The Centers of Excellence Challenge and Viability of Pricing Strategies in a Competitive Healthcare

Overview of the Centers of Excellence Challenge

Michael Adamale holds the position of corporate relations specialist for a large health system in the Charlotte, North Carolina area. In recent years, Charlotte has seen a dramatic increase in the number of companies calling Charlotte home for its headquarters. And, it now houses seven Fortune 500 companies and three others on the Fortune 1000 list. Charlotte is seen as a highly desirable area to live, and because it is relatively close to the Raleigh-Durham research triangle, companies see this location as one where there is a pool of talented individuals from which they can draw

For health care organizations, this market has also been desirable for its insured patient base. Over the past several months, however, as Michael has called on company health benefit managers, he has increasingly been getting questions regarding the pricing of services and how efficient the health care system is. Duke Energy, a large employer in the region with 27,000 employees has a self-insured plan. Additionally, half of the state is insured by Blue Cross. As these changes have started to occur, Michael has begun to consider that the need to be more proactive—not so much to capture business but maintain his market may be the key. Having been in health care for almost 20 years, he is concerned about the issue of timing. Should the system he works for lead the change or follow quickly? Yet, when he sat last week with a large financial institution whose headquarters are in Charlotte, he heard pretty clearly what the human resources director said. “We need to look to trim costs everywhere. You are being pressed and we are, too. We are thinking of incentivizing our employees to move to Centers of Excellence sites for care. If not to you or Duke, we will go wherever. I was also at a conference last week in California. I heard about the CalPERS approach on reference pricing. It got me thinking. Why our state isn’t doing that for state retirees is a question, but why we aren’t doing it for our workforce is an equal question.”

Michael left his office and realized that change may well be imminent—with or without the hospital developing a strategy. When he returned to his office at the health system’s corporate office, his administrative assistant said that he should return a call from Paul DeMarcos from one of the Fortune 1000 companies. Leaving a message, Michael was working on an email, when Paul called back. “Michael,” Paul said, “ I hope you had a good holiday break. I want to let you know that the company has changed some of the benefit plans going into the next fiscal year for employees. You deserve a heads up as we go back a long way. We have taken our cardiology business to a Centers of Excellence model with the Cleveland Clinic and done the same with orthopedics where we are moving the business to Carolinas Medical Center. We think most of our employees will choose that, given it is right here in Charlotte. We also struck a contract with the Hospital for Special Surgery in New York, given we have employees elsewhere but Carolinas will affect you directly, thus the reason for my call.” Paul hung up the phone and thought to himself, “The market has already moved. How do I get it.

Read the attached case, the textbook chapters, and watch the videos to be able to analyze the case.

1.What is the power of the supplier in this scenario?

2.Do you see the health system as having power now? Where would it be?

3.How viable this strategy would be in the marketplace?

4.How much could this type of pricing strategy, in terms of a company or a buying coalition in a local market, change the rates that they are being charged for their health care costs?

5.How likely would you see yourselves going along with such an approach for such procedures if you were told to do so by your employer?