards bearing thank you notes
from patient’s families. Photos of former patients with information on their lives were matted and framed. An
entire room was dedicated to making the 63 patient-care-planning forms and 14 admissions forms mandated by
state and federal regulations easily accessible. The room also contained Vitas’ 14 marketing brochures designed
to educate referrers and patients about Vitas and the hospice option (see Exhibit 6 for an example).
Continuous and In-patient Hospice Care
Vitas also had the ability to provide twenty-four hour continuous care in a patient’s home during what
managers called a temporary crisis (often a period of dramatic decline or an episode of extraordinary discomfort).
Medicare covered a patient in continuous care paying $25 per hour. Sometimes Vitas did not receive insurance
reimbursement for continuous care services because the patient did not meet insurance requirements. A manager
Our most difficult challenge is with commercial insurance companies. The HMO case
manager will just say “No, this person doesn’t qualify for continuous care.” The patient could
be seizing or bleeding and the company will still refuse to pay. When this happens, we
sometimes provide care anyway, and fight the insurance company later. We always do what’s
best for the patient.
Each local hospice had a Continuous Care Manager on staff to dispatch nurses and home health aides
when needed.
Although the majority of Vitas’ patients were served in their homes, Vitas also had in-patient beds; most
often a small group of rooms leased from local hospitals (“hospice wings”) designed to be patient-friendly.
Hospice wings were decorated to be more comfortable and home-like than most hospital rooms and all sites
allowed family members and pets to stay with a patient.
After Hours Care—Telecare
All hospices provided some degree of 24-hour patient coverage. However, Vitas managers believed that
they had improved upon the standard model of an “off-duty nurse on-call and reachable with a beeper.” Afterhours call centers, called Telecare centers, were located in each of the states in which Vitas had large operations
(see Figure A).
Figure AVitas Telecare Centers
Telecare Center Location
Number of Hospices Served
Chicago, Illinois
Dallas, Texas
Miramar, Florida
Orange County, California
After 5:00 p.m., all local hospice calls were forwarded to the appropriate Telecare center. A Telecare
triage nurse handled emergency calls. The triage nurse could access the patient’s record on the Vitas Exchange
(Vx), a computer system that provided data on patients. The triage nurse used this data for background
information to determine emergency treatment for the patient. Sometimes, a primary caregiver just needed
reassurance. At other times, the triage nurse sent a nurse (and any other appropriate members of the hospice
team) to the patient. Telecare centers had a dedicated afterhours staff to provide assistance to patients during
emergencies. After-hours nurses (called “runners”) from each local hospice program were on-call. A chaplain
and social worker were also on-call. The Florida Telecare center received an average of 650 calls per night.
Smaller Vitas hospices (Philadelphia, Cincinnati, Milwaukee, and two Texas sites) did not have access to Telecare
centers. In these situations, after-hours calls were forwarded to nurses on-call at their homes.
Bereavement Care
After a patient’s death, Vitas offered up to fifteen months of bereavement care to families and or friends.
The team social worker contacted family members by phone, direct mail, and through group meetings. When
necessary, the team social worker referred family members or friends to a support organization in the community.
The Business of Hospice: Marketing/Patient Referrals
Vitas hospices acquired patients through a two-step process of marketing Vitas services to referrers
(resulting in referrals to Vitas) and patient admissions. Employees involved in this process included marketing
representatives, admissions coordinators, and admissions nurses.
The majority of marketing representatives were registered nurses. Others had healthcare administration
backgrounds, or had previously worked with other hospices. These individuals were
accountable for marketing Vitas’ services to referrers. Referrals came from hospital case managers and discharge
planners (41 percent), social workers in nursing homes (32 percent), and doctor’s offices (27 percent). A director
of admissions commented, “Eighty percent of our business comes from 20 percent of our referral sources.”
Marketing representatives visited hospitals and nursing homes daily. Caseworkers and social workers in these
facilities often served as liaisons between the marketing representative and the patient’s attending physician. For
example, if a case manager identified a hospice-appropriate patient, he or she would discuss the patient with the
attending physician and call a Vitas marketing representative if hospice care was approved. Hospital case
managers and discharge planners (usually nurses) became familiar with Vitas by attending courses on hospice
care given by marketing representatives. These courses provided continuing education credits nurses needed to
renew their licenses every two years.
Prior to a new marketing call, representatives would create a potential referrer profile and design their
first visit around the referrer’s needs. Marketing representatives researched a referrer’s patients or clients to assess
age groups served, diseases treated, and previous use of hospices. Referrals generally depended on the marketing
representative forming positive relationships with a range of healthcare professionals. Managers noted that
establishing new relationships with physicians was particularly challenging. When meeting with physicians,
marketing representatives often presented data on previous patient pain levels and how Vitas had improved them
relative to the disease and the patient’s condition. They also updated doctors on previous referrals, often
identifying those patients who died before Vitas could see them to illustrate that doctors often waited too long to
refer patients to hospice care.
Patient admissions were critical to Vitas’ operations. CEO Hugh Westbrook commented, “If we stopped
admitting patients for 65 days, we’d be out of business.” Figure B illustrates the frequency of marketing calls to
and referrals generated from doctors for a typical hospice. Similar data was not collected for other referral
Figure B
Marketing Representative Visits to Doctors and
Referrals Generated for Vitas of Central Florida
Average Frequency
of Visit
Referrals Generated
per Quarter
3 times a week
Every 2 weeks
Every 3 weeks
6 or more
Note: Approximately 80 percent of referrals were converted to admissions at Vitas of
Central Florida.
Local Management
The general manager of a Vitas hospice relayed that:
There are three critical elements involved in managing a local hospice:
Delivering quality care to patients.
Controlling costs—medical supplies drugs, administrative overhead, and bad debt.
Managing for the mission—a manager must provide an environment to fulfill the
mission, allow employees to feel connected to it, and still be profitable. Eighty-five
percent of my employees are full-time and have been here for seven years or more.
They have a special calling and are very dedicated to serving patients. We have the
capability to be dedicated to our patients and control costs.
Exhibit 7 illustrates organizational structures a local Vitas hospice would adopt based on its size
(censes of 120, 300, and 600). Teams and support staff increased with the number of patients. Figure C
illustrates how a local hospice‘s contribution margin and costs varied as its census increased:
Figure C Variations in Local Cost and Profitability with Census
EBIT (% of sales)
Labor (% of sales)
Administrative costs (% of sales)
In-patient care costs (% of sales)
Note: Cost of medical supplies did not decline with an increase in local hospice census as prices were negotiated nationally.
Prices for drugs and medical equipment were negotiated by each individual hospice program.
Bad debt resulted when a hospice provided services for which it was not reimbursed by insurance companies, Medicare, or
Compensation9 and Incentives
Vitas was unusual in the hospice industry in offering performance incentives. Most hospices did not
offer incentive pay to any of their employees.
General Managers received an average base salary of $90,000 and could receive an annual bonus of up
to 35% of base. Their bonus was determined by quality outcomes (patient satisfaction data), unit profitability,
and their overall general management skills. Qualitative and quantitative measures were weighted approximately
equally although this varied by location. Team managers had an average base salary of $53,000 and received a
maximum bonus of 20% of their base pay with a maximum of $2,500 per quarter. This bonus was based on
criteria similar to that used for general managers. Admissions coordinators were paid $12.25 per hour (non-nurse)
and $14 per hour (nurse). They were often given incentives during slow months (usually July-September).
Marketing representatives had an average base salary of $43,000 with an average bonus of $16,000.
Bonuses were based on the number of patient referrals (resulting in admissions) made relative to the size of
territory assigned. Marketing performance data was posted monthly on the company bulletin board. Vitas
managers pointed out that in order to ensure that no inappropriate
patients were admitted, marketing representatives were never involved in determining if a patient was hospiceappropriate.
The hospice team (except for the team manager) had no incentives. Their compensation was reported to
be competitive in the hospice market.
A Vitas nurse discussed her views on compensation:
Hospice workers in general make a little bit less than they could working for
other types of healthcare companies. But we’re a different sort of person, and our work
is different. For example, a hospice nurse can spend as much time as she wants with a
patient as long as she makes all five of her daily calls. Compare that to a nurse in a hospital
who might have twelve patients to look after during a shift.
Corporate Activities
Vitas’ corporate office was located in Miami, Florida. Hospice general managers now reported to the
Senior Vice President of Hospice Operations, who reported to the CEO. (A field management structure had been
dismantled several years earlier.) Most accounts payable and receivable operations were centralized in Miami, as
was the development of marketing materials, quality management programs affecting the entire organization, and
corporate strategy.
The corporate office also developed tools for team members including: 1) Vitas Exchange
(Vx), 2) patient outcome measurements, and 3) training and marketing materials for the hospice team. Vitas
Compensation varied geographically.
Vitas Exchange (Vx) was a computer system used for gathering, integrating, and disseminating clinical,
financial, and operating information. Exhibit 8 illustrates Vx’s various components. Managers expressed
differing opinions about the Vx system. One believed, “We are way ahead of other hospices with our technology.
It’s a great communication and quality tool. Other hospices are interested in licensing our technology.” While
another said, “The system is helpful, but out of date—it’s a DOS program. I wonder if we were right to develop
it in-house?”
Patient Outcome Measurements
Vitas also developed an outcome measurement tool reflecting Vitas’ philosophy that a program for
terminally ill patients should:

