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ASIAN CASE RESEARCH JOURNAL, VOL. 15, ISSUE 1, 123–148 (2011) E\ :RUOG 6FLHQWLÀF 3XEOLVKLQJ &R '2, 6 ACRJ This case was prepared by Prof. Jui-fen Rachel Lu of Chang Gung University, Prof. Terence Tsai and Research Associate Shubo Philip Liu of China Europe International Business School as a basis for class discussion rather than to illustrate either effective or ineffective han- dling of an administrative or business situation. $OO RI WKH ÀJXUHV LQ WKLV FDVH are disguised. The research work associated with this case was supported by research grants from the China Europe International Business School and National Science Council (NSC96-2416-H-182-001- MY3) in Taiwan. We also acknowledge the support of China Europe International Business School Case Devel- opment Center. Please send all correspon- dence to Prof. Terence Tsai, China Europe International Business School Case Develop- ment Center and Department of Management, China Europe International Business School, 699 Hongfeng Road, Pudong, Shanghai, P.R. China. E-mail: [email protected] Building a Hospital Alliance — Taiwan Landseed Medical Alliance In a popular scene from the classic Chinese historical novel “Romance of the Three Kingdoms”, the Wei Kingdom tries to gobble up its weaker neighbors, the Shu and Wu Kingdoms. Neither of the latter two realms is able to deter the Wei attacks on its own. Facing invasion, they agree to become allies and support each other as a defensive strategy. They go on to defeat the Wei’s fearful army with their allied forces. In contemporary Taiwan, following the strategy of the Shu and Wu emperors, a group of small hospitals has formed an alliance and prospered in a cut-throat environment. 'U 9LFWRU &KDQJ ZDV RQH RI WKH IRXQGHUV DQG LV FXUUHQWO\ &KLHI ([HFXWLYH 2IÀFHU &(2 RI WKH 7DLZDQ /DQGVHHG 0HGLFDO $OOLDQFH (TLMA %HIRUH HVWDEOLVKLQJ TLMA KH ZDV DQ H[SHULHQFHG LQWHUQLVW ZKR KDG ZRUNHG DW &KDQJ *XQJ 0HPRULDO +RVSLWDO &*0+ DQG WKH 1DWLRQDO 7DLZDQ 8QLYHUVLW\ +RVSLWDO DV D FOLQLFDO IHOORZ DQG WKHQ DV DQ DWWHQGLQJ SK\VLFLDQ ,W ZDV D W\SLFDO GD\ IRU 'U &KDQJ DW /DQGVHHG +RVSLWDO ZLWK D IXOO VFKHGXOH +H ZDV UHDGLQJ WKH ÀQDQFLDO VWDWHPHQWV RI TLMA KRVSLWDOV IRU WKH SDVW IHZ \HDUV DQG PXOOLQJ WKLQJV RYHU 3HUIRUPDQFH DSSHDUHG WR EH ODJJLQJ HVSHFLDOO\ LQ WKH UDWHV RI UHWXUQ VHH ([KLELW 'U &KDQJ DQG KLV FROOHDJXHV KDG WR ÀQG DQ DSSURDFK WR HQKDQFH WKHLU UHWXUQ RQ WKHLU FDUHIXOO\ GHYHORSHG LQYHVWPHQW Asian Case Res. J. 2011.15:123-148. Downloaded from www.worldscientific.com by 180.211.226.129 on 06/10/13. For personal use only.

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ASIAN CASE RESEARCH JOURNAL, VOL. 15, ISSUE 1, 123–148 (2011)

�������E\�:RUOG�6FLHQWLÀF�3XEOLVKLQJ�&R�� '2,����������6����������������

ACRJ

This case was prepared by Prof. Jui-fen Rachel Lu of Chang Gung University, Prof. Terence Tsai and Research Associate Shubo Philip Liu of China Europe International Business School as a basis for class discussion rather than to illustrate either effective or ineffective han-dling of an administrative or business situation.

$OO� RI� WKH�ÀJXUHV� LQ� WKLV� FDVH�are disguised. The research work associated with this case was supported by research grants from the China Europe International Business School and National Science Council (NSC96-2416-H-182-001-MY3) in Taiwan. We also acknowledge the support of China Europe International Business School Case Devel-opment Center.

