DDHA 8801 Week 9 Due Diligence Memo Example

Memorandum

To: Strategy Committee, Bayshore Health

From: Director of Strategic Partnerships

Date: October 14, 2026

Re: Due diligence on Lakeshore Therapy Network as a joint care partner

Decision Served

This memo informs one decision: whether Bayshore Health should enter negotiations for a clinical alliance with Lakeshore Therapy Network to deliver the physical therapy part of Bayshore Joint Care's planned first visit and work-plan model. Both organizations are composites prepared for this course. The memo assesses Lakeshore on four questions: what it can do that Bayshore cannot buy, build or hire in the same period; what its record shows; what its finances show; and what risks a partnership would bring with it.

Capability

Bayshore's positioning promises that a surgeon and a physical therapist will see each new joint care patient together, with appointments before and after the working day. Bayshore employs six outpatient physical therapists, fully booked, and two open therapist positions have been vacant for nine months. Lakeshore, a nonprofit organization, runs fourteen outpatient therapy clinics across Brown County, eleven of them open from 6:30 a.m., and employs 58 licensed physical therapists, eight with orthopedic clinical specialist certification. It also runs a home health service.

The capability Bayshore cannot obtain in the next eighteen months is therapist capacity with early hours across the county. Bayshore could hire, but at its current pace it would take years to recruit the eight or ten therapists the joint first-visit model requires, and it could not open clinics in the towns where Lakeshore already operates. A vendor contract for therapy services could supply hours but not the shared protocols, joint scheduling and common work-plan template the model depends on, which is why an alliance rather than a purchase is under consideration. Gulati (1998) describes alliances as a way to gain resources a firm cannot easily develop or acquire on its own, which matches this case.

Record

Each item below names the source a reviewer would check; because Lakeshore is a composite, the entries are illustrative of what such a review would record.

Accreditation: Lakeshore's home health service is accredited by a national home health accrediting body, with its most recent survey in 2025 showing no conditions requiring follow-up; the accreditor's public directory is the source.

Publicly reported quality: Medicare's Care Compare website publishes star ratings and measures for home health agencies. Lakeshore's home health service carries a quality rating of four stars and a patient survey rating of four stars, with its rates of improvement in walking and in getting in and out of bed above the state average.

Enforcement and exclusions: a search of the federal exclusions list maintained by the Office of Inspector General found no listing for Lakeshore or its officers, and the state's licensing and complaint records show no substantiated complaints in the past three years.

Outpatient therapy outcomes: Lakeshore collects functional outcome scores for every outpatient episode but does not publish them. Access to these data should be a condition of further negotiation.

Financial Position

Lakeshore's two most recent annual information returns, which nonprofit organizations must file with the Internal Revenue Service and make public, show total revenue of about $41 million in the latest year, up 6% from the year before, and an operating margin of about 1.8%. Cash and investments covered about 62 days of operating expenses. Long-term debt was modest, about $6 million, mostly for clinic buildings. About 38% of revenue came from Medicare, mostly through home health. The picture is of a stable but thin-margined organization with limited reserves, dependent on Medicare home health payment.

Risks the Partnership Would Import

Four risks stand out. First, payment risk: changes to Medicare home health payment could strain Lakeshore's finances, and a financially stressed partner may cut early hours or therapist staffing. Second, workforce risk: Lakeshore faces the same therapist shortage as Bayshore, and the alliance would depend on its ability to keep staff. Third, brand risk: patients will experience Lakeshore's therapists as part of Bayshore Joint Care, so any failure in Lakeshore's service will be seen as Bayshore's. Fourth, integration risk: Burns and Pauly (2002) found that many attempts by health systems to integrate with other providers in the 1990s failed to deliver the expected benefits, often because the partners' operations and incentives were never aligned. Gulati and Singh (1998) argue that the governance chosen for an alliance should match the coordination it requires and the risk that one partner will take more than its share, and this alliance will need close coordination of schedules, protocols and data.

Recommendation

Bayshore should enter negotiations, on three conditions: access to Lakeshore's outpatient outcome data before signing, a governance arrangement that gives both parties defined rights over shared protocols and the joint care brand, and a review of Lakeshore's finances each year with a right to exit if reserves fall below 45 days of expenses.

References

Burns, L. R., & Pauly, M. V. (2002). Integrated delivery networks: A detour on the road to integrated health care? Health Affairs, 21(4), 128-143. https://doi.org/10.1377/hlthaff.21.4.128

Gulati, R. (1998). Alliances and networks. Strategic Management Journal, 19(4), 293-317. https://doi.org/10.1002/(SICI)1097-0266(199804)19:4<293::AID-SMJ982>3.0.CO;2-M

Gulati, R., & Singh, H. (1998). The architecture of cooperation: Managing coordination costs and appropriation concerns in strategic alliances. Administrative Science Quarterly, 43(4), 781-814. https://doi.org/10.2307/2393616