Decisions Under Uncertainty for 2017 It is December of 2016. The NHL Health Syst

Question

Decisions Under Uncertainty for 2017
It is December of 2016. The NHL Health System has many decisions to make. Its capital budgeting process requires that the largest capital investments, those more than $5 million, be approved by the corporate office. This year, as normal, there are more than 30 requests, and the requests total more than $250 million. However, 2016 is also a year of heightened uncertainty surrounding the US healthcare sector. NHL has hired a prominent consulting group to advise it on the risks and contingencies it should consider. Key areas of uncertainty that the consulting group identified include the following:
The fate of the Affordable Care Act (ACA). Republicans have promised to repeal the ACA, but its replacement remains far from clear. Bad debts and charity care across the system have dropped by $6 to $10 million per year as a result of more having insurance or Medicaid coverage.
A move to value-based purchasing. More of Medicare payments are now tied to the demonstration of value and satisfaction. Many predict that the fee-for-service system cannot last and that healthcare organizations must move to a population-based system founded on value indicators.
Drug prices. One of the largest increases in hospital costs has been the escalating cost of drugs. Many suggest that these increases will continue.
Consolidation. Many healthcare systems have merged in the recent past and many continue to seek partners. NHL has absorbed a few smaller systems but has been hesitant to combine with a large system.
Top management will be making decisions on the capital budget items next week.
Questions
1. How might these uncertainties affect Porter's Five Forces (the power of buyers, suppliers, substitutes, entry, rivalry)?
2. Do a PEST analysis. What additional factors would you include as key uncertainties?
3. Create a scenario analysis for this situation. What would be the two key critical uncertainties? Scenarios?

Explanation / Answer

Porter's Five Forcce Model analysis :-

The Power of Buyer :- In the current scenerio of the markets in the US, the buyer have the opportunity to compare and then choose the products and services available in the market. The insurance companies have a deep penetration of the Medicaid Coverage policy for the consumers. This is given advantage to the end consumers and a clear demonstration of value and satisfaction.

Suppliers :- The suppliers have intense competition amoungst themselves. The cost of service has gone down and the suppliers are totally dependent on the orders generated by the hospitals. The cost of drugs are on a constant rise, as well as the competition and the substitues available for a product. All the facts, thus give a very strong competition within the suppliers group.

Substitutes :- The substitutes are available for the suppliers as well as the products in the market. The customers have a choice for a substitutes of the products and also the hospital have the alternate of having more number of suppliers.

Entry :- There is a threat of new players entrying the drug market, as the prices of drug are increasing year on year. Secondly, the number of insuram=nce companies offering cash-less medicaid policies. This is convenience to the customer in getting the best medicare services in the market.

Rivalry :- The market has many player operating in the market, so the market has intense competition. This will also result in business rivalry, price war, quality differentiation in products, cost rivalry and customer loyalty towards a particular company.

2. PEST analysis :- Political : the republicans have assured to repeal the ACA, but has not disclosed or initiated any positive strategy or option for the health care sector.

Economic Condition :- is that the bad debt and charity care in the system have dropped due to the insurance or medicaid coverage. Good thing is that bad debt have reduced and the other side is that the cash flow in the sector has got reduced.

Social :- There is shift from the fee-for-service system to a medicaid coverage system. This also has given customers the opportunity of a value-based purchasing and satisfaction.

Technology :- The increased number of competitors and changing business environment has brought in more technological advancement in the healthcare sector. The insurance sector has made inroads in the segment and the drug market is seeing a price-rise. The new technology that is coming in the industry has given more product variety and product substitutes available in the market.

Consolidation strategy: By most companies to merge the businesses has given new dimension to the market conditions. This strategy would give very tough business environment for small and medium sized business firms.

3. The first Uncertainty that needs to be fixed would be of the Republicans to draft a clearcut policy and guidelines for ACA and NHL health system. They cannot leave the market forces to decide the future course of action to be decided by the market forces only. The cost of drugs are rising and its a reason of concern.

The second Uncertainty is the consolidation approach by most of the healthcare systems. This would force the small player to either get merged to bigger firms or exit the line of business. The changing shift to medicaid system from a fee-for-service would also favour the larger business firms.

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