The Hanson Clinic is a well-regarded medical center located in a semirural area in the Midwest. One of its specialty areas is treating rare forms of cancer. To support this activity Hanson wants to construct a new lab. The lab will require very specialized equipment, a specially designed building, and a skilled staff. The estimated cost of the equipment and building is $50 million.
The clinic is considering three possible organizational arrangements. The first is vertical integration. The second is outsourcing (where another company constructs the build- ing, purchases the equipment, and provides contractual services to the clinic). The third is for the clinic to purchase the equipment and building, and lease them to an independent operator (who would provide contractual services to the clinic).
Discuss the pluses and minuses of each of the three alternative structures. What factors do you think are most important in making this choice?