be based upon patient-centered data: i.e., data that is reported by patients on their perception of their

seek to measure the impact that the provider can have on the patient’s quality of

allow the professionals caring for the patient to adapt the plan of care based upon ongoing feedback
from the patient;

continually focus on both current and retrospective data analysis;

be designed to accommodate the variations that each patient will bring to an assessment of his or
her own quality of life.
The tool, developed by Vitas and Dr. Robert Ira Byock, was called the Missoula-Vitas Quality of Life
Index (MVQOLI). The MVQOLI was a fifteen-item questionnaire that quantified a patient’s assessment of his or
her individual situation. Patient responses helped Vitas understand five broad components of quality of life: 1)
physical symptoms, 2) emotional well being, 3) spiritual well being, 4) activities of daily living (functions), and
5) interpersonal relationships. Questions were weighted by the patient to communicate which of the components
were most important. Vx used the MVQOLI questionnaire to create a quality of life profile (see Exhibit 9).
The Vitas patient-care team used the MVQOLI to adjust a patient’s Plan of Care. The patient completed
the MVQOLI at the time of admission, and at subsequent three to four week intervals. Each resulting MVQOLI
profile was used by the team to adjust the Plan of Care to meet the specific subjective needs of each patient. The
effectiveness of the interventions chosen by the team for inclusion in the Plan of Care was measured by the
changes in the subsequent MVQOLI profile. Vitas managers believed that this tool was unique in the industry.
Vitas licensed it to 100 other hospices free of charge.
Vitas also developed other patient outcomes measurement tools, such as pain scoring (see Exhibit 5)
and the Vitas Quality of Care Index (used to monitor services such as bereavement care and attendance of Vitas
personnel at death of patient).
Training and Marketing Tools
The corporate office developed materials for doctors, the hospice team, and marketing representatives.
For example, “Holiday Programs” provided doctors with guidance on telling patients they had a terminal disease
and that hospice might be appropriate during the holidays. The “Admissions Nurse Learning System” served as
a guide for admissions nurses on the “Vitas Way” of patient care. Exhibit 5 illustrates tools developed for the
hospice team for use during patient visits. Marketing representatives used teaching materials and clinical reprints
from medical journals provided by the corporate office for the continuing education courses they offered to
hospital staff. The corporate office also provided marketing publications that helped marketing representatives,
referrers, and patients stay up-to-date on new developments in hospice care. These materials were reported to be
the best informational materials about hospice in the industry.
A local manager offered this reflection about the corporate office:
They really try hard to make our lives easier, and a lot of what they provide really is
great. Unfortunately, they don’t seek local input when it comes to our strategy and programs.
We don’t always spend funds wisely. I also believe that management should be more visible
at the local level. You can’t get to know people by just looking at the performance data and
According to Deirdre Lawe, Vitas’ acquisition strategy emphasized “The reputation of the hospice and
how the hospice movement has been received in the community. Under-served markets with good demographics
are attractive. We have the type of marketing staff that can grow the market.”
Over the past decade, Vitas had acquired a total of three hospice organizations, operating eight hospices.
One of the programs was a for-profit hospice in California, and two were not-forprofits in Florida and Ohio. A
manager who had experience starting new hospices as well as integrating acquired hospices into the company
commented on the difference in the two processes:
It’s more fun to make than it is to buy—you get to create the perfect world. On the
other hand, buying is really better because you get an established organization with patients and
a referral base, which create a solid revenue stream. There is also a problem with starting from
scratch because the people who can take you from zero to 50 patients are very different from
the people who can manage 50 to 100 patients. When you’re under 50 patients, every employee
does a bit of everything. People who do well in that kind of environment are harder to manage
than people who do well with specific jobs and job titles.
Vitas’ first acquisition was in California, involving a company that provided hospice services primarily
in nursing homes; a different model from Vitas’ existing hospices. Vitas’ next two acquisitions were of not-forprofit hospices: Hospice of Miami Valley (Ohio) and Hospice of Central Florida. When a not-for-profit hospice
was acquired, the sale was negotiated with its board of trustees and the funds generated from the sale were
generally given to other charities in the hospice’s locale.
Vitas’ operating and marketing tools were often shown to the managers of potential acquisitions. A
manager involved in multiple acquisitions relayed these insights:
Acquiring a hospice is a delicate transaction, especially when it’s a not-forprofit. Most
important, they have to be comfortable with us. They have to see our operations and understand
that although we are a for-profit company, we care just as much about the mission as anyone.
I’m very direct in discussing our for-profit status. The way I see it, our mission is to
serve patients—there are so many people who die without the benefit of hospice. We need to
reach those patients, but it’s hard. Most people have heard of hospice, but not many really know
how much we can improve quality of life. It takes money to get the message out—in short; we
need capital to serve more patients. The only way to attract capital in any significant quantity
is to offer a return on it—so we have to be for-profit.
When Vitas began its acquisition process of Hospice of Central Florida, the board of trustees was
reluctant to speak with the company, uncomfortable with the overture. A former board member discussed the
Initially, we weren’t comfortable with our organization becoming a for-profit entity.
Hugh Westbrook’s transition from the clergy to the for-profit business world also made us
suspicious, until we learned what was behind it.
We knew the industry was changing and we didn’t have the resources to compete.
Several consolidations had taken place in this industry and other nonprofit hospices were being
acquired by for-profits. Lots of hospitals were becoming for-profit. Our president, the top
managers, and board members were invited to visit Vitas. We were impressed by its resources
and technology. We put our patients needs before our own and knew Vitas had a good
reputation for quality patient care, and that was the most important thing in the end. Vitas also
had the ability to manage costs and competition—things we just weren’t prepared to get good
Hospice of Central Florida’s board of trustees used the proceeds from the sale to start a foundation that
funded the New Hope Center and Children’s Wish Program. The New Hope Center provided grief and loss
counseling for children with deceased family members. The Children’s Wish Program granted the wishes of
terminally ill children. A manager commented:
Vitas made Central Florida a healthier place to live in ways other than just providing
quality hospice care. In 1996, over $1 million in donations was to be received by Hospice of
Central Florida. Now, these funds are available to assist other organizations in the community.
Vitas also donated approximately $500,000 in charitable care and donations to Central Florida
last year.
Integrating Operations
A manager noted, “The most important thing to keep in mind during an integration is that you are always
