Holy Cross Hospital had worked with a new for-profit health management organization (HMO), FHP, in Salt Lake City for about 16 years. Although Holy Cross was a not-for-profit system with a religious mission, it felt it needed the patient volumes and revenues from FHP to remain profitable.

After considerable initial discussion it offered FHP a 20 percent discount on charges—one of the largest discounts Holy Cross offered at that time.

As a result, FHP directed all of its hospital inpatient and most outpatient volumes from the county to Holy Cross. This grew over the years until it accounted for an average daily census (ADC) of 15 inpatients per day out of its whole hospital ADC of 100, plus a significant outpatient revenue stream.

However, neither Holy Cross nor FHP was happy with the other, and each thought the other was taking advantage of the situation. FHP was headquartered in California, where it routinely received much deeper discounts—

up to 50 percent. Holy Cross, on the other hand, felt that FHP was only interested in making money and cut corners in patient care.

The status quo continued until FHP announced it would build its own hospital in Salt Lake City. The new hospital was to be opened in two years. This infuriated the CEO of Holy Cross, who believed it was one more example of FHP being a greedy for-profit company. Coincidentally, the Holy Cross–FHP contract was expiring soon. After a short board meeting, Holy Cross sent a letter to FHP’s regional vice president, Elden Mitchell, saying that immediately after the contract expired FHP would pay full charges for all services. Mitchell and his vice president in charge of hospital contracts were both upset, as this would increase FHP’s costs substantially for the next two years.

Case Questions, Part 1 1. What are the main factors to consider in this negotiation?

2. What should St. Mark’s offer?

3. What qualitative factors should be considered?

4. Would additional hospital equipment be needed?

5. Would any patients be retained after the opening of the FHP hospital?