HLTH 8750 Week 5 Strategic Scenario Analysis Paper Example

Scenario Analysis: How the Joint Venture Commitment Performs if Procedure Migration Stalls

Student Name

Walden University

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

Instructor Name

Month Day, Year

Scenario Analysis: How the Joint Venture Commitment Performs if Procedure Migration Stalls

Introduction

Scenario work tends to imagine the future a strategy was built for. This analysis spends most of its weight on the one it was not built for: a world in which procedure migration stalls after Northgate Health, a composite three-hospital system, has committed to joint ventures in orthopedics and gastroenterology. It follows Schwartz's approach of separating predetermined elements, forces whose direction is already settled, from critical uncertainties, forces that matter a great deal and could go either way (Schwartz, 1991). Two critical uncertainties define four futures. For each, the analysis asks how the joint venture commitment performs, which signals would announce that future and what unwinding the commitment would cost. All figures are illustrative.

Predetermined Elements

Several forces will shape Northgate's market in every future. The population of its service area is aging, which will raise demand for orthopedic and gastrointestinal procedures over the next decade. Commercial payers will continue to press on hospital prices. Surgery centers will remain, on average, faster and lower-cost settings for the procedures they handle (Munnich & Parente, 2014). And federal payment policy will keep debating whether Medicare should pay the same for a procedure regardless of the ambulatory setting it is done in (Medicare Payment Advisory Commission, 2023). These are not in doubt, so they do not define scenarios; they appear in all four.

Critical Uncertainties

Two forces matter most and remain genuinely uncertain. The first is how fast payers steer eligible procedures to lower-cost sites, through site-of-service rules, benefit design and payment policy. Steering could accelerate sharply within a few years, or it could remain limited to a few payers and procedures. The second is whether Northgate's surgeons stay aligned with the system or with outside centers. They could remain loyal, especially if the joint ventures give them a stake, or they could commit to centers owned by outside investors. Crossing these produces four futures.

The Four Futures

Table 1 summarizes the four futures.

Table 1

Four Futures for Northgate's Orthopedic and Gastroenterology Volume

Shared Shift, Exodus and Slow Leak

Shared shift. Payers steer quickly and surgeons stay aligned. The joint ventures perform as designed: they capture migrating cases, Northgate shares in center revenue and its hospital outpatient departments shrink in those service lines in a controlled way. Signals would include a major payer adopting a broad site-of-service rule and surgeons expanding their joint venture block time. The commitment is clearly worth having.

Exodus. Payers steer quickly, but surgeons commit to outside centers. The joint ventures may be underused if Northgate's partner groups split, or if new surgeons in the market prefer outside investors' terms. The commitment still performs better than no joint venture, since Northgate keeps some share. Signals would include outside investors acquiring physician groups in the market. The cost of the commitment is a center that competes with stronger rivals; unwinding would mean selling Northgate's share at a discount.

Slow leak. Steering stays limited, but surgeons gradually move cases to outside centers they own. Volume erodes slowly, and the joint ventures capture part of it. Signals would include new licensing filings by outside investors without payer policy changes. The commitment performs moderately; its value depends on keeping partner surgeons loyal.

Stalled Migration

Stalled migration is the future in which the week's question bites. Payers steer slowly, perhaps because federal site-neutral proposals stall and commercial insurers find steering harder to enforce than expected, and surgeons stay loyal to Northgate, perhaps because the joint ventures themselves keep them close. Migration arrives slowly or plateaus.

In this future, the joint ventures are built for volume that does not come. Each center was sized for a share of eligible cases that would have moved under faster steering. With slow steering, surgeons may continue to bring many cases to the hospital, where Northgate earns the hospital facility fee, rather than to the center, where it earns only its ownership share. The center runs below capacity, its fixed costs are spread over fewer cases and Northgate's share of center profit is small or negative. Meanwhile, the hospital outpatient department has lost some cases to the center that it would have kept, so the system has, in effect, paid to move cases that were not leaving.

The cost of this future can be stated in kind. Northgate would carry its share of center start-up and fixed costs, perhaps several million dollars over a few years on illustrative assumptions; it would lose some hospital facility fees on cases moved to the center unnecessarily; and it would have committed management attention to ventures that delivered little. Unwinding would mean either buying out the physicians' shares, closing the center or converting it to another use, each of which has a cost the operating agreement will determine.

The signals that would announce stalled migration are specific: federal site-neutral proposals failing to advance, commercial payers' site-of-service rules covering few procedures or being relaxed after provider pushback, and joint venture case volumes running well below plan for two or more consecutive quarters while hospital outpatient volumes hold steady.

What the Analysis Means for the Commitment

The joint ventures perform well in two futures, moderately in one and poorly in stalled migration. That pattern argues not against the commitment but for staging it. Real options reasoning holds that when outcomes are uncertain, small early investments that preserve the right to expand or abandon later can be worth more than a single large commitment (McGrath, 1999), and that waiting has value only when it produces information (Dixit & Pindyck, 1994). Northgate should therefore size each joint venture for the slow-steering futures, with the right to expand capacity if steering accelerates, and should write exit terms into the operating agreements that limit its losses if migration stalls. A later commitment memo will pinpoint the stage at which exit becomes expensive, so that the board can see when it is buying an option and when it is making the commitment itself.

References

Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton University Press.

McGrath, R. G. (1999). Falling forward: Real options reasoning and entrepreneurial failure. Academy of Management Review, 24(1), 13-30. https://doi.org/10.2307/259034

Medicare Payment Advisory Commission. (2023). Report to the Congress: Medicare and the health care delivery system. Medicare Payment Advisory Commission.

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

Schwartz, P. (1991). The art of the long view: Planning for the future in an uncertain world. Doubleday.