managing for the mission. If you remember that, and people see it, the integration will be successful.” He
Employees at not-for-profits sometimes fight integration. At first, they think that
because we’re open about numbers, because we talk about costs and profit, we only focus on
them. A lot of employees just assume that for-profit equals lower quality.
How do you fight that? You show them it’s not true. You ask them for examples of
ten important things they’re doing for quality and you immediately tell them they should keep
doing them. Then you have to demonstrate that it’s not an “either or.” You set up systems that
both save money and enhance quality—and benefit employees. For example, we’ve got a great
Telecare program that frees the local nurse from working overtime—nurses don’t like overtime.
The company saves money, patients get access to better resources, and nurses spend more time
with their families.
Not everyone can make the transition. We’ve learned that it’s sometimes better to part
with top management as soon as possible. In the past we have kept them on for the first six
months, but it’s very difficult to integrate our values and methods into a new organization if the
leadership isn’t on board. We typically keep everyone else between 180 to 270 days. We do
this because Vitas is not into just cutting heads. We need to offer care — patients shouldn’t be
affected by our integration. After about 270 days we start to lose middle managers, but about
half will stay with us. There isn’t a lot of turnover in front-line staff because of integration. “
Immediate integration changes included financial reporting techniques and patient record keeping
(patient records were highly regulated). Early integration activities also involved pay-forperformance programs.
These appealed to some employees. Integration of the first acquisition (California) was the most challenging. A
manager described the pitfalls:
We learned three important things: don’t leave everything the same, don’t put a nonVitas manager in charge, and don’t be 2,000 miles away. We had a great acquisition strategy,
but no execution plan for integration. The simplest mistake we made was not to anticipate how
the three-hour time difference between Florida and California would have such a huge impact
on corporate support staff availability. For example, in the afternoon, when the California
hospices needed support with patient family services, billing, and accounts payable, most of the
corporate staff had left for the day. We underestimated the amount of technological resources
that would be needed to integrate the California hospices—we had to divert technology support
from our established operations.
The Vitas of Central Florida general manager commented on the integration process:
Restructuring the workforce was especially challenging because we didn’t put Vitas
trained management in from day one. We rearranged, hired, and fired employees after the
acquisition and hired back several people the non-profit had recently let go. I would have
preferred a plan where we went in and took over immediately. It’s not necessary to keep the
old management in place for six months.
Figure D illustrates changes in personnel between Vitas’ acquisition of Hospice of Central Florida and
Figure D
Changes in Number of Employees and Managers at Hospice of Central Florida
Hospice of
Central Florida
(1996)—Non Profit
Vitas of
Central Florida
Management Staff
Full Time Employees
Part Time Employees
Continuous Care Employees (full and part
Total Employees and managers
The marketing process also changed dramatically. The Director of Admissions commented:
As a non-profit, our marketing staff was referred to as “professional relations.” We
had a soft sell, no, really a no-sell approach. We politely dropped off brochures with a doctor’s
receptionist and spoke to the doctor if he called us. We were so careful not to offend anyone
that we hid what we do. We never used the word “terminal,” instead we said “life limiting”
disease. There was no formal training, direction, or goals. Incentives didn’t exist. I guess they
didn’t need to because if the referrals didn’t materialize and our volume declined we could
always fall back on fundraising.
Vitas of Central Florida experienced changes in its operating results from the time of acquisition in
August of 1996 to July of 1999 (see Figure E):
Figure E
Changes in Operating Results at Hospice of Central Florida
Number of patients served each month
Average number of patients served each day (census)
Patients receiving continuous care services each day
Length of intake (in days)
Length of stay (in days)
Number of local physicians referring patients to hospice
Number of bedside visits per patient, per week
Number of hours donated by volunteers each month
Hospice of
Central Florida
Vitas of
Central Florida
Length of intake is defined as the time from the admissions coordinator’s initial call to the patient to the first visit of the
admissions nurse.
Other Growth Options: Start-ups and Organic Growth
State regulations often made starting a new hospice difficult. If Vitas wanted to start a new hospice
program it would either have to go to a state where a certificate of need was not required or persuade a state’s
government to increase the amount of certificates issued. If that state decided to increase the number of
certificates issued, Vitas would then enter a bidding process with other organizations for the certificate. Thirteen
states including Florida, Hawaii, Maryland, New York, North Carolina, and Virginia required certificates of need.
Vitas started 12 hospice programs. Deirdre Lawe illustrated how the Chicago program grew:
The Chicago program began as a small hospice operation in a hospital. Using our
established model of what a hospice should look like at a particular size (see Exhibit 7), we had
guidance in how to organize despite the changes growth brings. We put in more sophisticated
people in the beginning than we needed so they could both manage the transitions from one size
hospice to the next and continue to manage the operation once it got big. It’s easier for us to
grow a small hospice because of corporate support with marketing materials, billing, and the
resources to hire more sophisticated people.
Vitas’ historical balance sheet, income, and supplemental operating data is provided in Exhibits 10 and
Future Growth Opportunities
Vitas’ management stated that in the future the firm expected to grow as a result of: 1) acquisitions of
for-profit and not-for-profit hospices which would allow it to benefit from the opportunities for consolidation
available in the fragmented hospice industry; and 2) greater demand for hospice services due to demographic
changes (an aging population) and a growing acceptance of hospice as an effective way to care for terminally ill
Deirdre Lawe was considering the acquisition of a particular hospice (see Exhibit 12 for census and
revenue data). This hospice operated in a major market with several for-profit and notfor-profit competitors.
Vitas had no presence in the market. Market analysis indicated that patients’ inclination to use hospice was inline with the national average. The hospice had a reputation for quality care; however, the average daily census
had declined in the last year due to turnover of both clinical and marketing personnel, which in turn affected the
quality of care provided to patients and families. This made attracting referrals more difficult. In addition, new
competitors had just started, some of which had been referral sources to this hospice.
Lawe reviewed the financial projections for operating this hospice under the Vitas model (see Exhibit
13). She suspected that that they were optimistic – perhaps too optimistic. Still, she thought she could buy the
hospice for a good price and wondered how much more time and effort she should invest in the acquisition given
the numerous other growth opportunities Vitas had and the other considerable demands on her time.
Exhibit 1
Excerpts from the National Hospice Foundation Public Opinion Research Release, June 8, 1999

