Question

The Centers of Excellence Challenge The Centers of Excellence Challenge Michael Adamale holds the position of corporate relations specialist for a large health system in the Charlotte, North Carolina area. In recent years, Charlotte has seen a dramatic increase in the number of companies calling Charlotte home for its headquarters. And, it now houses seven Fortune 500 companies and three others on the Fortune 1000 list. Charlotte is seen as a highly desirable area to live, and because it is relatively close to the Raleigh-Durham research triangle, companies see this location as one where there is a pool of talented individuals from which they can draw. For health care organizations, this market has also been desirable for its insured patient base. Over the past several months, however, as Michael has called on company health benefit managers, he has increasingly been getting questions regarding the pricing of services and how efficient the health care system is. Duke Energy, a large employer in the region with 27,000 employees has a self-insured plan. Additionally, half of the state is insured by Blue Cross. As these changes have started to occur, Michael has begun to consider that the need to be more proactive—not so much to capture business but maintain his market may be the key. Having been in health care for almost 20 years, he is concerned about the issue of timing. Should the system he works for lead the change or follow quickly? Yet, when he sat last week with a large financial institution whose headquarters are in Charlotte, he heard pretty clearly what the human resources director said. “We need to look to trim costs everywhere. You are being pressed and we are, too. We are thinking of incentivizing our employees to move to Centers of Excellence sites for care. If not to you or Duke, we will go wherever. I was also at a conference last week in California. I heard about the CalPERS approach on reference pricing. It got me thinking. Why our state isn’t doing that for state retirees is a question, but why we aren’t doing it for our workforce is an equal question.” Michael left his office and realized that change may well be imminent—with or without the hospital developing a strategy. When he returned to his office at the health system’s corporate office, his administrative assistant said that he should return a call from Paul DeMarcos from one of the Fortune 1000 companies. Leaving a message, Michael was working on an email, when Paul called back. “Michael,” Paul said, “ I hope you had a good holiday break. I want to let you know that the company has changed some of the benefit plans going into the next fiscal year for employees. You deserve a heads up as we go back a long way. We have taken our cardiology business to a Centers of Excellence model with the Cleveland Clinic and done the same with orthopedics where we are moving the business to Carolinas Medical Center. We think most of our employees will choose that, given it is right here in Charlotte. We also struck a contract with the Hospital for Special Surgery in New York, given we have employees elsewhere but Carolinas will affect you directly, thus the reason for my call.” Paul hung up the phone and thought to himself, “The market has already moved. How do I get it back? What is the power of the supplier in this scenario? Do you see the health system as having power now? Where would it be? How viable this strategy would be in the marketplace?

Answer 1

• The challenge for Michael in the large health care system he is working in from the Five Forces Model perspective is as below:

1. The threat of new entrants - as mentioned in the case study in recent years, Charlotte has seen a dramatic increase in the number of companies calling Charlotte home for its headquarters. It now houses seven Fortune 500 companies and three others on the Fortune 1000 list. Charlotte is seen as a highly desirable area to live, and because it is relatively close to the Raleigh-Durham research triangle, companies see this location as one where there is a pool of talented individuals from which they can draw. For health care organizations, this market has also been desirable for its insured patient base.

2. The threat of established rivals - large employers like Duke Energy with 27000 employees has its own self-insured plan. Additionally, it is mentioned that half of the state is already insured by Blue Cross.

3. The threat of substitute products or services - many other substitutes available in the health care industry with better pricing like Centers of Excellence sites for care, CalPERS etc. where financial institutions and other clients are thinking to move to.

4. The bargaining power of customers - because of the availability of other substitutes and possibility of new entrants, this force of bargaining power of customers is increasingly becoming worrisome. As mentioned in the case study too - "Over the past several months, as Michael has called on company health benefit managers, he has increasingly been getting questions regarding the pricing of services and how efficient the health care system is."

Also as is mentioned in the case, the excerpts of human resources director of a large financial institution - "We need to look to trim costs everywhere. You are being pressed and we are, too. We are thinking of incentivizing our employees to move to Centers of Excellence sites for care. If not to you or Duke, we will go wherever. I was also at a conference last week in California. I heard about the CalPERS approach on reference pricing. It got me thinking."

5. The threat of bargaining power of suppliers -Michael realizing the fact that the change may well be imminent—with or without the hospital developing a strategy.

With all these challenges in mind Michael will have to think a way by which he can differentiate his product offering from other options available in the market -

• A marketing survey required to be done among customers base about their asks and specific needs from health care industries.
• Need to think and analyze from survey results in which direction to head forward. Need to identify target audience and do market segmentation.
• Need to form strategic long term partnerships with financial institutions and hospitals to align their product with target audience and customer inputs.