Please send all correspon- dence to Prof. Terence Tsai, China Europe International Business School Case Develop- ment Center and Department of Management, China Europe International Business School, 699 Hongfeng Road, Pudong, Shanghai, P.R. China. E-mail: [email protected]

Building a Hospital Alliance — Taiwan Landseed Medical Alliance

In a popular scene from the classic Chinese historical novel “Romance of the Three Kingdoms”, the Wei Kingdom tries to gobble up its weaker neighbors, the Shu and Wu Kingdoms. Neither of the latter two realms is able to deter the Wei attacks on its own. Facing invasion, they agree to become allies and support each other as a defensive strategy. They go on to defeat the Wei’s fearful army with their allied forces. In contemporary Taiwan, following the strategy of the Shu and Wu emperors, a group of small hospitals has formed an alliance and prospered in a cut-throat environment.

'U�� 9LFWRU� &KDQJ� ZDV� RQH� RI� WKH� IRXQGHUV� DQG� LV� FXUUHQWO\�&KLHI� ([HFXWLYH� 2IÀFHU� �&(2�� RI� WKH� 7DLZDQ� /DQGVHHG�0HGLFDO� $OOLDQFH (TLMA��� %HIRUH� HVWDEOLVKLQJ� TLMA�� KH�ZDV DQ� H[SHULHQFHG� LQWHUQLVW� ZKR� KDG� ZRUNHG� DW� &KDQJ�*XQJ� 0HPRULDO� +RVSLWDO� �&*0+�� DQG� WKH� 1DWLRQDO� 7DLZDQ�8QLYHUVLW\� +RVSLWDO� DV� D� FOLQLFDO� IHOORZ� DQG� WKHQ� DV� DQ�DWWHQGLQJ� SK\VLFLDQ�� ,W� ZDV� D� W\SLFDO� GD\� IRU� 'U�� &KDQJ� DW�/DQGVHHG�+RVSLWDO��ZLWK� D� IXOO� VFKHGXOH��+H�ZDV� UHDGLQJ� WKH�ÀQDQFLDO� VWDWHPHQWV�RI�TLMA�KRVSLWDOV� IRU� WKH�SDVW� IHZ�\HDUV�DQG�PXOOLQJ�WKLQJV�RYHU��3HUIRUPDQFH�DSSHDUHG�WR�EH�ODJJLQJ��HVSHFLDOO\� LQ� WKH� UDWHV� RI� UHWXUQ� �VHH� ([KLELW� ���� 'U�� &KDQJ�DQG� KLV� FROOHDJXHV� KDG� WR� ÀQG� DQ� DSSURDFK� WR� HQKDQFH� WKHLU�UHWXUQ�RQ�WKHLU�FDUHIXOO\�GHYHORSHG�LQYHVWPHQW��

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124 ACRJ

INTRODUCTION TO TAIWAN LANDSEED MEDICAL ALLIANCE

The Taiwan Landseed Medical Alliance (TLMA) includes eight mostly district hospitals. Established in 1993, it initially comprised several private hospitals (see Exhibit 2). Despite Taiwan’s continuously changing healthcare policies and the competitive healthcare market, these small- to medium-scale private hospitals had gradually expanded their networks and formed a stable alliance.

The ÀUVW� eight hospitals in the early stage of TLMA had survived and succeeded LQ�D�ÀHUFHO\�FRPSHWLWLYH�KRVSLWDO�market because of the alliance. The TLMA group, with the common goal of “keeping pace with medical advancement and leading management trends,” was incorporated in 1991 to upgrade hospital management and service quality, improve the medical environment, and promote good hospital practice. It had demonstrated good performance and assumed a leading role in hospital management development in small and mid-sized hospitals, which account for the majority of hospitals in Taiwan.

PREFACE TO TLMA — IN THE EARLY 1980S

Taiwan was a newly industrialized country and seen as one of the four Asian Tigersa. As a result of the booming economy in the 1980s and 1990s (see Exhibit 3), more resources were pumped into the healthcare sector to satisfy the increasing demand for medical care. The government also encouraged private investment. This attracted new entrants to build hospitals while incumbents seized the opportunity to expand and upgrade their facilities. The two TLMA founding member aIn the twentieth century, many countries in East and Southeast Asia, including South Korea, Taiwan, Singapore, Japan, the Philippines, and Thailand, were called newly industrialized countries. Asian Tigers referred to the highly developed economies of Hong Kong, Singapore, South Korea, and Taiwan�� 7KHVH� UHJLRQV�ZHUH� WKH� ÀUVW�newly industrialized countries noted for maintaining exceptionally high growth rates and rapid industrialization between the early 1960s and 1990s. By importing technology and deploying armies of low-paid but often well-educated workers, they were able to undercut competitors’ prices in markets all over the world.