More than one out of every four American adults was not likely to discuss with their parents
issues related to a parent’s impending death.

Fewer than 25 percent of Americans had thought about how they’d like to be cared for at
the end of life and put it in writing, while 36 percent said they had verbally told someone
about how they would like to be cared for. Focus groups showed that people often viewed
a passing comment about how they would like to die as informing their loved one of their

Many Americans said that making sure the patient’s wishes were respected at the end of life
was the most important service available for a loved one who was sick with fewer than six
months to live.

Approximately one-third of Americans were unsure about whom to contact about getting
the best care during life’s last stages.

More than 90 percent of Americans did not know that hospice care was a fully covered
Medicare benefit for patients at the end of life and offered what Americans said they wanted
for their loved ones: pain management and emotional support.
Exhibit 2 Excerpts from “Choice,” Vitas Healthcare Corporation. Admissions Nurse Flip Chart for First Patient

Good morning! I’m (nurse’s name). I am an admissions nurse with Vitas. Doctor (physician’s
name) asked me to visit with you and discuss the services Vitas provides and to see if our services
would be appropriate for you.

Before we begin, I’ll need to ask you some questions about your care to date. Once we’ve discussed
your care, I’ll be able to tell you how our services will help you.

Please feel free to interrupt me at any time or ask any questions you wish. Are there any questions
that you would like to ask me before we begin? (Assume the answer was “no.”) Good, then let’s
Transitional Statement:

I’ve had an opportunity to review your chart. To better serve you and to describe how Vitas services
can help you and your loved ones, it would be helpful if you could tell me your thoughts on the type
of care you have received during the last few months, as well as the type of care you would like to
Initial Questions:
 What has the doctor told you about your illness?
 When did you first realize you were ill?
 What were your symptoms?
 How has your health condition changed in the last six months?
 How have you been feeling lately?
 What types of treatment did you receive during this time?
 When was your most recent hospitalization?
 What medications have you been taking? Are you allergic to any medications? If so, what are they
and what symptoms resulted?
 What treatments (chemotherapy or radiation therapy) are you receiving and what are your feelings
about continuing or discontinuing treatment?
 How have your loved ones/spouse been coping with your illness?
 What has your doctor told you about the hospice philosophy of care and its services?
 What has your doctor told you about Vitas? (Acknowledge answer in a positive manner.)
 What do your family members or loved ones know about your illness? Is there someone you would
like us to contact about your care?  Do you have an advance directive?

This is a lot of information. Would you give me a few moments? I’d like to review it.

If at this point the patient does not appear to be hospice appropriate immediately call the patient’s
physician. Wait until the end of presentation to call doctor if in agreement with doctor’s hospice
Exhibit 2 (continued)
Transitional Statement:

I appreciate you sharing so much information with me. Now, it’s my turn to share information with
you. My goal is to help you understand what our program can . . . and cannot do for you and your
family. This, in turn, will help you decide if Vitas is right for you.

