Strategies in Healthcare

Q1) You are a stock analyst with a large investment company responsible for following investor-owned hospital companies.  You recently obtained financial data for one of the companies that you follow, HospQual.  The company has been expanding very aggressively through acquisitions of community hospitals, acquiring 10 hospitals in 2003, 5 in 2004, and 5 in 2005 (see table).  From the data you have obtained, you assemble the figures below.  What might you conclude from these figures regarding the hospital company’s future financial outlook?

                                                            %Change in Revenue

Source of Revenue | 2002  | 2003  | 2004  | 2005  |

From HospitalsOwned One Year or More (i.e., same store sales)  |     0.00% |     -1.00% |     0.00% |     -2.00% |

From all Hospitals (including new acquisitions during the year)  |    0.00% |    14.00% |    17.00% |    19.00% |

Number of Hospitals Owned   | 40 | 50   | 55 | 60 |

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While the company is growing due to the acquisitions that have been made, the future of the company will be limited because the same store sales have been declining. The company cannot continue function if they do not have positive sales growth. The life and blood of any company is increasing same store sales.

Q2) You are the head of strategic planning at a for-profit hospital company.  Your responsibilities include acquisitions of hospitals for the company.  Your company is interested in acquiring a for-profit hospital in a market in which you currently own two other hospitals. You gather with your analysts to assess what your company should be willing to pay for the hospital.  You are planning to use the DCF methodology.  In so doing, your analysts assemble a modified cash flow information about the target hospital’s performance during the last two years (presented in the table below).

            You believe that the target hospital will benefit from the acquisition in two ways:...