Affiliations and Changing the Healthcare Provider - HBF Health Limited - Case Study Example

Executive Summary

HBF Health Limited is an Australian health insurance organization seeking to provide affordable coverage to its members. The company understands the essence of protecting the welfare of its contributors guided by the existing regulatory framework. HBF seeks to establish a platform where members can access in the growing healthcare system irrespective of whether contributors seek medical attention from private or public health institutions. Therefore, the insurance company must work hand in hand with the private health provider because they have a significant share in the Australian. However, issues of affordability and quality in healthcare may arise when a health insurance company and private healthcare providers pursue different corporate objectives.

HBF is among health insurance organizations seeking to provide the lowest premium rate but taking account the conflicting demands from private hospitals. The hospitals determine the price, which, in turn, shapes the benefits that the insurers offer to the members. A discrepancy may arise when private institutions pursue high returns and dividends instead of operating healthcare business based on the quality patient outcome. The fundamental difference between an insurer and private health provider may evoke conflict of interests, but the two parties establish a justifiable negotiating rate. Pressure increases when the members of a health insurance company do not understand the complexity of adjusting premiums.

Affiliations and changing the healthcare provider are viable long-term solutions for HBF to eliminate the constant pressure to adjust premiums. The solutions have managerial and financial implications due to their ability to retain productivity, customer satisfaction, offsetting medical costs or related risks and sustaining ethics of the insurer in the health care industry. HBF must adopt a criterion that will maintain its appeal in the market, retain relationships with the private hospitals, and have the negotiating position as well as power in the dynamic healthcare industry in Australia. A consistent corporate strategy would suffice.

A Case Report for HBF Health Limited

Issues

HBF Health Limited is facing difficulties in setting minimum premiums for its members. The greatest challenge is unleashing a health insurance rate that all the members can afford. Andrew Walton admits that the insured members does not understand that the institution does not control or set the price that determines the benefits that HBF pays. Private hospitals set prices that can meet the administrative and maintenance costs and pass on the rates to the health insurance groups. Additionally, seeking a negotiated bed rate is difficult for HBF because private increase their charges every year. The health insurer seeks to a justifiable rate for its members.

Causes

Private hospitals such as Ramsay focus on generating returns to retain their shareholders and a lucrative share price. The drive of the private hospitals business is generating high returns or and high dividends rather than focusing on quality patient outcomes through affordable insurance rates. HBF and the private hospitals have conflicting interests, where the former seeks quality healthcare for the members through affordable insurance premiums while the private hospitals pursue the highest returns from the business. Evidently, the fundamental difference between the mode of the business of health insurers and private hospitals is the cause of the challenges in the HBF Health Limited case.

Cause Background

HBF was seeking a justifiable premium for its members while allowing the private hospitals to generate sufficient returns and dividends for their shareholders. The principle reasons for pursuing a negotiated rate is to avoid setting a precedent of expensive hospital charges that would have a trickle effect to other hospital groups. HBF would deal with enormous costs from other hospital groups treating their members, which would further exert pressure on its premiums. Furthermore, declining to pay the percentages requested by the private hospitals would prevent future negotiations about increase in bed rate for the insured members. HBF sought to retain its credibility in the business and employ appropriate financial management techniques to cushion its members from exorbitant hospital charges.

Alternatives

Apparently, HBF seeks to ease enormous pressure to sustain a premium price for the members and prevent increase price charges from the private hospitals. The premiums charged for the contributors should allow them to access quality healthcare while allowing the private hospitals meet their stakeholders’ needs for high returns and satisfactory profits. A set of alternatives would suffice to help the health insurer establish a proper approach to the issue. The following are three viable alternatives that HBF could exploit:

• To retain the justifiable premiums rather yielding to the pressure of the private hospitals
• To enter into negotiations with other reliable private hospitals delivering quality healthcare at the same HBF premium rate
• Forge affiliations with other health insurers to confront the growing pressure of medical costs

Decision Criteria

The following decision criteria use a comparative approach to understanding the advantages and disadvantages of each proposed alternative.