To assist me in describing Vitas services, I have some educational tools that I would like to use
during our discussion. This flipchart (show it) will help you remember important points that I will
make during our conversation. I also have an admission package (show it) which contains a booklet
that I’ll leave with you. The booklet summarizes the information that we’ll discuss today.
The Vitas Team

“Your team” is made up of:
 team director (a nurse)
 nurses (registered and licensed vocational nurses)
 physician
 social worker
 chaplain
 certified home health aides
 volunteer

The members of the team will work individually and together on your behalf.

The team’s activities are coordinated by a registered nurse, whom we call the “team director.” The
team director is responsible for making sure that each member of the team is responding to your
emotional and physical needs.

The team also meets regularly to review the plans for your care. Your input is crucial to the team.
If you choose, you and your caregiver can be involved in the meetings, or you can keep the Vitas
nurse aware of any special needs that you or your loved ones may have.
Vitas Nurse

Skilled in Pain and Symptom Management

Provide Emotional Support

Teach Caregivers How to Provide Quality Care

Available 24 Hours a Day, 7 Days a Week
Vitas Physician

Expert in Pain and Symptom Management

Work with Your Attending Physician
Exhibit 2 (continued)

Review Your Medications and Monitor Your Overall Care on a Weekly Basis

Available to Make Home Visits
Vitas Social Worker

Provide Emotional Support for Patients and Loved Ones

Help Resolve Issues that Occur during a Prolonged Illness

Assist with Financial Concerns
Vitas Chaplain

Available to Work with Your Clergy to Provide Spiritual Support

Help You and Your Loved Ones Work Through Conflicts, Unresolved issues, and Spiritual

Listen to Your Concerns
Vitas Certified Home Health Aide

Provide Personal Care:


skin care

dental hygiene
Assist in Activities of Daily Living

light laundry

light house cleaning

light cooking

runs short errands for patient

reading together

walking companion
Vitas Volunteer

Trained by Vitas Staff

Spend Time with You and Your Loved Ones

A friend in time of crisis
Exhibit 2 (continued)
Vitas Bereavement Team

Support Groups

One-on-One Counseling

Home Visits
The Caregiver (Admission nurses: Skip this page if the patient does not have a caregiver)

The Role of the Caregiver

Vitas Nurses Teach Caregivers How to Provide Basic Care, Emotional and Physical Support

Keeps the Vitas Team Aware of Patient’s Physical and Emotional Changes
Palliative Care

Does Not Include Curative Medical Treatments

It is very unusual for Vitas to provide curative medical treatments, like routine IVs, blood
transfusions, chemotherapy, radiation, or surgery. These treatments can only be provided if
your physician or Vitas team have determined that these procedures will relieve pain or make
an individual more comfortable.

Is Not Intended to Cure a Patient

Does Not Include the Use of Respirators of Artificial Means of Support

It is important to mention that the palliative care approach does not provide for the use of
respirators or other artificial means of support, such as CPR, dialysis, and organ transplants.

If the issues we have discussed are important to you . . . then your choice should be Vitas.
Transitional Statement:
 What are your feelings about the information we have covered so far?
 Are there any questions you have about Vitas services at this point?
 (Ask permission to continue) May I proceed? Do you feel comfortable going on?
 (If there are any questions concerning the information you have previously covered, go back and
address it)

Each and every family who becomes a part of Vitas is special to us. We know that no two patients
or families are the same. Our goal is to understand your specific needs and develop a plan of care
that is just right for you.
Exhibit 2 (continued)

Do you feel that you could benefit from Vitas services? (If there is any reluctance, you could say,
“I can see there is some concern . . . What particular area do you feel uncomfortable with at this
point?” . . . then clear up whatever the issue is.)

Call patient’s attending physician and team physician to discuss appropriate treatment.

Good, at this point there are several consent forms that we need to complete in order to welcome
you to Vitas.
Exhibit 3
Criteria for a Vitas Appropriate Patient
Exhibit 4
Patient Admissions Process
0-48 Hours
Referral Admissions
by Vitas
24 Hours
24 Hours
Primary care received coordinator nurse visits nurse visits
patient to
patient by
assess condition
and (if
appropriate) sign
him or her up
Exhibit 5
Planning a Team Visit and Tools Used in the Team Visit
Exhibit 6 (continued)
Exhibit 7
Local Hospice Organization Chart for a Census of 300
FTE= full time employee, SW= social worker, CH= chaplain, RN= registered nurse, CHHA= certified home health aide
Changes due to size: In contrast to the above, the organization chart for a local hospice with a census of 120 showed two teams (thus two team managers), three
fewer administrative clerks, and two fewer managers (some management jobs were combined). The organization chart for a local hospice with a census of 600
showed five more teams and three more administrative clerks.
Exhibit 8
Vx Components
Vx consisted of different modules that worked together to share information including: Patients, Staff,
Marketing (tracks activities related to initiating and developing new business contacts and records all information
related to referral sources), Telecare, Compass (sets alarms monitoring patient care standards (e.g., frequency of visits)
and regulatory compliance), and Forum (an electronic bulletin board, on which users may exchange ideas, solicit
feedback, and make announcements). Examples of specific modules follow:

Patients—Critical portions of patients’ medical records were electronically accessible to all
Vitas caregivers.

Employees and volunteers—Vx tracked productivity and maintained data on all patient visits.
After a patient visit, staff called in to a voice response unit, which prompted them with questions
such as duration of visit, activity code, patient pain level, quality of life survey data, etc. The
data was automatically transferred to the Vx. This meant fewer forms for employees to maintain
for patients. Payroll was generated based on visit data on Vx.

Physicians—Vx provided information on a patient’s disease, symptoms, medication, and visits.
Physician referral data could be tracked to identify time from referral to death.

Other referral sources—Many of the same patient data made available to physicians was
shared with hospital case managers, discharge planners, and social workers at nursing homes
(subject to patient confidentiality requirements).

Vendors—Vx provided resource and product management information. For example, Vx
automatically notified medical equipment vendors by fax to deliver or pick up equipment (a
hospital bed or oxygen tank) when patients started or ended their use. Pharmacies were notified
by fax to start and stop dispensing medication.

Government agencies—Vx facilitated regulatory compliance. Vx contained a “compass”
module that allowed users to set alarms that pointed to specific reports on a daily basis. This
allowed managers to monitor issues that affected their job directly, such as patient care
standards (e.g., frequency of visits) and regulatory compliance.

Payers of care—Vx streamlined reimbursement management. Eighty percent of billing was
done electronically on Vx for Medicare patients.

