THG Management Services - Case Study Example

THG Management Services Case Introduction Healthcare services are a very crucial and integral part of the society. Today we are living in a society, where competition has become a rule rather than exception in almost all fields. Health care becomes an issue, because while taking care of the competition we tend to ignore what we are supposed to do in order to lead a healthy life. Health care organizations of different types while helping us in reminding about some of the routine things, that we need to follow, also prove to be of immense help while providing the medical help if something goes wrong with our health. In this case Thomas Nagle and Randy Farr planned to make use of the opportunity and establish an HMO in the southeastern Unites States. Issue/s The key question being debated here is whether to manage and operate HMOs on behalf of some organizations or to own the HMO and take the risk of bearing more costs like full insurance cover etc. Recommended Course of Action It is apparent from the case study that the region in which THG is planning to run an HMO, has been lagging behind the rest of the nation in terms of availability of healthcare centers, which is resulting in higher costs for the services. With the announcement of the program called TennCare, healthcare in Tennessee became a national issue and it is now being felt that running a Health Maintenance Organization (HMO) is bound to prove a profitable proposition because; i. Despite an increase in managed care in the state, the commercial premium per member/ per month in the HMO sector has not come down. It is worthwhile here to mention the hospital days for patients have instead come down. This indicates that there's still a growing demand for HMOs. ii. THG has been able to take advantage of the first mover advantage in several areas. This advantage reflects in the capitation in the commercial market. Capitation is the term used to identify the payments given to the physicians attached with HMOs. It is a fixed payment made to the physician depending upon the number of people enrolled with the HMO and the number of members put directly under the care of the physician. It is worthwhile here to mention that, the capitation amount is paid to the physician irrespective of the number of visits made by a member to the physician or irrespective of the number of members visiting the physician for their healthcare needs. Using the capitation network model, THG has been able to bring greater efficiency to the southern US healthcare market. iii. Having fixed its priorities, THG was able to develop a fast growing company with considerable success in short period of time. It was during their expansion plan that THG started evaluating the options of managing versus owning the risk. The two options being assessing the practical aspects of having a commercial group guaranteeing 8000 lives in Texas and managing Medicare projects in Atlanta, Georgia with another AMC. iv. Both HMO and PPO enter into an agreement with insurance companies, but the HMO offers its services at predetermined rates while in case of PPO the rates can vary depending upon the medical condition of the individual. v. HMOs often happen to be very restrictive and expect the individual to seek assistance for medical needs from within a network of doctors, medical practitioners, healthcare organizations. On the other hand a PPO doesn't have any preconditions attached and allows the individual to any place for treatment. Except in cases of emergency, tor an individual enrolled with HMO, it's a prerequisite that s/he must go through the primary care physician from within the HMO network and if this physician feels necessary then only the individual will be referred to any specialist. This might appear little restrictive in the sense that the individual has to follow couple of procedures before getting specialized treatment. On the other hand in case of PPO, there's no such restriction and an individual can seek the opinion of a specialist of his or her choice. But it is equally relevant here to mention that in such cases the PPO will not take responsibility of the full expenditure and the individual will have to pay some more from pocket. vi. In general retaining the membership of HMO is less costly as compared to PPO. Taking into account these factors it needs to be emphasized that the healthcare sector in US in general and the southeastern part in particular is in need of quality healthcare centers. Therefore, the recommended courses of action for THG could be; a. Setting up an HMO with distinctive features, region specific to cater to the needs of the people from this part of America. This would have additional benefits that the HMO would be able to identify itself with the locality. Secondly some additional benefits which the respective government provides to local agencies would be available to THG as well. But, becoming localized might result in some impediments towards large scale proliferation in other areas. b. Secondly TMG can opt for setting up the HMO with an eye on future and serving other parts of the country as well. This would require putting up some additional logistics in place. Under the circumstances, when recession is taking its toll on almost all segments in the economy, it may not be best option to go all out with an all inclusive international outlook. Considering the developments so far, it would be in the best interest of the company to opt for localization for them to consolidate before expansion. May be after couple of years of successful operation, they would be able to have enough resources for expansion when they can afford to swim amongst stronger competitors. Specific Case Questions Some of the specific healthcare issues introduced in the case include; i. Growing demand for the managed care: Today we are living in a society, where there is competition in almost all fields, be it the business rivalry or the pressure to well in examination. Health care becomes an issue, because while taking care of the competition we tend to ignore what we are supposed to do to lead a healthy life. The BPO culture for example has started taking its toll with youths leading a life which is resulting in deterioration of the biological clock. The increasing number of heart related problems, accidents etc. are all the results of the way industrialization activities are going on all parts of the world. All those affected with health related issues take recourse to the services of healthcare providers. If we take a look at the survey figures of US Census Bureau we find that the health care industry is consistently on and upwards journey. For example the revenue figures of selected healthcare services during the 1st quarter of 2008 have registered a growth of 3.9 percent as compared to previous year's figures1. This industry has in fact, seen consistent growth over the years. With innovative ideas like medical tourism