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R E V : D E C E M B E R 1 2 , XXXXXXXXXX
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Professor Laura Morgan Roberts and Research Associate Ayesha Kanji prepared this case. HBS cases are developed solely as the basis for class
discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.
Copyright © 2005 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call XXXXXXXXXX,
write Harvard Business School Publishing, Boston, MA 02163, or go to http:
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L A U R A M O R G A N R O B E R T S
A Y E S H A K A N J I
Jeanette Clough at Mount Auburn Hospital
Sitting in her office overlooking the Charles River, Jeanette Clough reflected on her career. She
had been a hospital CEO in Massachusetts for 10 years now, starting with her elevation to CEO at the
Waltham Hospital in 1995 and proceeding to her cu
ent leadership of Mount Auburn Hospital in
Cam
idge. The health-care landscape had changed significantly over the last 20 years, and the
hospitals that had not been able to keep up with the changes had closed. In the greater Boston area
alone, 21 hospitals had shut down since XXXXXXXXXXMount Auburn’s management had tried to adapt to a
apidly changing health-care industry in which managed care organizations were pushing for greater
efficiency and lower costs in the provision of health care. In the context of the evolving health-care
marketplace, hospitals, physician groups, insurance companies, the state and federal governments,
employers, medical technology and device companies, and patients were facing new incentives and
pressures.
When Clough first entered as CEO of Mount Auburn in 1998, the Hospital was faltering, laden
with financial troubles and internal tensions. There were executives in Mount Auburn’s parent
organization, CareGroup, who thought that the Hospital could not sustain itself for much longer.
Some predicted that the Hospital would go bankrupt within 36 months. The physical plant was aging
and areas of the Hospital had become dilapidated, creating the impression that Mount Auburn was a
poor stepsister to the illustrious Harvard teaching hospitals across the river. Skeptics questioned
whether Clough was the right person to turn around the situation at Mount Auburn. Her background
was unusual—she was a nurse by training who had become a CEO by chance.
Over the course of four years, Clough successfully turned around the Hospital. Mount Auburn
ebounded from an operating loss of $10 million in 1998, to three consecutive years of multi-million
dollar operating margins. Clough had revitalized the organization, repairing and building new
elationships between the administration and physicians, and forming strategic alliances with
organizations outside the Hospital. She now had to focus on
inging Mount Auburn to the next
level as a first-rate teaching hospital, including a challenging campus development plan and an
intense capital campaign to fund Hospital renovation and expansion.
There were many challenges for Clough to overcome to make the changes she envisioned. To
name a few: capital constraints, the state’s regulatory roadblocks, and local neighborhood opposition.
Relative to other industries, hospitals were steeped in regulatory oversight by the state, and revenues
were derived from a complex system of payments for hospital and physician services, including
multiple payors and payment schemes. Moreover, Mount Auburn was landlocked on all sides in a
For the exclusive use of A. MOHAM, 2021.
This document is authorized for use only by ALYCIA MOHAM in DHA 801 Fall 2021 taught by ATUL GUPTA, Lynchburg College from Aug 2021 to Feb 2022.
XXXXXXXXXXJeanette Clough at Mount Auburn Hospital
2
esidential neighborhood with strict zoning bylaws and permitting processes. How would Clough
push through the expansion?
Historical Context: Mount Auburn Hospital1
Founded in 1886, Mount Auburn, originally named the Cam
idge Hospital, started out as a
charitable medical facility where Cam
idge’s working class and poor could seek health care, funded
y the donations of the city’s wealthy. Those who could afford to pay for care received doctors and
treatment in the comfort of their homes.
Mount Auburn was situated on the westernmost edge of Cam
idge, beyond which were small,
county and community hospitals that catered to the primary care needs of the population. Typically,
these hospitals would admit routine cases and would refer the complicated cases to the academic
teaching hospitals across the river. The latter had an affiliation with a medical school, and were
esponsible for training doctors in residency programs, as well as being on the forefront of new
medical technology and cutting-edge clinical research. Mount Auburn was a hy
id hospital—on the
one hand it served the primary care needs of its population, but it also had an affiliation with
Harvard Medical School that enabled it to train specialists and interns in residency programs across
many medical specialties. (See Exhibit 1 for an overview of Mount Auburn Hospital.)
