HS450 Unit 6 Competitive Position Paper Example

Captured Referrals and Who Pays for Them: A Unit 6 Competitive Position Paper Mapping a Hospital Rival's Advantage

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Purdue University Global

HS450: Strategic Planning and Change Management for Health Care

Unit 6 Competitive Position Paper

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Halloway Therapy Partners, the county health system, its locations and every price are composite; the sources cited are real.

The Rival

The Oakhurst County Health System operates a hospital-based outpatient rehabilitation network of six locations, billed as departments of its main hospital. Its advantage is not clinical. It is structural: the system employs 14 of the county's 22 orthopedic surgeons, and employed surgeons refer most of their postoperative patients to the system's own therapy departments. In the last year, Halloway received about 14,000 referred visits from three independent orthopedic practices and almost none from the system's employed surgeons.

The rival's advertising, its new logo and its patient testimonials appear nowhere in this paper, because none of them explains why patients go there. Referral control does.

The Strategic Group Map

Every therapy provider in the service area is plotted on two axes. The horizontal axis is breadth of specialty programs, from general orthopedics only to five or more specialty lines such as pelvic health, vestibular and pediatrics. The vertical axis is the share of patients referred by an affiliated physician, from near zero for independent groups to more than 70 percent for hospital networks. Circle size shows annual visits.

Three groups appear. The hospital network sits alone in the upper left: high affiliated referral, moderate breadth, large volume. Halloway sits in the lower right: low affiliated referral, the broadest specialty range in the county, and the second-largest volume. A cluster of small independent clinics sits in the lower left: low affiliated referral, narrow programs, small volume. A national chain with two locations sits beside the small clinics.

The map shows that Halloway and the hospital network barely compete for the same patients. The network does not win referrals by being better; it receives them because its surgeons are employed. Halloway competes mainly with the small clinics for self-referred and independently referred patients, and it wins those on breadth.

The rival's advantage is a referral pipeline, and Halloway cannot match it by improving care, only by changing where referrals originate.

Price

The rival's advantage has a cost, and someone pays it. Because its therapy departments are billed as hospital outpatient services, the system can charge a facility fee in addition to the professional charge. For a typical postoperative knee episode of fourteen visits, the commercial allowed amount at the hospital network is about 2,900 dollars, against about 1,700 dollars at Halloway. For Medicare patients, hospital outpatient payment for therapy services is set through the same fee schedule as independent practice, so the difference is smaller, but patient cost-sharing can still differ.

The difference falls on three parties: commercial insurers and the employers who fund them, patients with deductibles or coinsurance, and, indirectly, the county's large self-insured employers. Federal advisors have repeatedly recommended aligning payment across sites of service for services that can be safely delivered in independent settings (Medicare Payment Advisory Commission [MedPAC], 2023), a policy that would narrow this gap if adopted.

How the Rival Could Respond

If Halloway pursues employer contracts on price, the health system has three likely responses. It could lower its commercial rates for the employers in question, which it can afford because its facility fees subsidize the discount. It could offer employers a bundled package of surgery and rehabilitation, which Halloway cannot match because it does not perform surgery. Or it could accelerate employment of the remaining independent surgeons, cutting off Halloway's referral base. The third response is the most dangerous, because it is the least visible until it happens. Halloway's best defense is to make itself valuable to the independent practices beyond referrals, for example by sharing outcome data the practices can use with their own payers, or by co-locating a therapist in the practices' offices on surgery follow-up days.

Where Halloway Is Strongest

The map and the price comparison together point to three places Halloway can win. Patients who self-refer under direct access never enter the network's referral pipeline. Patients whose employers or insurers steer them toward lower-cost providers will find Halloway cheaper. And patients who need specialty care that the network does not offer, such as pelvic health, have nowhere else in the county to go. Each of these is a segment where the network's structural advantage does not apply.

The Rival's Strategy Type

Miles et al. (1978) classify organizations by how they respond to their environment: defenders protect a stable niche, prospectors search for new opportunities, analyzers do both, and reactors respond inconsistently. The hospital network behaves as a defender in rehabilitation: it protects its referral base through employment and does not compete on breadth or price. Halloway behaves more as a prospector, adding specialty programs and testing new services. The typology suggests that Halloway should not attack the network's niche directly, which would mean competing for employed surgeons' referrals it cannot get, but should build where the defender is not looking.

Implications for Halloway

Three implications follow. First, Halloway should protect the independent orthopedic practices, because each surgeon who joins the hospital system moves referrals away permanently; the Unit 5 goal to retain 95 percent of their referral volume answers this. Second, price is Halloway's most powerful argument with commercial payers and self-insured employers, who bear the cost of the network's advantage. Direct contracts with the county's five largest employers would turn that argument into volume. Third, specialty breadth, especially pelvic health, attracts patients who self-refer under direct access, a route the network's referral control does not touch. Industry analysis reminds planners that buyer power, here employers and insurers, can reshape a market when the price gap is large enough (Porter, 2008).

Recommendation

Halloway should compete where the rival's structure gives it no advantage: self-referral, employer-directed patients and specialty care. The first step is a pilot direct contract with one of the county's five largest self-insured employers, priced to show the episode savings described above, with outcome and cost reporting that the employer can verify each quarter.

What the Paper Cannot Show

The map uses Halloway's estimates of competitors' visit volumes and referral shares, based on public filings and referral data, not on the competitors' own figures. Prices are drawn from Halloway's contracts and published price transparency files, which are imperfect. The paper also cannot predict whether the system will employ the remaining independent surgeons, which would change the map more than any choice Halloway makes.

References

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

Miles, R. E., Snow, C. C., Meyer, A. D., & Coleman, H. J., Jr. (1978). Organizational strategy, structure, and process. Academy of Management Review, 3(3), 546-562. https://doi.org/10.5465/amr.1978.4305755

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.