Frameworks for Analyzing Health Care Markets

Frameworks for Analyzing Health Care Markets

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Suppose that you work in the human resources department for a large firm that employs nearly 20% of the working adults in a small metropolitan area that contains three
small hospitals: Barker Memorial, Charles Medical Center, and Davison Division of Medicine. At present the three hospitals have no relationship with one another and
your health insurance plan has contracts that allow your employees to go to any of the three hospitals with no out-of-pocket costs. The insurer that your firm uses has
negotiated rates with all three of the hospitals individually.

Similarly, to many other employers, your firm is concerned about the costs it bears and has decided to institute a 10% coinsurance for the first $10,000 of hospital
costs for all of its employees going into the new calendar year. At the same time, Barker Memorial and Davison Division of Medicine have announced that they will merge
on January 1 and that they want to renegotiate the payments to the now planned “Barker-Davison Memorial Medical”. Since the two hospitals were geographically proximal
they intend to fully merge operations.

Write up to a two-page memo to the head of human resources (Mr. Patrick Jones) spelling out:

(1) What you expect will happen to the price sensitivity related to the hospitals for your employees and their families who are enrolled in the plans.
(2) What you expect will happen to the prices that the hospitals in the market will be able to negotiate with the insurer.
(3) What you expect will happen to the premium that your firm will be able to negotiate with the insurer.
(4) What you expect will happen to the quality of care that is provided by the hospitals. (Be sure to describe how you are measuring quality.)
(5) Whether you have any concerns that may be specific to your lowest income employees with the new market conditions.
(6) Whether the planned merger not occurring could bring any risks. There are rumors in the community that Davison has fallen on hard times.

 

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