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A NEW ENVIRONMENT — IN THE 1990S

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ENVIRONMENTAL CHANGE — AFTER 1995

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)URP� WKH� ODWH� ����V�� WKH� QXPEHU� RI� SULYDWH� KRVSLWDOV�VWHDGLO\� GHFOLQHG�� EXW� WKH� VSHHG� RI� WKDW� GHFOLQH� DFFHOHUDWHG�DIWHU� WKH� LQWURGXFWLRQ� RI� 1DWLRQDO� +HDOWK� ,QVXUDQFH� �1+,��SURJUDP� LQ� ����� �([KLELW� ���� 7KH� LPSOHPHQWDWLRQ� RI� 1+,��ZKLFK� VLJQLÀFDQWO\� UHGXFHG� WKH� PRQHWDU\� FRVW� ERUQH� E\� WKH�LQVXUHG��LQWHQVLÀHG�FRPSHWLWLRQ�LQ�WKH�KRVSLWDO�PDUNHW��3HRSOH�ZKR� RSWHG� IRU� VWDWH�RI�WKH�DUW� PHGLFDO� WHFKQRORJ\� FURZGHG�LQWR� WHUWLDU\� PHGLFDO� LQVWLWXWLRQV�� HYHQ� IRU� PLQRU� LOOQHVVHV��2WKHUV�SUHIHUUHG�JHQHUDO�SUDFWLWLRQHUV� LQ�QHLJKERUKRRG�FOLQLFV� IRU� WKH� VDNH� RI� FRQYHQLHQFH� DQG� HDV\� DFFHVV�� +HQFH�� WKH�GHPDQG� IRU� FDUH� SURYLGHG� DW� WKH� WZR� H[WUHPHV� RI� WKH� VSHF�WUXP� �PHGLFDO� FHQWHUV� YHUVXV� FOLQLFV�� FRQVLVWHQWO\� LQFUHDVHG��$W� WKH� VDPH� WLPH�� WKH� SXEOLF� WUDQVSRUWDWLRQ� V\VWHP� PDGH�WUDYHOLQJ� WR� PHGLFDO� FHQWHUV� LQ� WKH� FLW\� HDVLHU�� DQG� WKH�GHPDQG� IRU� VHUYLFHV� DW� VPDOO� ORFDO� KRVSLWDOV� ZLWKRXW� EUDQG�UHFRJQLWLRQ�EHJDQ�WR�VKULQN�UDSLGO\��VHH�([KLELW�����

$� IXUWKHU� HQYLURQPHQWDO� FKDQJH� RFFXUUHG� ZKHQ� WKH�%XUHDX� RI� 1DWLRQDO� +HDOWK� ,QVXUDQFH� �%1+,�� GHFLGHG� WR�IRFXV� RQ� FRVW� FRQWDLQPHQW� DQG� LPSOHPHQWHG� YDULRXV� UHIRUPV��6LQFH� WKH� LPSOHPHQWDWLRQ� RI� 1+,� DSSUR[LPDWHO\� ���d RI�KRVSLWDOV� KDG� EHHQ� FRQWUDFWHG� XQGHU WKH� NHI� SURJUDP�� 7KH�LQVXUHG� FRXOG� FKRRVH� ZKLFK� KRVSLWDO� WR� DWWHQG�� ZKLFK� OHG�WR� FRPSHWLWLRQ� DPRQJ� KRVSLWDOV�� :LWK� WKH� UHIRUP�� D� *OREDO�%XGJHW� �*%�� V\VWHP� LPSRVHG� DQ� RYHUDOO� VSHQGLQJ� FDS� WKDW ZDV SURVSHFWLYHO\� VHW� DQG� DJUHHG� XSRQ� WKURXJK� QHJRWLDWLRQV�EHWZHHQ� FRQVXPHU�� SURYLGHU,� DQG� LQVXUHU� UHSUHVHQWDWLYHV�LQ� WKH� SUHYLRXV� \HDU�� ,I� WKH� VHUYLFH� YROXPH� JUHZ� IDVWHU� WKDQ�H[SHFWHG�� WKHQ� WKH� XQLW� SULFH� Iell� DFFRUGLQJO\�� )ROORZLQJ�LPSOHPHQWDWLRQ� RI� WKH� V\VWHP�� KRVSLWDO� FRVW� OHYHOV� UHPDLQHG�KLJK� EXW� UHLPEXUVHPHQW� UDWHV� GURSSHG�� ZKLFK� PDGH� WKH�VLWXDWLRQ� RI� SULYDWH� KRVSLWDOV� GLIÀFXOW�� $� JUHDW� QXPEHU� RI� d6WDWLVWLFV� RI� *HQHUDO� +HDOWK�� ����� DQG� ������ 'HSDUWPHQW� RI� +HDOWK��([HFXWLYH�<XDQ��5�2�&���7DLZDQ��

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VPDOO� SULYDWH� KRVSLWDOV� FORVHG� GRZQ� EHFDXVH� RI� GHFOLQLQJ�VHUYLFH� YROXPHV� DQG� XQEDODQFHG� FKHFNERRNV �VHH� ([KLELW� ��. 'U��+XDQJ��RQH�RI�WKH�7/0$�GLUHFWRUV��VDLG�

7KH� 1DWLRQDO� +HDOWK� ,QVXUDQFH� V\VWHP� ZDV� LQ� ÁX[��+RVSLWDO� UHLPEXUVHPHQWV�ZHUH� QR� ORQJer� DV� JHQHURXV�� DQG�WKH� %1+,� VWDUWHG� WR� DFWLYHO\� FRQWDLQ� KHDOWK� H[SHQGLWXUHV��:LWK�WKH�ODXQFKLQJ�RI�WKH�*OREDO�%XGJHW�V\VWHP, oXU�QHZly HVWDEOLVKHG�KRVSLWDO�� OLNH�RWKHU� VPDOOHU�KRVSLWDOV� LQ�7DLZDQ��IDFHG�VLJQLÀFDQWO\�WRXJKHU�controlV��

'U��+XDQJ�VDLG��

$IWHU� WKH� UHIRUP� RI� WKH� 1+,� V\VWHP�� WKH� SHUFHQWDJH� RI�/DQGVHHG·V� SURÀW� IURP� SULYDWH� KHDOWKFDUH� VHUYLFH� URVH�IURP� ���� WR� ����� KRZHYHU�� WKHUH� ZDV� EDUHO\� DQ\� SURÀW�IURP�1+,�SDLG�VHUYLFHV�RQ�VRPH�RFFDVLRQV��DQG� WKH�PRQH\�HDUQHG� IURP� VHOI�SD\� VHUYLFHV� QHHGHG� WR� PDNH� XS� IRU� WKH�LQVXIÀFLHQW�IXQGLQJ�RI�1+,�FRYHUHG�VHUYLFHV�

:LWK� OLPLWHG� UHVRXUFHV� DQG� KLJK� H[SHFWDWLRQV� RI� KHDOWKFDUH�TXDOLW\� IURP� WKH� LQVXUHG�� ZKDW� PHDVXUHV� FRXOG� SULYDWH�KRVSLWDOV�WDNH�WR�PHHW�WKLV�FKDOOHQJH"

THE ALLIANCE IN A CHANGING ENVIRONMENT — FROM THE 1980S TO 21ST CENTURY

TLMA� KHOSHG� PHPEHU� KRVSLWDOV� QDYLJDWH� WKH� XSKHDYDO�UHVXOWLQJ� IURP� WKHVH� SROLF\� FKDQJHV�� &RRSHUDWLRQ� LQ� MRLQW�SXUFKDVLQJ� EHFDPH� D� GHFLVLYH� DGYDQWDJH� DV� FRPSHWLWLRQ�EHFDPH�LQWHQVH�DQG�JRYHUQPHQW�VXSSRUW�GHFOLQHG��

'U��+XDQJ�FRPPHQWHG��

)RUWXQDWHO\�� EHIRUH� 1+,� ZDV� LQ� SODFH�� ZH� KDG� DOUHDG\�IRUPHG� WKH� DOOLDQFH�� EXW� ZH� KDG� GRQH� LW� PDLQO\� IRU� MRLQW�SXUFKDVLQJ� DQG� FRVW� FXWWLQJ�� $W� WKDW� WLPH�� WKH� RWKHU�PHP�EHUV� RI� WKH� DOOLDQFH� ZHUH� QRW� WKDW� DPELWLRXV� WR� HVWDEOLVK� D�KRVSLWDO� FRQVRUWLXP� DQG� FROODERUDWH� LQ� RWKHU� ZD\V�� :KDW�WKH\� ZDQWHG� ZDV� WR� NHHS� GRZQ� WKH� FRVWV� LQFXUUHG� E\� RXU�DOOLDQFH�

7R� DWWUDFW� SDWLHQWV�� ZH� KDG� WR� DFKLHYH� D� KLJK� FXUH�UDWH�� DQG� WKH� KLJK� UDWH� ZDV� EDVHG� RQ� WKH� PHGLFLQHV� ZH�SXUFKDVHG� DQG� XVHG�� 7KDQNV� WR� WKH� DOOLDQFH�� ZH� FRXOG�

