Epidemiology Study Guide

CASE: OB-43 CONDENSED DATE: 11/12/04

Liberty Medical Group (Condensed)

Richard Townsend, MD, the newly appointed executive director and CEO of the Liberty Medical Foundation (LMF), was sitting in his Pittsburgh office reviewing materials for his presentation to the board of directors the next day. As his first official meeting with the board as CEO, it was a critical occasion. Townsend would be presenting the two strategic alternatives he saw as options for the struggling Liberty Medical Foundation. As CEO, Townsend was responsible for both the Liberty Medical Group (LMG), a large 3,000physician multi-specialty medical group and the Liberty Medical Plan (LMP), a nonprofit insurance company. The Liberty Medical Plan was the first prepaid HMO in Pennsylvania and provided comprehensive health care to 2 million subscribers, primarily in western Pennsylvania. When Townsend was elected in 1999, he stepped into a difficult situation. His predecessor had resigned with three years left in his term and LMF was facing serious challenges. During the previous two years, Liberty Medical Foundation had lost approximately $200 million annually (Exhibit 1). Moreover, although data indicated that the quality of medical care continued to be excellent, the number of patients who reported being satisfied had dropped by over 5 percent from 1994 to 1998 (Exhibit 2). Physician morale was also low⎯many physicians saw the executive staff, including the CEO, as both isolated and somewhat aloof from the realities of daily medical practice. In his presentation, Townsend planned to highlight the challenges and lay out the two strategic options he saw for LMF moving forward (Exhibits 4 & 5): either dramatically lower its rates through cost cutting to once again become a cost leader or differentiate itself by building a reputation for both quality and service. The first option would require LMF to re-establish a price advantage by reducing its cost structure 10-15 percent. The second option...