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As she prepares to depart from her senior leadership role at MMG, Ms. Olsen has asked your team for recommendations on the key issues she should identify for her successor.
•Recommendations for overcoming Key Issues
CAN THIS RELATIONSHIP BE SAVED? by Rhonda Engleman and Jisun Yu under the supervision of Professor Andrew H. Van de Ven. Reproduced with permission of Professor Andrew H. Van de Ven in the format post in a course management system.
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UNIVERSITY OF M INNESOTA
Carlson School of Management 321 – 19th Avenue South Minneapolis, MN 55455 Strategic Management Research Center Minnesota Healthcare Organizations Study Voice: 612-624-1864 FAX: 612-625-6822
CAN THIS RELATIONSHIP BE SAVED? THE MIDWESTERN MEDICAL GROUP’S 1 INTEGRATION JOURNEY Forthcoming in P. Ginter, L. Swayne, and J. Duncan, The Strategic Management of Health Care Organizations, Fifth Edition, New York: Blackwell Business, 2005. (Current draft 10-7-04)
INTRODUCTION On a snowy January evening, the MMG management team held a retirement party for Judith Olsen, president of Midwestern Medical Group (MMG). During the evening, Olsen reflected back on the years she had worked for the MMG with mixed feelings about her experience. During their eight-year integration journey within the Midwestern Health System (Midwestern), the MMG management team experienced many encouraging moments, achievements, and successes as well as many struggles, disappointments, and conflicts. She was scheduled to meet with the board chair the next day to talk about the major issues her successor would need to address as president of the MMG. Knowing this might be her last contribution to the MMG before she retired, Olsen wanted to provide the board chair with helpful advice to pass on to her successor. This case focuses on the historical events in the MMG’s integration journey that Olsen pondered as she thought about what to say in that meeting. BACKGROUND Midwestern Health System (Midwestern) was established in July 1994 through the merger of Health Systems Corporation and Midwest Health Plan, making it the largest healthcare organization in its region. Health Systems contributed hospitals, clinics, nursing homes, a home health agency, and other healthcare services while Midwest Health Plan contributed health insurance products and relationships with physician groups. The vision guiding Midwestern’s development was to “offer an integrated healthcare system to affordably enhance the health of
This case was written by Rhonda Engleman and Jisun Yu under the supervision of Professor Andrew H. Van de Ven of the Carlson School of Management at the University of Minnesota. We also appreciate the editorial assistance of Julie Trupke and useful comments of Gyewan Moon and Margaret Schomaker. We gratefully acknowledge Stuart Bunderson, Shawn Lofstrom, Russel Rogers, Frank Schultz, and Jeffery Thompson who assisted in collecting data during this eight-year longitudinal study of MMG’s integration journey. The case was prepared to promote class discussion and learning. It was not designed to illustrate either effective or ineffective management.
people living and working in communities we serve.” This vision implied two priorities: the commitment to build an integrated healthcare system and the goal to improve community health. The MMG was founded in 1994 with an initial network of 340 employed physicians working in 20 clinics previously owned by Health Systems Corporation hospitals at the time of the merger with Midwest Health Plan. Hal Patrick was selected as the first MMG president. Under Patrick’s leadership, the MMG grew rapidly during its first two years, acquiring 30 additional primary care clinics in strategic locations across Midwestern’s geographic market. By mid-1996, MMG’s management attention shifted from growth by acquisition to management and organizational development of its now 50 clinics with 450 physicians and over 3000 employees. The MMG experienced many challenges during these formation and establishment periods within the Midwestern system. Managing the multi-faceted nature of the MMG-system integration process proved complex, involving many interdependent change initiatives. The initiatives included: 1) creating a large integrated group medical practice from formerly small independent physician clinics, 2) transitioning the identities and roles of physicians from being principals of private clinical practices to becoming agents and employees of healthcare companies, 3) building an organizational culture that aligned incentives and motivated commitments of clinicians with the MMG and Midwestern system while maintaining their commitment to the medical profession, and 4) developing an integrated system of healthcare for patients by linking the MMG’s clinical and business services across with other Midwestern units including the hospitals and the Midwestern Health Plan. In July 1997, Patrick was promoted to system vice president of clinical services for Midwestern. Midwestern leaders appointed Lief Erickson as the new MMG president. Erickson represented a strong voice for MMG physicians and patient care and had worked as an MMG manager since its formation. Despite continuous hardships in both financials and operations, Erickson led the MMG as the group rebounded from a record loss of $41 million in 1996, decreasing losses to $22 million in 1997 and $20 million in 1998. The MMG was on track to improve its financial performance in 1999 by decreasing its losses to $17 million, still far from ideal but improvement in the right direction. Under Erickson’s leadership, the MMG developed a solid management team of administrative and physician leaders as the MMG moved from a culture of survival to a culture of performance. The MMG had faced many challenges since its formation in 1994, but Erickson and his management team weathered the storm to establish the MMG as an integral part of the Midwestern Health System. The MMG management team still faced many tensions in their relationships with others in the Midwestern system, but Erickson was confident that his team had demonstrated the MMG’s value to Midwestern and would continue their journey to lead the MMG to even better results in the future. ARRANGED MARRIAGE OF EQUALS The Midwestern Health System experienced escalating financial pressures in 1998 and 1999. Since Midwestern’s formation, the system had not achieved its overall financial performance goals. Johanson, CEO of Midwestern, anticipated that the system would experience reductions of $50 million in Medicare reimbursement over the next five years due to changes in the program made in the Balanced Budget Act of 1997. Reimbursement rates from other commercial payors