Vitas management—Vx facilitated financial and operational management: team mangers
could set alarms to be notified if a patient had not received a visit in (for example) two days, if
an employee did not input their patient visit data, if the billing department was missing any
information on a patient, or if a patient was using an excessively expensive medication. Vx
automatically generated bereavement letters at three, six, and twelve months after a patient’s
Exhibit 9
The Quality of Life Profile—Over Time
In this example comparing quality of life profiles generated over 45 days, the patient’s perceived functional
status predictably declines while the experience of symptoms improves significantly and then declines slightly.
Considerable improvement in the psychosocial components leads to an overall increase in the patient-reported quality
of life. Note that each component changes independently of the others, reflecting the multidimensional and dynamic
nature of patient reported quality of life scores.
Patient: 012345
Interpreting Multiple MVQOLI Scores for Each Patient
On the graph the longest bars indicate the components that the patient reports as being most important to their
quality of life. Positively directed bars indicate a positive influence on quality of life; negatively directed bars indicate
a negative influence on quality of life. For example, in the data taken on 03/01/97, the graph describes a patient for
whom interpersonal and spiritual concerns are most important and are limiting overall quality of life. The functional
and emotional well-being components are positively influencing quality of life, but because they are less important,
the influence is smaller.
Since each patient’s actual and perceived situations are different, there are no “optimal” or desired scores.
Changes over time are more informative than absolute scores; profiles showing scores on individual components are
more informative than a single overall quality of life score. The MVQOLI measures patients’ subjective experiences,
so scores may not agree with objective performance measures administered by an observer and subject to observer
Exhibit 10
Vitas Healthcare Corporation and Subsidiaries—Consolidated Balance Sheets (amounts
in thousands, except share data)
September 30,
Total current assets
Property and equipment, net
Goodwill, net
Other assets
Total Assets
Liabilities and Stockholders’ Deficit
Total current liabilities
Long-term debt and capital lease obligations
Other long-term liabilities, less current portion
Guarantee of Employee Stock Ownership Plan loan
Redeemable preferred stock
Stockholders’ Deficit:
Common stock
Additional paid-in capital (deficit)
Indebtedness of Employee Stock Ownership Plan
Accumulated deficit
Total stockholders’ deficit
Total Liabilities and Stockholders’ Deficit
Exhibit 11
Statements of Operations (amounts in thousands) and Supplemental Operating Data
Statement of Operations
Net revenue
Operating expenses:
Hospice program expenses
Central support services
Provision for bad debts
Restructuring costs
Income (loss) from operations
Year Ended September 30,
Gain on terminated merger
Gain on sale of assets
Interest and other income
Interest and financing expense
Income (loss) before income taxes
Provision for income taxes
Net income (loss)

$ (7,092)
Supplemental Operating Data
Total admissions
Total days of care
Average length of stay (days)
Average daily census
Continuous care revenue ($000)
In-patient care revenue ($000)
Note: Management reported that 1996 and 1997 operations were affected by the company’s agreement to be acquired by Apria
Healthcare, Inc. which subsequently did not happen.
Exhibit 12
Historical Data for Acquisition
Site 1 Acquisition: Average Daily Census & Revenue
Exhibit 13
Vitas Projections Post Acquisition
5 Year Projection Applying Vitas Operating Model
Yr 1 is Current Census
Site 1 Acquisition
Year 1
Average Daily Census:
Net Revenue
Total Expenses
EBIT Margin
Homecare Margin
Inpatient/CC Margin
Year 2
Year 3
Year 4
Year 5
23.46% 24.27% 25.04% 25.56%
48.62% 48.87% 49.09% 49.26%
10.00% 10.00% 10.00% 10.00%
Note: A charge for corporate overhead of 11 percent of revenues was made to the pre-tax earnings of all hospice operations. That charge
had not yet been deducted from the pre-tax earnings projected above
Strategic Planning for St. John’s Hospital
I. Porter 5 (+2) Forces
Threat of New

Bargaining Power
of Suppliers
• High bargaining
power because the
industry is
dominated by a few
suppliers who can
easily manipulate
the prices of
Low threat due to
high initial
regulations, need for
skilled staff
Rivalry among

High competition
from St. Peter’s,
Shodair, &
Low switching costs
for consumers
Threat of
Substitute Products


High threat due to potential
for drastic healthcare
regulatory changes with
pending legislation
Low threat of
substitutes since
hospitals in Helena
have specializations
such as maternity at
St. Peter’s
High bargaining power due to
dominance of the insurance market
by a few large companies
Bargaining Power
of Buyers