Alternative One

Retaining a justifiable premium rate for the members will give HBF competitive advantage. The approach will reduce effect of other competitors seeking to serve the same clientele given the demand for healthcare coverage across Australia (Hajizadeh, Connelly, and Butler 2014). In addition, the reasonable premium should match the quality of the healthcare, but private hospitals such as Ramsay seek high returns and dividends at the expense of the quality patient outcomes. HBF will sustain its credibility, ethical pricing and achieve customer satisfaction by charging rates that align with the expectations of its members.

Conversely, working with affordable premium aligns with the vision of the Department of Health, which is committed to establishing affordable health insurance for at least 60,000 people every year. However, HBF does not have control over the reasons why people register with private hospitals in Australia. People choose private hospitals due to the freedom of choosing a doctor and appropriate medical package, which private hospitals may use as a negotiating approach to increase the hospital charges (Department of Health 2016). Consequently, failure to control the decision-making process of members may pressurize HBF to adjust its premium structure accordingly.

Alternative Two

Guided by the regulation changes introduced by the Department of Health in 2007, HBF should consider entering into negotiations with other private hospitals. Choosing healthcare centres that can achieve the same customer satisfaction, quality patient assurance at the same premium will increase the reputation of the insurers. The private health insurance complements the costs care met by the commonwealth government due to the 40% admissions recorded in private hospitals every year (Kimberly, Pouvourville, and D'Aunno 2008). A negotiation will have significant high returns on investment for both organizations when they negotiate a contract that would minimize the out-of-pocket costs for the members.

Fresh negotiations incorporate a case-mix approach, which ensures that the healthcare sector provides quality in accordance with the patient types, treatment, and related medical costs. According to the Department of Health (2016), the approach increases the value of the money for the insurers as well as the private hospitals seeking a high return on investments to retain shareholding value. According to Kimberly, Pouvourville, and D'Aunno (2008, p.232), the decision-making process should be based on the prevailing economic conditions, international sales and the consistency with the government’s approach to healthcare standards. The productivity of the hospitals and the insurers should match the capacity as well as delivery time for the contributors.

However, the joint negotiations between private health insurers and hospitals may not drive efficient or improvements as speculated. HBF’s case demonstrates a competitive healthcare industry in Australia where each player is seeking dominant market power, appeal, objectives consistent with corporate strategy and goodwill with the contributors. Some of the Australian private hospitals are considering consolidation to become health insurers like in the United States (Kaiser Health News 2012). The new health insurance plans may increase the competition for the contributors, which may not likely reduce the hospital charges ultimately. The impending hospital mergers will increase the risk of loss for the HBF members who might consider the new medical plans. The productivity and staff turnover might increase, but it might shift the focus from the provision of quality healthcare to return on investment. Issues of ethics in the healthcare industry may arise out of the decision to negotiate prices with other large hospital groups.

Alternative Three

Seeking affiliations such as mergers will increase the negotiating position in the highly competitive insurance market. The overall intention is to enhance the outcomes of the patients and the transactions for the business-driven private hospitals (Barlas 2015). HBF should use affiliations to establish a win-win negotiation because persuading the private hospitals to reduce bed rates may not be the best approach. Furthermore, spreading the risk to more than one company will reduce the risk of loss if HBF decides to enter into a partnership with another insurance company. The health insurers must establish a congruence in the market or corporate strategy.

The regulatory framework is set to change in 2016 due to the transference of regulatory responsibilities to Australian Prudential Regulation Authority (APRA) in 2015. According to a survey by Deloitte (2016), the significant changes in the regulatory framework will increase the supervision of transactions between health insurers and the private hospitals to establish if they meet prudential standards. The supervision of APRA could increase capital, regulatory and compliance expenses, which will compel insurance to pass on the costs to the members (Chamberlain and Chown 2016). Evidently, private hospitals will not be the only sources of pressure to the premium structure of HBF. Considering mergers or affiliations might lead to loss of visual appeal, individual corporate image but it will ease the implementation, guarantee member safety, as well as create a synergy in the provision of medical insurance.

