Munich City Hospital: Value-Based Consolidation

This article is part of a series on value-based hospitals.

Munich City Hospital is one of the largest public hospitals in Germany, with four large independently operated sites, all located in the city of Munich; 69 separate departments, each with its own medical director; and a 30 percent market share in the Munich metropolitan area. Because of overcapacity in the local market (Munich’s ratio of beds to inhabitants is twice the average in Germany, which already has 70 percent more per capita than the average for Organisation for Economic Co-operation and Development countries), the hospital has been losing money for ten years. New European Union rules limiting public subsidies are requiring the hospital to develop a sustainable operating model in order to avoid bankruptcy.

In 2013, The Boston Consulting Group began working with Munich City Hospital to define a new strategic direction. The guiding principle behind the work was the conviction that the only way to consolidate and cut costs effectively was not to focus on costs alone. Instead, the team started with a question: What is the right medical concept to ensure that we can deliver the highest quality of care?

The team took a hard look at what the various units in the hospital network were really good at and devised an operating model in which the four sites were treated not independently but as part of an integrated network. By identifying where the hospital delivered patient value—for instance, those specialty units that had enough patient volume to deliver high-quality outcomes—the team was able to establish a set of criteria not only for where to cut but also for where to invest. The key question changed: How can we grow beds in those areas where we are strong?

Answering that question required broad and deep interactions with clinical staff, with a great deal of discussion and close examination of clinical practice. Through these interactions, the team identified some departments with positive patient outcomes and strong growth prospects. The goal was to maintain the core of these high-performing units and consolidate the rest. For example, one of the hospitals in the network was especially good at rehabilitation. The team recommended that this hospital become the rehab center for the entire network, allowing the rehab units at the other three hospitals to close.

The final strategic plan calls for massive consolidation (from 69 departments down to 40), the centralization of support services such as testing labs and pharmaceutical supplies, and painful job cuts (roughly 2,000 of the hospital’s 8,000 employees). And yet, there is a relatively strong consensus in support of the new strategy.

Most of the hospital’s constituencies understand that the current organization structure is neither economically nor medically sustainable. What’s more, because the new strategy builds on the considerable strengths of the hospital and because the process for transformation has been collaborative, it includes an achievable roadmap for growth in addition to the painful but necessary cuts. As one medical director commented, “Finally, we have a concept we can believe in.”