bargaining power
based on the present
alternatives and the
moderate buyer
II. SWOT Analysis
The Organization
Strengths- S
1. Existing customer base
2. Properties and
buildings owned by St.
3. Strategic location in
downtown Helena
4. Strong financials
Opportunities- O
SO Strategies
1. New specialties to be
• Use financial strength
considered for
to expand services to
new specialties
2. New customers beyond
• Use strategic location
and properties to
3. Increased demand for
provide geriatric
geriatric services in the
services & target new
Threats- T
1. Competition from St.
Peter’s, Shodair, &
Veterans’ hospital
2. Regulatory uncertainty
3. Wage-price freezing
threatens financial
4. Shortage or nursing
ST Strategies
• Maintain customer
base through loyalty
programs to enhance
competitive advantage
• Maintain a strong
financial foundation to
address uncertainty
and wage-price
Weaknesses- W
1. Inadequate safety
2. Hospital is
overbedded, adversely
affecting its
competitive advantage
3. Underutilized
facilities and properties
WO Strategies
• Utilize facilities and
properties for new
services & customers
• Increase competitive
advantage through
diversified service
WT Strategies
• Renovations to
enhance safety and
reduce competition
• Redesign services to
ensure efficacy in
resources utilization
• Expand services to
enhance income
III. Analysis
Based on the Five forces and SWOT analysis, there are several options to consider for St.
John’s Hospital. The criteria considered for each option include feasibility, strategic fit,
interdependencies, and the financial risk and reward. The table below analyzes each strategy
using the four criteria and scores them on a scale of 1 to 5 with 5 being the most desirable.
Business as Usual
Interdependencies Financial
Risk &
Shut Down
Expand Services to
Areas not
Adequately Covered
Renovate Properties
Eliminate Services
in Areas of
Offer a Completely
New Specialty
Sale of Some of the
The weighted averages and analysis support the sale of some of the properties including
Immaculata Hall and the property west of Warren Street. This scores especially high in strategic
fit since the property is not generating any income. However, business as usual and expanding
services to areas not adequately covered are also considered as having high scores. Business as
usual, however, although highly feasible, presents a significant financial risk due to high threat
of competitive forces and bargaining power of suppliers. Therefore, it is recommended that some
of the properties be sold alongside expanding services to areas that are not adequately covered.
These options promote stability with little risk.
Financial Analysis Ratios Cheat Sheet
Information from:
Additional Resource:
Liquidity Ratios
Liquidity ratios indicate how capable a business is of meeting its short-term obligations.
Liquidity is important to a company because when times are tough, a company without enough
liquidity to pay its short-term debts could be forced to make unfavorable decisions in order to
raise money (sell assets at a low price, borrow at high interest rates, sell part of the company to a
vulture investor, etc.).
1) Current Ratio
What you need: Balance Sheet
The formula: Current Ratio = Current Assets / Current Liabilities
What it means: The current ratio measures a company’s ability to pay its short-term liabilities
with its short-term assets. If the ratio is over 1.0, the firm has more short-term assets than shortterm debts. But if the current ratio is less than 1.0, the opposite is true and the company could be
vulnerable to unexpected bumps in the economy or business climate.
2) Days Cash on Hand
What you need: Balance Sheet
The Formula: Days Cash on hand=Cash + Short-term Investments/ (Total expenses −
Depreciation) / 365
What I means: Measures the number of days that the organization could continue to pay its
average daily cash obligations with no new cash resources becoming available. High values
imply higher liquidity and hence are viewed favorably by creditors. However, organizations
should not hold excess amounts of cash and short-term investments because these typically
provide a lower return than do long-term investments.
3) Days in patient accounts receivable (Average collection period)
What you need: Balance Sheet
The Formula: Days in patient accounts receivable= Net patient accounts receivable /Net
patient service revenue / 365
What it means: Measures the average time that it takes an organization to collect its
receivables. All else the same, the shorter the average collection period, the lower the dollar
amount of receivables and hence the lower the carrying cost. In addition, the quicker that
receivables are converted into cash, the more liquid the organization in the sense that these
dollars are now available for paying bills as opposed to “sitting” in the receivables account.
4) Days payable
What you need: Balance Sheet
The Formula: Days Payable =Accounts Payable/(Cost of Sales/365)
What it means: Days Payable means the average number of days a company takes to pay
invoices from suppliers and vendors. Typically, this ratio is measured on a quarterly or annual
basis to judge how well the company’s cash flow balances are being managed. For instance, a
company that takes longer to pay its bills has access to its cash for a longer period and is able to
do more things with it during that period.
Profitability Ratios
Profitability ratios tell you how good a company is at converting business operations into profits.
Profit is a key driver of stock price, and it is undoubtedly one of the most closely followed
metrics in business, finance and investing.
1) Return on Assets (ROA)
What you need: Income Statement, Balance Sheet
The formula: Return on Assets = Net Income / Average Total Assets
What it means: A company buys assets (factories, equipment, etc.) in order to conduct its
business. ROA tells you how good the company is at using its assets to make money. For
example, if Company A reported $10,000 of net income and owns $100,000 in assets, its ROA is
10%. For every $1 of assets it owns, it can generate $0.10 in profits each year. With ROA, higher
is better.
2) Return on Equity (ROE)
What you need: Income Statement, Balance Sheet
The formula: Return on Equity = Net Income / Average Stockholder Equity
What it means: Equity is another word for ownership. ROE tells you how good a company is at
rewarding its shareholders for their investment. For example, if Company B reported $10,000 of
net income and its shareholders have $200,000 in equity, its ROE is 5%. For every $1 of equity
shareholders own, the company generates $0.05 in profits each year. As with ROA, higher is
3) Gross Profit Margin
What you need: Income Statement
The formula: Profit Margin = Net Income (revenue-COGS) / Sales (revenue)
What it means: Gross profit margin is simply gross income (revenue less cost of goods sold)
divided by net revenue. The ratio reflects pricing decisions and product costs. The 50% gross
margin for the company in our example shows that 50% of revenues generated by the firm are
used to pay for the cost of goods sold.
For most firms, gross profit margin will suffer as competition increases. If a company has a
higher gross profit margin than is typical of its industry, it likely holds a competitive advantage
in quality, perception or branding, enabling the firm to charge more for its products.
Alternatively, the firm may also hold a competitive advantage in product costs due to efficient
production techniques or economies of scale. Keep in mind that if a company is a first mover and
has high enough margins, competitors will look for ways to enter the marketplace, which
typically forces margins downward.
5) Operating profit margin
What you need: Income Statement
The formula: Operating Profit Margin= Operating Income (gross income-operating expenses)/
What it means: Operating profit margin is calculated by dividing operating income (gross
income less operating expenses) by revenue. Operating expenses include costs such as
administrative overhead and other costs that cannot be attributed to single product units.
Operating margin examines the relationship between sales and management-controlled costs.
Increasing operating margin is generally seen as a good sign, but investors should simply be
looking for strong, consistent operating margins.
6) Net profit margin
What you need: Income Statement
The formula: Net profit margin=Net Income/Net Revenue
What it means: Net profit margin compares a company’s net income to its net revenue. This ratio
is calculated by dividing net income, or a company’s bottom line, by net revenue. It measures a
firm’s ability to translate sales into earnings for shareholders. Once again, investors should look
for companies with strong and consistent net profit margins.
Debt Ratios
These ratios concentrate on the long-term health of a business, particularly the effect of the
capital and finance structure on the business:
1) Debt-to-assets ratio
What you need: Balance Sheet
The formula: Debt-to-assets ratio= Total Liabilities/Total Assets
What it means: The debt-to-assets ratio is the most basic solvency ratio, measuring the
percentage of a company’s total assets that is financed by debt. The ratio is calculated by
dividing total liabilities by total assets. A high number means the firm is using a larger amount of
financial leverage, which increases its financial risk in the form of fixed interest payments.
2) Debt to Equity Ratio
What you need: Balance Sheet
The formula: Debt-to-Equity Ratio = Total Liabilities / Total Shareholder Equity
What it means: Total liabilities and total shareholder equity are both found on the balance sheet.
The debt-to-equity ratio measures the relationship between the amount of capital that has been
borrowed (i.e. debt) and the amount of capital contributed by shareholders (i.e. equity).
Generally speaking, as a firm’s debt-to-equity ratio increases, it becomes riskier because if it
becomes unable to meet its debt obligations, it will be forced into bankruptcy.
Balance Scorecard

