HLTH 8750 Week 4 Executive Trend Brief Paper Example

Trend Brief: Procedure Migration, Disruptive Innovation and a Recommendation for Two Joint Ventures Now

Student Name

Walden University

HLTH 8750: Trends and Issues in Executive Level Management for Healthcare Administrators

Instructor Name

Month Day, Year

Trend Brief: Procedure Migration, Disruptive Innovation and a Recommendation for Two Joint Ventures Now

Position

Northgate Health should form joint ventures with its orthopedic and gastroenterology groups for ambulatory surgery centers now, rather than wait for migration in those service lines to be confirmed. The evidence is incomplete, and this brief says so. But the pattern of migration fits a known mechanism by which established organizations lose ground, and the cost of waiting is likely higher than the cost of acting early in two carefully chosen service lines. Northgate is a composite system, and the figures below are illustrative.

Evidence

Last week's scan turned up leading signals in two service lines, orthopedics and gastroenterology: state filings for centers whose owners include local physicians, and an announced investment by one orthopedic group. Northgate's own claims show a modest shift of eligible orthopedic and endoscopy cases to centers over the past year, about a tenth of eligible volume in each, not yet a sustained trend. In other service lines, such as general surgery and urology, the signals are mixed or absent.

The published evidence explains why migration happens. In one national study, procedures in surgery centers ran about 32 minutes shorter on average than the same procedures in hospitals, which lowers cost and expands capacity (Munnich & Parente, 2014). Profitability also shapes the setting: in a national Medicare sample, a 10% rise in a surgery's profitability went with a 1.2 to 1.4 percentage point higher chance that it was performed at a center (Plotzke & Courtemanche, 2011).

The Mechanism: Disruptive Innovation

Christensen's account of disruptive innovation describes how established firms lose not through mismanagement but through rational choices (Christensen, 1997). New entrants begin by serving the simplest, least profitable segment of a market at lower cost. The incumbent, focused on its most demanding and profitable customers, cedes that segment willingly, because its margins there are thin. The entrants then improve, moving up to more complex work, until they can serve much of what the incumbent still does, by which point the incumbent has built its business around a shrinking core.

Procedure migration follows this pattern closely. Surgery centers began with simple, short procedures for healthy patients. Hospitals let those cases go, often with relief, because they freed operating rooms for complex cases that paid better and used the hospital's full capabilities. Centers have since taken on more complex procedures, including some joint replacements. A hospital that responds by keeping only complex cases is following the comfortable path the theory predicts, toward a smaller hospital with higher costs per case.

The fit is imperfect in two ways. Unlike the technologies Christensen studied, surgery centers are not a new technology that starts out worse; they offer the same procedures in a different setting, often at equal quality. And hospitals retain advantages entrants cannot easily copy, such as emergency and inpatient backup. The theory therefore explains the direction and the incumbent's temptation more than it predicts the outcome.

Recommendation

Northgate should negotiate joint ventures with its orthopedic and gastroenterology groups, in which the system and the physicians share ownership of a surgery center in each service line. Joint ventures let Northgate share in the revenue of cases that are leaving anyway, keep its surgeons aligned rather than competing, and gain the cost and efficiency advantages of the center setting. The recommendation is limited to two service lines because only those show both leading and lagging signals. Extending it system-wide would stretch the evidence beyond what it supports. If general surgery or urology later shows the same pairing of leading and lagging signals, the same approach can be extended to them at a second decision point, using what the first two ventures have taught the system about terms, staffing and case selection.

What the Joint Ventures Would Require

Each joint venture would need four things. First, a site: either a new center or the conversion of existing outpatient space, chosen with the physician partners. Second, an ownership split that gives the surgeons a meaningful share without ceding governance of clinical standards, since physician ownership is associated with higher surgical volume (Hollingsworth et al., 2010) and the system will want to monitor appropriateness. Third, an agreement on which cases move to the center and which stay in the hospital, so that the venture does not simply drain hospital volume the system would otherwise keep. Fourth, a staffing plan, because the center will draw perioperative staff from the hospital's operating rooms.

None of these requires Northgate to commit capital in the first stage. A letter of intent and an option on a site would let the system and its surgeons negotiate terms while preserving the right to stop, which the commitment memo later in the course will examine in detail.

What Waiting Would Cost

Waiting has a cost that grows over time. Each month that orthopedic and gastroenterology surgeons spend negotiating with outside investors is a month in which they may commit to centers Northgate does not own. Once a group has signed an operating agreement elsewhere, its incentives point away from Northgate for years, and the system's best remaining option may be to compete for the cases that group does not take. A joint venture formed early costs negotiating time and a share of center revenue; one attempted late may not be available at all. That asymmetry, a bounded cost of acting against a possibly permanent cost of waiting, is the core of the recommendation.

Uncertainty

The position could be wrong. Migration in these service lines might slow if payers stop steering cases, if centers raise prices or if more complex patients prove unsuited to center settings. A joint venture formed early could leave Northgate co-owning centers that compete with its own hospital outpatient departments for cases that would otherwise have stayed. The scenario analysis that follows will test the commitment against futures in which migration stalls. For now, the case for acting is that the joint ventures' downside is bounded, while the downside of waiting, surgeons committed to centers Northgate does not own, may not be reversible.

References

Christensen, C. M. (1997). The innovator's dilemma: When new technologies cause great firms to fail. Harvard Business School Press.

Hollingsworth, J. M., Ye, Z., Strope, S. A., Krein, S. L., Hollenbeck, A. T., & Hollenbeck, B. K. (2010). Physician-ownership of ambulatory surgery centers linked to higher volume of surgeries. Health Affairs, 29(4), 683-689. https://doi.org/10.1377/hlthaff.2008.0567

Munnich, E. L., & Parente, S. T. (2014). Procedures take less time at ambulatory surgery centers, keeping costs down and ability to meet demand up. Health Affairs, 33(5), 764-769. https://doi.org/10.1377/hlthaff.2013.1281

Plotzke, M. R., & Courtemanche, C. (2011). Does procedure profitability impact whether an outpatient surgery is performed at an ambulatory surgery center or hospital? Health Economics, 20(7), 817-830. https://doi.org/10.1002/hec.1646