It did take St. Mark’s six months to shift all of the patient volume from Holy Cross. Its inpatient volumes increased from 110 to 125. The new inpatient volume brought in about $85,000 per month, and significant new outpatient volume brought in another $80,000 per month, for a total of about $165,000 per month in new profits. The following year, FHP launched its Medicare Advantage Program, bringing an additional 10 ADC to St. Mark’s and a further $160,000 in profits per month. The new incremental business increased St. Mark’s profits to $1.325 million per month, or nearly $16 million per year.

The new business also had a number of secondary effects. The additional profits allowed St. Mark’s to expand its facility and increase its market reputation. St. Mark’s enjoyed the perception of “winning” in its market, which it used to persuade doctors who had practiced at Holy Cross to join it as well as to recruit out-of-state physicians. In addition, St. Mark’s was able to shift the more complicated cases from Holy Cross, and these remained at St. Mark’s even when FHP opened its own hospital. The increased profits also allowed St. Mark’s to build a senior health center, a bariatric program, and a women’s center, and to expand its cardiac and orthopedic services.

Two years into the contract with FHP, the hospital’s profits jumped to $20 million per year.

The speed of the negotiation did have at least one negative effect.

Hurrying to conclude the contract, the administrators at St. Mark’s failed to involve the hospital’s medical staff and board. The leaders of both groups were very upset that they had not at least been consulted. The CEO at St.

Mark’s had to spend significant political capital smoothing this over, but it was questionable whether the trust was fully established.

Case Questions, Part 3 1. What was the impact of agreeing to the contract with FHP?

2. Why was St. Mark’s able to increase its profits so much?

3. What could it have done better?