Balanced Scorecard (BSC): Definition and Examples

Action Plan and Gantt Chart
“Five Forces” and “SWOT”
Porter’s Five (+2) Forces
Used to assess industry-level

Competitor interactions
Supplier power/weakness
Customer power/weakness
New entrants (and/or disruptions)
Does not include forces such as:
– Consumer vs. buyer differentiation
– Government/regulatory forces
– However, these are often accounted for by
other forces/interactions, above
Page 2
Macro-Market Analysis: Porter’s 5 (+2) Forces
Source: “Competitive Strategy”, by Michael Porter, Harvard Business School. Areas with “*” added for clarity
Confidential – Do Not Disseminate or Copy
Key Forces: Suppliers and Customers
Bargaining power of suppliers: high when…
– Market dominated by a few large suppliers with few substitutes (“oligopoly”);
e.g., airlines, multi-category producers with patents (Sony)
– Customers are fragmented and have little bargaining power; e.g., retail and
direct channels
– High switching costs (from one supplier to another); e.g., moving from an Intelbased PC to a Mac
– “Forward integration” of suppliers: increases economies of scale, low barriers to
entry for buyers; e.g., Dell buying raw materials, LCD panels
– When supplier power is high, buyers face high pressures on margins and
reduced strategic options to combat supplier pressures
Bargaining power of customers: high when…
– Customers buy in large volumes (and there are buyer concentrations); e.g., bulk
– Suppliers have large numbers of small operators/stores with high fixed-costs
– Products undifferentiated and can easily be replaced by substitutes
– Customers have low margins and are price-sensitive
Page 4
Key Forces: New Entrants and Substitutes
Threat of new entrants: high when…
– Depends on barriers to entry: initial investments, fixed costs, scale
– Incumbent experience isn’t fully utilized
– Little/no brand loyalty from customers
– No IP protection
– Abundance of qualified expert staff
– Open access to raw materials and distribution channels
– Low switching costs
– Little government intervention
Threat of substitute products: high when…

Similar to new entrants threats
Low brand loyalty
Little CRM
Low switching costs
Relative price points of substitutes
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Our Focus: Competitive Rivalry
Intensity of competition between existing players: high when…
– Many players of roughly the same size
– Similar strategies (no differentiation)
– Low market growth rates (growth only comes at the expense of a competitor;
“zero-sum game” effect)
– Barriers for exit are high (e.g., expensive, specialized space, equipment, staff)
– Competitive forces affect all players, not just us
But there are some limitations of this model:
– Good at explaining current situation
– Poor at representing changing business models as they change
– Doesn’t fully reflect regulatory effects and differences in all customer, product,
and/or service segments
– However, it is very useful for simply organizing the “forces at work” in our industry
and with our companions in it
So how do we look in the context of our key industry
Page 6
Direct Care Medical Services
An analysis of supply market dynamics reveals that DoD has some (but
limited) freedom of maneuver in pursuing improved nursing sourcing
Upstream Supplier Power
Buyer Power
Threat of New Entrants
Pressure from Substitutes
Best Price
1.Which strategies are most applicable?
2.Should they be pursued simultaneously or in sequence?
The results
results of
of an
an internal
internal opportunity
opportunity analyses
analyses (baselining
(baselining by
by service,
service, commodity
commodity spending,
spending, etc.)
etc.) will
will help
determine which of the sourcing strategies are most applicable and how they should be implemented
For Internal Use Only
Measuring Our Effectiveness: SWOT
Page 8
Example: “Project Griswold”
• Unifying principle around EDLP that both employees and
customers understand and expect from Griswold
• Adaptive store operations tailored to local communities and
the infrastructure to support it
• Size that leads to scale advantage and leverage over suppliers
• Efficient operations and dedication to continuous improvement
• Supplier co-managed inventory and cost sharing
• Ability to tailor assortments to customers and communities
• Speed to market of both new categories and business
• Breadth of assortment and cross-merchandising potential
• Scale and flexibility to drive seasonal opportunities
• Culture of humility, respect, focus, and discipline
• Expand CE/PC assortment and services by a relatively
small amount—overlapping with us—to create impression
of “same selection and services” with lower prices
• Use global sourcing capabilities to create new products, and/or
lock up supply of overlapping/substitute brands/products
• Overlap with specialty retail demographics in key urban
locations to create price and “one-stop-shopping” pressures
• Provide an efficient, high-volume channel to large vendors
of higher-end products as underlying economics reinforce
attractiveness of scale
• Influence industry standards to benefit itself. (e.g. device
• Leverage online channel more effectively to integrate with
• Store labor model is not product, sales, or service focused
• Brand identity on price — “cheap” stuff.
• Creating and maintaining an in-store experience (even on a small
scale, e.g. projecting HDTV) may threaten their low-cost
business model
• Vendors are cautious of Griswold because of its track record for
“beating up” vendors via its demands.
• Cultural “virtues” in the U.S. market can act as barriers abroad.
• Saturation of rural markets and risks of going “urban” may
require higher costs, competitive risks and non-market
• Rifts among leadership, break with founding values
• Size ensures that it is always in the media spotlight.
• Community opposition to store openings and the “Griswold effect”
• Legislative changes impacting costs; political opposition.
• International cultures that may reject Griswold model (e.g. German
pricing regulations)
• Competition from several angles: on price (Aldi,Costco, Family Dollar)
or differentiation (Fair Care in pharmacy) .
• Partners difficulties : vendor resistance (Rubbermaid-like); or lack of
viability: Seiyu’s financial difficulties in Japan.
• Consumer evolution: access to customers, real-estate
limitations; changing buying patterns (e.g., web ordering and
home delivery) that lead to disruptive business models
• Alienation of most profitable segments: served by competitor’s
service-oriented labor and store experience;
• Fear among communities, media, governments and DOJ about
its size and influence
Page 9

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