In early 2007 the Lahey Clinic in Massachusetts believed that expansion of its North Shore facility was not only a smart strategy but also a business necessity. An aging local patient population combined with stiff competition from other area hospitals seemed to make growth a priority. Several of its rivals, large and small, were undertaking expansions, and Lahey itself had already embarked on a large addition to its main campus. Investment in new medical facilities and equipment seemed to be the best plan to ensure the clinic's long-term stability.
As it stood in the beginning of 2007, Lahey's North Shore facility consisted of 162,000 square feet with 10 beds for overnight observation and care. Lahey executives first considered the question of whether to expand the North Shore facility's inpatient services or to limit expansion to ambulatory care. Then they considered financing, looking into auction rate securities, variable-rate debt obligations, and fixed-rate bonds. The clinic borrowed $50 million, and in October 2007, construction on the new wing of Lahey North began.
Two years later, however, Lahey was faced with significant changes in the local and national economy. A new state health insurance program, which began May 1, 2007, was affecting both the supply and the demand side of health care. Increasing pressures from Medicaid and defined-benefit pension plans meant lower margins for health care providers. Finally, a severe global recession threatened to affect even the parts of the industry that were thought to be counter-cyclical. Other hospitals began delaying or canceling their capital projects, but Lahey's expansion was nearly completed.
The two years of turmoil in the Massachusetts health care market prompted observers to question Lahey's 2007 decisions. Did the expansion strategy still make sense? Had Lahey chosen the correct vehicle for financing its plans? What would be the effect of changes in government programs on patient demand and on the clinic's reimbursement rates? And what changes in strategy might Lahey consider to weather the economic downturn?
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Jaan Elias, Andrea R. Nagy, Jessica P. Strauss, and William N. Goetzmann, “Lahey Clinic: North Shore Expansion,” Yale SOM Case 08-065, June 4, 2009
- Real estate
- Asset Management
- Financial Regulation