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EDUJDLQ� IRU� DQG�SXUFKDVH�KLJK�HQG�PHGLFLQHV�RWKHU�GLVWULFW�KRVSLWDOV�FRXOG�QRW�DIIRUG�

2QH�7/0$�PHPEHU�DGGHG�

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7KLV� OHYHO� RI� FRRSHUDWLRQ�� KRZHYHU�� ZDV� VWLOO� QRW� VXIÀFLHQW�LQ� WKH� FKDQJLQJ� PDUNHW� HQYLURQPHQW�� :KHQ� 'U�� &KDQJ�EHFDPH� VXSHULQWHQGHQW� RI� %� +RVSLWDO�� KH� GHYRWHG� KLPVHOI� to UHLQIRUFLQJ� DQG� EXLOGLQJ� RQ� FRQQHFWLRQV� ZLWK� RWKHU� TLMA PHPEHU KRVSLWDOV� +H� SHUVXDGHG� WKRVH� LQYROYHG� WKDW� E\�HVWDEOLVKLQJ� D� ODUJHU� KRVSLWDO� V\VWHP� DQG� PDLQWDLQLQJ� D�PDUNHW� VKDUH� IRU� WKH� V\VWHP� DV� D� ZKROH�� D� ELJJHU� SRUWLRQ� RI�WKH� PDUNHW� FRXOG� EH� FDSWXUHG� DQG� 7/0$� PHPEHUV� ZRXOG�KDYH�JUHDWHU�EDUJDLQLQJ�SRZHU�ZLWK�WKH�BNHI�� WKXV�DWWUDFWLQJ�PRUH�SDWLHQWV.

The Growth of TLMA

6KRUWO\� DIWHU� WKH� LQWURGXFWLRQ� RI� WKH� *%� V\VWHP�� LQ� UHVSRQVH�WR� WKH� LQFUHDVHG� FRPSHWLWLRQ�� 'U�� &KDQJ�� DORQJ� ZLWK� KLV�DVVRFLDWHV��EHJDQ�WR�WKLQN�DERXW�IXUWKHU�FROODERUDWLRQ�

7KH� HQYLURQPHQW� ZDV� DOZD\V� FKDQJLQJ� DQG� RXU� SRVLWLRQ�ZDV� QHYHU� VHFXUH�� ,Q� WKH� ÀHUFHO\� FRPSHWLWLYH� 7DLZDQHVH�KHDOWKFDUH� PDUNHW�� ZH� QHHGHG� WR� DOO\� ZLWK� PRUH� KRVSLWDOV�WR�EH� D� FRXQWHUEDODQFLQJ� IRUFH� DJDLQVW�ZHOO�HVWDEOLVKHG�DQG�DPELWLRXV�KRVSLWDOV�

,Q� P\� RSLQLRQ�� KRVSLWDO� PHUJHUV� KDUGO\� HYHU� SURGXFH�WKH� H[SHFWHG� EHQHÀWV�� +HQFH�� ,� LQWHQGHG� WR� GHYHORS� D�KRVSLWDO� DOOLDQFH� WKURXJK� ZKLFK� ZH� FRXOG� KDYH� PRUH�HIIHFWLYH� DQG� ÁH[LEOH� FROODERUDWLRQ�� 7KH� DOOLDQFH� ZRXOG�DOVR� HVWDEOLVK� D� JRRG� UHSXWDWLRQ� DQG� PDLQWDLQ� JRRG�UHODWLRQVKLSV�ZLWK�JRYHUQPHQW�DQG�RWKHU�KRVSLWDOV�

5HDOL]LQJ� WKH� LPSRUWDQFH� RI� FRRSHUDWLRQ� DQG� EDVHG� RQ� LWV�HDUO\� FROODERUDWLRQ� H[SHULHQFH�� TLMA LQYLWHG� PRUH� KRVSLWDOV�WR� MRLQ� LW� DQG� EHJDQ� WR� FROODERUDWH� LQ� PRUH� DUHDV�� LQFOXGLQJ�

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+5�PDQDJHPHQW�� DQG� DFDGHPLF�� FOLQLF�� IDFLOLW\�� DQG� UHVRXUFH�VKDULQJ��

7KH� TLMA KRVSLWDOV� ZHUH� ORFDWHG� LQ� GLIIHUHQW� DUHDV�RI� 7DLZDQ�� ZLWKRXW� RYHUODSSLQJ� PDUNHWV� DQG� QRW� LQ� GLUHFW�FRPSHWLWLRQ� ZLWK� HDFK� RWKHU�� ,Q� DGGLWLRQ�� WKH� DOOLDQFH� SUR�YLGHG�PHPEHU�KRVSLWDOV�ZLWK� FRPSOHPHQWDU\� UHVRXUFHV��7KH\�FRXOG� EDFN� XS� HDFK� RWKHU� ZLWK� WKHLU� VSHFLDOWLHV� DQG� REWDLQ�UHVRXUFHV� WKDW� QR� VLQJOH� PHPEHU� KRVSLWDO� FRXOG� KDYH�� $V�VPDOO� FRPPXQLW\� KRVSLWDOV�� WKH\� ZHUH� QRW� DEOH� WR� FRPSHWH�ZLWK� UHJLRQDO� KRVSLWDOV� LQ� WHUPV� RI� IDFLOLWLHV� DQG� YDULRXV�VHUYLFHV�� )RU� H[DPSOH�� D� VLQJOH� FRPPXQLW\� KRVSLWDO� FRXOG�QRW�DIIRUG� D� &7� ���� PDFKLQH� IRU� LQ�GHSWK� KHDOWK� FKHFN� VHUYLFHV��EXW� WKURXJK� TLMA,� PHPEHUV� FRXOG� SXUFKDVH� WKH� HTXLSPHQW�DQG� VKDUH� WKH� FRVW�� 7KH� DOOLDQFH� DOVR� HQDEOHG� PHPEHU�KRVSLWDOV� WR� HVWDEOLVK� D� UHSXWDWLRQ� IRU� RIIHULQJ� JRRG� KHDOWK�FDUH� VHUYLFHV�� ,Q� DGGLWLRQ�� WKH� PHGLFDO� ZDVWH� IURP� DOOLDQFH�KRVSLWDOV�ZDV�FROOHFWHG�DQG�GLVSRVHG�RI�LQ�EDWFK�WUHDWPHQW�

%\� ������ TLMA� LQFOXGHG� HLJKW� KRVSLWDOV� DV� ORQJ�WHUP� PHPEHUV�� WKUHH� RI� ZKLFK� ZHUH� RZQHG� E\� WKHLU� PDQDJHPHQW��'U�� &KDQJ� ZDV� HOHFWHG� &(2 RI� TLMA�� DQG� RXWVLGH� RI� WKH� DOOLDQFH� KH� WRRN� PXOWLSOH� SRVLWLRQV� LQ� PHGLFDO� DQG� JRYHUQ�PHQWDO� RUJDQL]DWLRQV�� )RU� H[DPSOH�� KH� KDV� EHHQ� D cRPPLWWHH�PHPEHU� RI WKH� +RVSLWDO� $FFUHGLWDWLRQ� SURJUDP�� 3UHVLGHQW�RI� WKH� $VVRFLDWLRQ� RI� &KLQHVH� +HDOWKFDUH� 0DQDJHPHQW� DQG�7DLZDQ� 5HJLRQDO� +RVSLWDO� $VVRFLDWLRQ�� DQG� DQ� DXGLWLQJ�SK\VLFLDQ�DW�WKH�%1+,�

7R�PDQDJH� WKH�DOOLDQFH�ZHOO��KH� WUHDWHG�HDFK�KRVSLWDO� LQ�D�IDLU�PDQQHU��

,� WUHDWHG� DOO� 7/0$� PHPEHU� KRVSLWDOV� HTXDOO\�� 5HJDUGLQJ�UHSRUWLQJ� WUDQVSDUHQF\�� WKH� HDUQLQJV� DQG� DFFRXQWV� RI� DOO�DOOLDQFH� KRVSLWDOV�ZHUH� DYDLODEOH� WR� DOO� RI� RXU�PDQDJHPHQW�WHDP�PHPEHUV�

2WKHU� PHDVXUHV� ZHUH� DOVR� QHFHVVDU\� WR� HQVXUH� WKH� FRQWLQXHG�VXFFHVV�RI�WKH�DOOLDQFH��

A Firm Yet Flexible Alliance Structure

0RVW� RI� WKH� ÀUVW� 7/0$� PHPEHU� KRVSLWDOV� GLG� QRW� KDYH�SURSHUW\�ULJKWV�IRU�WKHLU�KRVSLWDO�EXLOGLQJV�nRU�RIÀFHV�EHFDXVH�

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RI� LQVXIÀFLHQW� IXQGLQJ�� ,W� ZDV� GLIÀFXOW� WR� JHW� FUHGLW� IURP�EDQNV�� DQG� WKH� PRVW� UHOLDEOH� DQG� FRQYHQLHQW� ZD\� WR� UDLVH�PRQH\�ZDV�WKURXJK�SHUVRQDO� ORDQV�WDNHQ�E\�WKH�VKDUHKROGLQJ�GRFWRUV��8QGHUVWDQGDEO\�� WKHQ�� HDFK�KRVSLWDO�ZDQWHG� WR� UHWDLQ�RZQ�LGHQWLW\�

8QOLNH� LQ� RWKHU� PHUJHU� DQG� DFTXLVLWLRQ� FDVHV�� 7/0$�PHPEHU� KRVSLWDOV� GLG� QRW� QHHG� WR� DGRSW� D� QHZ� FXOWXUH� RU�PDQDJHPHQW� VW\OH� WR� ZRUN� WRJHWKHU�� 5DWKHU�� HDFK� KRVSLWDO�PDLQWDLQHG� LWV� LQGHSHQGHQFH� LQ� ERWK� PDQDJHPHQW� DQG�ÀQDQFH�� +RZHYHU�� WKH\� GLG� KDYH� VRPHWKLQJ� LQ� FRPPRQ�� D� FRUSRUDWH� LGHQWLW\� V\VWHP� �&,6��� $OO� PHPEHU� KRVSLWDOV� ERUH�WKH� VDPH� ORJR� DQG� VORJDQ�� DQG� VWDII�PHPEHUV�ZRUH� WKH� VDPH� XQLIRUPV�� TLMA� KRVSLWDOV� DOVR� FR�SXEOLVKHG� D� KRVSLWDO� PDQ��DJHPHQW� SHULRGLFDO�� Landseed Hospital Management Newsletter. TLMA� DWWDFKHG� JUHDW� LPSRUWDQFH� WR� WKH� UROH� RI� LWV� &,6�� 'U��&KDQJ�VDLG�

:H� QHHGHG� WR� KDYH� VRPHWKLQJ� LQ� FRPPRQ�� VXFK� DV� D�VKDUHG�QDPH�DQG� ORJR��:H�VSHQW�QHDUO\�ÀYH�\HDUV�EXLOGLQJ�RXU� DOOLDQFH�� 'XULQJ� WKLV� SURFHVV�� VRPH� GUDJJHG� WKHLU� IHHW�EHFDXVH� WKH\� FRXOG� QRW� DFFHSW� P\� PDQDJHPHQW� LGHDV��ZKLOH� FRPSHWLWLRQ� UHVXOWHG� LQ� RWKHUV� FORVLQJ� GRZQ�� 7KRVH�ZKR�ZLWKVWRRG� WKH�GLIÀFXOWLHV�ZHUH�ZLOOLQJ� WR�ZDON� IXUWKHU�ZLWK� PH� …� 7KH� &KLQHVH� VD\LQJ� ´2QH� QHYHU� KLGHV� RQH·V�QDPH� QR�PDWWHU�ZKDWµ� VKRZV� WKH� SULGH� RQH� WDNHV� LQ� RQH·V�QDPH�DQG�RULJLQ�� ,�ZDV�ZLOOLQJ�WR� OHW�KRVSLWDOV�FKDQJH�WKHLU�QDPHV� WR� EHDU� D� ´VKLQµ� WR� VLJQDO� /DQGVHHG� PHPEHUVKLS��7KLV� ZDV� DOVR� D� ZD\� WR� GHPRQVWUDWH� RXU� GHWHUPLQDWLRQ� WR�EH� DOOLHG�� 6HYHUDO� SRWHQWLDO� PHPEHUV� ZDONHG� RXW� EHFDXVH�WKH\�ZRXOG�QRW�FKDQJH�WKHLU�KRVSLWDO�QDPHV��

