Blackhawk Urology Harvard Case Solution & Analysis

Problem Identification

Two experienced physicians in urology, Dr. Kerns andDr. Oldham,builta Black hawk Urology hospital in Oklahoma. The revenues of the hospital increased significantly from last few years. In the year 2004, both these doctors considered an increase in capacity and facility expansion by hiring an addition physician assistant and building a new facility.

blackhawk urology case solution

blackhawk urology case solution

 At the time of the case, cash reserves were reducing, the pay of physicians had also reduced and deb twas increasing. Increase in debt cost and dwindling in cash reserves created serious problem for Black hawk Urology regarding the cash flows and expansion facility.

Key Issues

Black hawk Urology is considering an expansion plan; for this purpose they hired an additional physician assistant at the start of the year 2005. Additional facility is under process,which already costs 250,000 dollars to Black hawk Urology. It is expected that further 100,000 will incur in 2007 and the facility will be expanded, which will be in practice during the summer of the year 2007.  Hiring of additional physician’s assistant before two years of the completion of facility may create the cash problems for the hospital.

Increase in the pay of additional physicians assistant and the increase in the cost of facility expansion have put pressure on the hospital, which results in the reduction of salaries of physicians and increase in debt. Increase in debt will increase the interest cost, which also puts pressure on the cash flow issues of the hospital.

Decrease in the salaries of physicians, increase in the cost of the expansion, increase in debt and interest payment could create the further loss in revenues and it is also expected that the physicians may move to the other hospitals due to decrease in salaries, which could also put extra pressure on the hospital in the form of decreased in capacity and revenue.

Available Alternatives

Black hawk Urology is currently under expansion policy and the expansion plan leads to physicians reducing their salaries to $100,000 per physician. It is expected that it will further decrease due to expected further expense of 100,000 dollars in order to expand. Expansion policy could also be processed by following available alternative.

Rent a Building

Black hawk has been seeking a significant growth during last few years and its revenue and associated costs also increased. However, the expansion through building an additional facility may not be appropriate because the hospital does not have sufficient resources in order to finance the expansion facility. Black hawk can acquire large building as compared to the existing building where it can practice its expansion facility by increasing capacity and physician’s assistant.

Immediate start of the expansion facility could provide hospital more revenues and after the successful implementation of the increase in facility, construction of own building could be considered and it is expected that at that time Black hawk will have sufficient resources to expand its business.


New and bigger building could be acquired through finance and operational lease. If Black hawk acquires the building on lease, then it can start its expanded operations in 2005, which will help the hospital to earn more revenues in the year 2005, 2006 and 2007. Through lease option,the construction of new building will be saved and it is also expected that the salaries of the doctors will not be reduced and the need of the debt amount will decrease, which will ultimately reduce the cash flow problems and interest cost.

Do not Expand& Reduce Additional Cost

Apart from getting significant growth in revenues, its cost will also increase due to physician’s practice and increase in the prices of the medicines. Therefore,its gross profit will decrease in the year of 2006 as compared to 2005. This means currently the hospital is not operating in its full capacity.

Therefore, in the current scenario considering expansion could create serious problems for the hospital because it is already facing the problem of decrease in gross profit and physician’s mal practices. There is a possibility that the management of the hospital should enhance the performance of its existing physicians by giving them necessary training.

It is also expected that the hospital can reduce its cost by identifying the cheap sources of medicines and can reduce its cost by not hiring the additional physician’s assistant as it is expected that the current physicians are not performing according to their potential...........................

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