By the mid-1900s, the role of hospitals, and consequently physicians, was changing in the United
States. Mount Auburn, like many hospitals, became the epicenter for delivering health care to a
oad spectrum of people, benefited by advances in medical technology and close ties to Harvard
Medical School. Monies were being channeled into the Hospital from charities, private donations,
and mostly from the patients themselves. Doctors would bill the patients for their services, and this
created the groundwork for the “fee for service” payment scheme. With the emergence of insurance,
patients bought insurance coverage and subscribed to health plans, usually through their employers,
and the insurers became responsible for paying the majority of doctor and hospital fees for their
enrollees (See Exhibit 2 for an overview of major changes in the U.S. health-care industry between
1970–2000.)
1990s: Mount Auburn Hospital and Managed Care
Frank Lynch had been CEO of Mount Auburn since 1980, and had been early in positioning the
Hospital in the managed care market. Lynch had been a high school biology teacher before his career
in hospital management. In 1985, Mount Auburn had signed with the managed care organization
(MCO) Harvard Community Health Plan, which gave the Hospital exclusive-provider privileges for
the medical and surgical care it provided to the company’s enrollees in Cam
idge, and several
outlying Boston subu
s. Lynch also developed Mount Auburn’s base of primary care physicians
(PCPs), spending $20 million over 10 years to buy PCP practices in its primary service areas including
Cam
idge, Belmont, Watertown, Somerville, and Lexington. In 1993, Mount Auburn had remained
the leading Hospital in its primary service area, capturing 23% of patient discharges.
Despite Lynch’s foresight, the 1990s
ought increasing pressures from managed care.
Massachusetts had a dense concentration of academic teaching hospitals, which was co
elated with
higher numbers of specialists and steeper costs for their services. The state had one of the highest
1 F. Wa
en McFarlan, “Mt. Auburn Hospital,” HBS No XXXXXXXXXXBoston: Harvard Business School Publishing, 1997).
For the exclusive use of A. MOHAM, 2021.
This document is authorized for use only by ALYCIA MOHAM in DHA 801 Fall 2021 taught by ATUL GUPTA, Lynchburg College from Aug 2021 to Feb 2022.
Jeanette Clough at Mount Auburn Hospital XXXXXXXXXX
3
hospital utilization rates in the U.S., three times the national average for the ratio of specialists to
PCPs, and an excess capacity of beds. Boston had four medical schools with many associated
teaching hospitals, training 5% of the country’s residents. As a result, MCO premiums were
significantly higher in the state and there was an incentive to further reduce costs.
Merger & Acquisition Activity in Boston Hospitals
In early 1994, two of Boston’s premier Harvard Medical School teaching hospitals—Massachusetts
General Hospital (MGH) and Brigham and Women’s Hospital—had surprised the local health-care
community and merged to form the Partners HealthCare organization, a vertically integrated
provider network of PCPs, hospitals, and outpatient clinics. A trend of hospital mergers was
occu
ing across the country. Hospitals merged to form extensive networks over large geographic
areas, attracting MCO contracts with their primary care focus, and open-access networks. Overnight,
Mount Auburn started to consider its options for joining a hospital network. After several years of
considering its best options with 11 possible alliances, Mount Auburn joined the CareGroup
organization, the result of a 1996 merger between the Pathway Health Network, Beth Israel Hospital,
and New England Deaconess Hospital. CareGroup would have over 1,200 physicians; the Harvard
Medical School teaching affiliates Beth Israel Deaconess Medical Center and Mount Auburn Hospital;
and a host of community hospitals in the subu
s of Boston, generating about $1 billion in revenue
(See Exhibit 3 for maps of the Boston hospital market.) Wa
en McFarlan, a Mount Auburn Board
member, recounted:
Mount Auburn was caught in a te
ible position both geographically and in the health-care
climate. There were almost twice as many hospital beds in Eastern Massachusetts as were
needed. At the time of the merger, we didn’t actually want to merge at all. But it was pretty
clear to us that if we didn’t have stronger bargaining power with the HMOs, we were going to
e killed. You look around Mount Auburn today and our closest competitors are all gone—
three miles away Sancta Maria is now a nursing home; Waltham Hospital, Choate in Woburn,
and Symmes in Arlington—are all closed.
The Mount