TLMA� DOVR� LPSOHPHQWHG� D� QXPEHU� RI� PHDVXUHV� WR� HVWDEOLVK�D� XQLÀHG� LGHQWLW\�� 7KHUH�ZHUH� WKUHH� LPSRUWDQW� DQQXDO� HYHQWV�WR� EROVWHU� WKH� VHQVH� RI� EHLQJ� SDUW� RI� D� WHDP�� D� VSRUWV� GD\��D� FXOWXUDO� IHVWLYDO�� DQG� D� \HDU�HQG� SDUW\�� +RVSLWDO� VXSHU� LQWHQGHQWV� PHW� HYHU\� WKUHH� PRQWKV� WR� UHSRUW� RQ� WKHLU�KRVSLWDOV� WR� 'U�� &KDQJ� DV� &(2� 'XULQJ� WKH� PHHWLQJV�� WKH� VXSHULQWHQGHQWV� JRW� WR� NQRZ� HDFK� RWKHU� DQG� VKDUHG� LQIRU�PDWLRQ�RQ�SROLF\�FKDQJHV�DQG�PDUNHW�WUHQGV��DQG�ZRUNHG�RXW�FRPPRQ�VWUDWHJLF�JRDOV��$Q�DQQXDO�UHWUHDW�ZDV�DOVR�RUJDQL]HG�IRU�KRVSLWDO� VXSHULQWHQGHQWV� DQG�PDQDJHUV��ZLWK� OHFWXUHV� DQG�ZRUNVKRSV�LQ�KRVSLWDO�PDQDJHPHQW�KHOG�

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Leadership and Shared Value in the Alliance

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Any one of the TLMA member hospitals could turn its back on the alliance. They could choose to do businesses by themselves — ZK\� IROORZ� P\� OHDG"� :KDW� LV� PRUH�� DV� FLYLO� RIÀFLDOV�� WKH�VXSHULQWHQGHQWV� KDYH� VHFXUH� SRVLWLRQV�� ,� KDYH� QR� ULJKW� WR� ÀUH�them even if they disobey my commands. Luckily, we work together well because we have worked together before and known each other for a long time. Based on that, I set my sights on building up a solid alliance: I am a determined person, and persuasive enough to guide [alliance members] on many issues.

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OFFERING BETTER HOSPITAL SERVICES

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TLMA� VDZ� VWHDG\� JURZWK� LQ� LWV� UHSXWDWLRQ�� 'U�� &KDQJ�FRPPHQWHG��

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REFERENCES

� ��� /X�� -�� 5�� DQG�+VLHK�� &�� 5�� ������ 7KH�1DWLRQDO�+HDOWK� ,QVXUDQFH�3URJUDP� LQ� 7DLZDQ�� ,Q� +HDOWK� (FRQRPLFV� �&KDSWHU� ����� 7DLSHL��3UR�(G�3XEOLVKLQJ�&RPSDQ\��'DWD�DIWHU�������

eKWWS���ZZZ�ODQGVHHG�FRP�WZ�VLWH�XVK�FW�DVS"[,WHP ����&W1RGH ����

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� ��� /X�� -��5�� DQG�+VLDR��:��&�� ������'RHV�XQLYHUVDO� LQVXUDQFH�PDNH�KHDOWK� FDUH� XQDIIRUGDEOH"� /HVVRQV� IURP� 7DLZDQ�� Health Affairs ���������–���

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Name of hospital

Share

1993 Revenue

NTD 10,000/month

1993 Rate of return

1995 Revenue

NTD 10,000/month

1995 Rate

of return

2002 Revenue

NTD 10,000/month

2002 Rate

of return

2005 Revenue

NTD 10,000/month

2005 Rate of return

2008 Revenue

NTD 10,000/month

2008 Rate of return

A Hospital

5% 2200 12% 3200 20% 2600 16% 2400 14% 2000 8%

B Hospital

10% 4600 10% 9200 20% 6400 15% 5600 12% 4600 10%

C Hospital

5% 700 10% 2000 24% 3300 14% 3760 12% 4000 12%

D Hospital

5% – –

(in the year of

2000) 1800

– 3300 8% 5700 20% 4600 12%

E Hospital

5% 720 30% 1300 35% 3120 30% 4600 25% 3600 10%

F Hospital

5% – – 2400 15% 3000 15% 3000 18% 3600 15%

G hospital

1600 12% 2400 20% – – – – – –

Landseed Hospital

12000 12% 30000 8% 36000 9% 34000 5%

0%

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40%

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Rate of Return for TLMA

A Hospital

B Hospital

Landseed

C Hospital

D Hospital

E Hospital

F Hospital

G Hospital

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Financial Statement of TLMA in 2008

Sales revenue (figures in millions NTD)

$40,776

Operating expenses

Cost of goods sold: $15,886

Selling, general, and administrative expenses: $17,344

Depreciation and amortization: $1,920

Other expenses: $276

Total operating expenses: $34,426

Operating income

Non-operating income: $260

Earnings before interest and taxes (EBIT)

$6,710 Net interest expense/income: $290

Earnings before income taxes

$6,420 Income taxes: $2,054

Net income $4,366

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