etc. it is amply clear that there is no dearth of opportunities for the healthcare industry. ii. Growing capitation of physicians: This form of reimbursement might cause conflict between HMO and academic medical centers because the academic medical centers get paid for the number of days the patient stays in hospital or comes to the centre for treatment. The operation of academic medical centers will be profitable if more people stay in their hospital beds for more number of days under direct supervision of specialists. On the other hand HMOs prefer to have minimum number of hospital stays, as their income doesn't depend on it. The income of HMOs depends upon the number of members enrolled with them. A conflicting situation might emerge between HMO and physicians as well, depending upon the complexity of medical cases. If a physician is overburdened with the daily number of cases/ members, then the physician will obviously want to be compensated for this additional burden, but as per the agreement with the HMO the physician's remuneration depend upon the number of members under his care and certainly not on the frequency or numbers of visits. Conflicting situation might emerge between the HMO and patients as well. For example, if a member is not visiting the HMO for a long time, he would want some discount on the membership fees, but the HMO will surely not agree to it, as it has to make regular payments to its physicians. iii. No net decrease in the commercial premiums per member/ per month despite the increasing competition amongst HMOs. This is indeed quite interesting and apparently tends to defy the well established law of demand. But, if we take a long term perspective, we find that the growing need for healthcare services is not letting the premium to come down. iv. Significant drop in the HMO patient hospital days: This has two distinctive aspects. One, the patients are not getting admitted to hospital because they don't require the services of healthcare professional. Another, the patients are not getting admitted to the hospitals because they are not in a position to spare that much time for hospitalization, instead such patients prefer to go for sustained medication. The competitive era points out to this very aspect, which from the commercial viewpoint for an HMO proves to be a profitable proposition. v. HMOs enjoying higher margins as compared to other health care plans, in under-penetrated markets. Pros and Cons of the Decision It is quite pertinent to note that in order to sustain in the industry the company will have to breed quality with a definite blend of innovation, in order to minimize the impact of risks. In today's globalised economy, innovation is the key to stay in competition. Companies now a day's take recourse to corporate social responsibility (CSR) as a means of expressing their duty towards society, the healthcare industry is certainly no exception. This industry too requires to campaign for disease prevention steps to be taken by the people, so that a healthy living could be encouraged. The industry can be innovative not only in terms of putting in place latest equipment, best physicians, or state of the art infrastructure, but the innovation can be reflected in terms of how the company persuades its members to become more health conscious or markets its plans to the general public. In other words, it can be said that while talking about its own mission and objectives, the industry must talk about values as well. Thomas Nagle and Randy Farr from THG Management Services are considering the pros and cons of owing an HMO or operating the HMO on behalf of some organizations. Owning the HMO would obviously implying bearing the insurance burden, but that would also imply better profit margins depending upon the number of customers. Operating the HMO on behalf of some other organization would mean the no worries about the insurance costs and the company would get a fixed sum of returns every month. For those interested in bringing innovation in health care services, the key issues are; Cost Vs benefits: The costs include recruitment of well qualified physicians and well trained support staff. In addition, arranging the infrastructure and equipment proves to be a costly affair. But, to gain better bargains from insurance companies the HMO needs to be well equipped. In addition the HMO would be able to attract more number of members only when it is able to create a distinctive identity for itself. In fact HMOs have been able to take care of some of the deficiencies in the traditional insurance covers. Therefore, what is of prime importance is preparing the organization for long term gains instead of seeking short term quick gains. This might even imply an ability to be prepared for some losses in the short-term. Competition: Taking care of the competition from existing and well established companies will be an issue for the new entrant. No doubt schemes like "Tenn Care" will help in spreading awareness about enrolling with managed healthcare services, but management of risk while shifting from one managed care plan to another proves to be costly. Innovation, excellence, customer satisfaction and value go hand in hand in today's competitive environment. Technology: Technology is a major driver for bringing in innovation in our lifestyles and the business today. Some of the opportunities provided by technology in the healthcare sector include; Improved diagnostic techniques: Better diagnostics will help the HMO in saving lot of time for the HMO as well as for the customer/ member. Improved communication techniques: This will help in creating a better networking and understanding with the members and supporting organizations. Improved surgical services: In case of surgical requirements, the HMO will be able to rotate the hospital beds amongst larger number of members if it is equipped with improved surgical devices and competent surgeons. Diagnostics and treatment from remote locations: This helps in gaining a distinctive edge over the competitors as the HMO is able to reach out to the members instead of the members approaching it every time for healthcare services. Improved quality standards in services and products: Quality is the mantra for successful business operations in any field and healthcare services are no exception. A member or organization getting quality services will prove to be brand ambassador for the HMO. Conclusion Therefore, it is very important that the HMO being started by the THG must be able to invest in the right kind of technology at the right time, which certainly entails huge costs, and calls for a sustained developmental approach on behalf of the company. References: 1. US Census Bureau (2008). Service Annual Survey. Selected Health Care Services - Estimated Quarterly Revenue, Expenses, Inpatient Days, and Discharges for Employer Firms. Available online at http://www.census.gov/indicator/qss/tables9-10_2008q1.pdf (June 14, 2008) Read More