Using affiliations to gain negotiating power may not work due to the likelihood of increasing the premium for the members. Mergers and consolidations may not sustain cost savings for consumers due to lack of stiff competition. Anthem and Cigna merged in 2015 with the promise of helping contributors to overcome the expensive private medical costs (Barlas 2015). However, no evidence exists on health insurance mergers who have helped members pay low premium for the same quality service. Competition increases consumer choice in a concentrated insurance market such as Australia. The following matrix summarizes the decision criteria for the proposed alternatives:

Table 1: Comparative Decision Criteria for the HBF Case Report

Alternative One

Alternative Two

Alternative Three

Advantages

• Competitive advantage
• Congruence with quality healthcare
• Ethical Pricing

• Increase negotiating position & power
• Increases productivity, capacity & synergy
• Has long-term solution to the premium adjustments

• Reinforces negotiation position
• Spreads the risk to other insurers
• Positions the companies for the regulatory & supervision
• Seeks long-term pricing solution

Disadvantages

• Lack of control over members’ decisions
• Has short-term customer satisfaction & productivity

• Might stir competition from hospital-insurers
• Unethical pricing

• Loss of visual appeal
• Might reduce competition
• Decrease consumer choice

Recommended Solutions

HBF should consider an affiliation (Alternative 3) with other leading health insurers in Australia. The analysis in the decision criteria has established its capacity to retain negotiating position against the business-minded private hospital. The alternative has a long-term impact in mitigating unethical premium adjustments and future negotiations when compared to Alternative 1. In addition, Alternative 2 has an equal long-term impact on the patient, productivity, and premium pricing despite stirring competition from hospitals than intend to offer insurance plans. Alternative 1 proposes sustenance of the same premium prices, which may not work in the dynamic Australian healthcare industry when compared to the productivity, quality, and return on investment guaranteed by Alternative 2 and 3. Nonetheless, Alternative 3 is the preferred solution because it takes into account the capacity of the healthcare provider, members, the health insurance provider, and the entire industry.

Implementation and Implications

HBF will need to conduct preliminary research on the health insurers whom they share values, visions and pursue the similar corporate strategy. The implementation should occur immediately due to the impending regulatory changes by APRA. Additionally, the managers will consider the execution of the affiliation through a succinct contract. The companies will need a memorandum to define the extent they want to retain productivity, customer satisfaction, and compliance with the changing insurance regulations. On the other hand, HBF will manage medical costs implication by spreading the risk to other members of a merger or consolidation. The reduction of costs will help to achieve the projected return on investment and reduce medical expenses for patients.

Reference List

Barlas, Stephen. 2015. "Health Care Consolidation Continues Apace The Impact On Providers And Patients Is Either Mixed Or Unclear". Journal For Managed Care And Hospital Formulary Management 40 (12): 823-858.

Chamberlain, Kevin and James Chown. 2016. "Australian FSI M&A Predictions 2016 | Deloitte Australia | Corporate Finance, Mergers And Acquisitions, Financial Services". Deloitte Australia. http://www2.deloitte.com/au/en/pages/mergers-and-acquisitions/articles/australian-fsi-ma-predictions-2016.html.

Department of Health,. 2016. "Department Of Health | Changes To Lifetime Health Cover".Health.Gov.Au. http://www.health.gov.au/internet/main/publishing.nsf/Content/health-phi-fact27.htm.

Hajizadeh, Mohammad, Luke Brian Connelly, and James Robert Gerard Butler. 2014. "Health Policy And Equity Of Health Care Financing In Australia: 1973-2010". Review Of Income And Wealth 60 (2): 298-322. doi:10.1111/roiw.12103.

Kaiser Health News,. 2012. "Hospitals Look To Become Insurers, As Well As Providers Of Care".Kaiser Health News. http://khn.org/news/hospital-insurers/.

Kimberly, John R, Gérard de Pouvourville, and Thomas A D'Aunno. 2008. The Globalization Of Managerial Innovation In Health Care. Cambridge, UK: Cambridge University Press.