To seek shelter from the competitive storm, Marcus Welby Hospital (MWH) is considering forming a joint venture with an existing for-profit HMO. MWH would be given 30 percent ownership of the privately held HMO, and each of its five board of trustees members would be given 1 percent ownership, in exchange for MWH contributing $10 million in capital funds, which is 35 percent of the HMO's appraised net worth. Since the HMO already owns its own nursing home, MWH will raise the capital by selling its nursing home. MWH will receive 30 percent of whatever profit distributions the HMO board chooses to make from time to time and the trustees will receive their 1 percent shares. MWH also hopes to increase its patient base for hospital admissions and to secure a better bargaining position for reimbursements from the HMO, but the HMO is making no promises about where its subscribers will be sent for hospital care, nor how it will pay MWH for hospital services to its subscribers.

Assume that MWH has articles of incorporation similar to Queen of Angels' only covering nursing home as well as hospital services, and that it has received only general, unrestricted gifts from donors. Also, assume there is no other management or personal connection between MWH and the HMO.

• What issues would you want to alert the hospital board to concerning whether this is a permissible venture, and how the HMO can use its capital funds?
• Would these parties be advised to have the HMO pledge some portion of its revenues to pay for charity care services at MWH( below ispage 380 title; THE HISTORY OF MARCUS WELBY HOSPITAL AND HOW IT GREW)

• This hypothetical serves as the basis for several of the problems in the readings that follow. It illustrates the profound transformations that have occurred in the health care sector over the last half-century.

  Marcus Welby Hospital (MWH) Is a private, nonprofit 400-bed facility employing more than 2,000 workers, with more than $100million in annual revenues. It is located on the outskirts of a metropolitan area of one million people that contains three other major tertiary care hospitals of 300 beds or more and four smaller, community hospitals of 100 to 150 beds. Currently, 38 percent of MWH's gross revenues are from Medicare, 12 percent are from Medicaid, 40 percent from private insurance or out-of-pockets payments. The remaining 10 percent is bad debt or charity care partially subsidized by a major protestant denomination with which it has long been affiliated.

  March Welby Hospital was born in the 1950s as a small community hospital. It began as an effort by persons from the local church and medical communities joining forces with local business leaders to provide convenient hospital care in the growing suburbs. When the federal Hill Burton program created a reservoir of construction loan in the 1950s, the group of town booster choose to apply for a construction loan to build a 100- bed facility. Its affiliation with the religious domination has never been formalized through ownership. Nevertheless, the charitable role of the hospital is taken seriously by the board of directors, which always includes one or two members of the denomination.

  In the latter 1960s, increased revenues through Medicare program enabled the hospital to obtain further construction loans, and the hospital expanded to add 100 more beds and more supplicated inpatient services. Another wave of change swept through the health care industry in the 1980s, in response to a fundamental alteration in the way Medicare pays hospitals. Some hospitals consolidated, whereas Marcus Welby sought to diversify operations and increase its patient base by providing a wider range of services and much larger.