The Industry Trend of Consolidation - Term Paper Example

«The Industry Trend of Consolidation» Introduction After a strategic plan is adopted, the next logical step is to implement it. In order for it to be smooth sailing, it is necessary to create an implementation committee that will oversee the plan's implementation along every step of the way. In this regard, implementation is said to change from strategic planning to strategic management (Bryson & Alston, 2004, p. 109). A very difficult aspect of strategic implementation is how to anticipate potential objections to a plan that had already been formulated that is aligned to a firm's internal resources and external opportunities produced by the environmental scanning done before. There must be a concrete step to overcome these objections before these can derail the plan's implementation. One very likely objection will come from the doctor-partners of Kaiser Permanente. Potential barriers to implementation of the new plan are the doctor-groups who own Kaiser Permanente. The said for-profits are the various units of Permanente Medical Groups which are the business units owned and operated by groups of doctors engaged in group practice. Although the organizational culture at Kaiser Permanente is one of collaboration and consensus, it will be inevitable some doctors will object to the new strategic direction the business will take. In retrospect, Kaiser Permanente is operated on the principle that doctors are primarily the health care providers and should not be concerned with business matters. Business issues are better left to the management professionals at the top of the group. What is perhaps needed for the doctors to accept this new paradigm is to re-orient and educate them on the profound changes taking place in the health care industry and in particular, in managed care. The new plan will be communicated to them through an annual convention where everything will be explained. Discussion In Kaiser Permanente, the key employee group will be the doctors who are hired by the group as salaried professionals. Their cooperation will be key to strategic implementation and they must be convinced a new strategic direction is necessary for continued success of the organization. It can be recalled Kaiser Permanente had undergone bankruptcy proceedings a few years ago and it is necessary not to commit the same mistakes which made it insolvent. In the health care industry, one driving force is economics. In fact, the health industry in the US is a $2.5 trillion-dollar annual business and represents a tangled and complex web of doctors, preferred provider organizations, consumers, health insurance firms, big pharmaceutical firms and specialized care facilities. Another key aspect of this industry is that despite all the newer technological advances, it is still essentially a labor-intensive industry. Therefore, people are key to success in the health care industry such as high levels of quality care and the customer satisfaction levels in which consumers perceive they got good value for their money. Although the United States is alone among Western countries not to have a socialized or subsidized national health program, the industry is undergoing profound changes due to the economics of the industry. The US government recently passed the Affordable Care Act which is a big step towards universal health care coverage although many sectors had objections to some of its key provisions. However, the fact remains that the industry is largely sort of giant private enterprise in which free market forces determine success or failure in this business. In this connection, Kaiser Permanente must change its strategic direction and may have to revise its cherished principles based on the four pillars of the pre-paid or pre-need plans currently in fashion in the industry. In particular, the sheer amount of dollars flowing into health care from giant health insurance firms dictates a new business paradigm. A big share of the managed care portion of the industry now drives hospital consolidations (Sultz & Young, 2010, p. 73). The proposed changes contained in the strategic plan and soon to be implemented will still be in consonance with the group's mission, vision and values which is to provide quality but affordable health care to everyone. However, the rising influence of health insurance firms now dictate that Kaiser Permanente must find new ways to reduce costs further without even sacrificing quality. This is because health insurance companies now have great leverage when it comes to negotiating the reimbursement payments to the hospitals on which Kaiser relies to a great extent. Health insurance firms, because of their strength and influence in the industry, can afford to reduce payments for some medical procedures or even refuse payment outright. By taking pre-emptive steps and aligning itself with the upcoming industry changes, Kaiser is better positioned to negotiate for higher reimbursement rates from health insurance firms. It cannot be denied that medical care today is now becoming a corporate practice and the days of a doctor who has a private individual practice is going to diminish. More and more doctors are going into group practice which is in fact the corporatization of medical practice. To ensure cooperation and buy-in from this critical employee group, top management of Kaiser Permanente lead by CEO Mr. George Halvorson will have to convince these doctors they are better off staying with the group than bolting and engaging in private practice where they will have little or no bargaining power at all in relation to the big health insurance firms. The trend in the industry is towards corporate medicine or group practice and the days of the individual private practice will be relegated to insignificance except perhaps in the rural areas. The way to communicate the strategic plan implementation might be through an annual or any seminar convention in which doctors will be apprised of the plan in advance and their inputs or views can be heard and considered. In any case, the HR department of Kaiser Permanente will need to get involved and play a big role because they know the group's organizational and structural culture, its morale and the motivation of its employees (SHRM, 2006, p. 58). Besides growing industry consolidation in response to the rising power of giant health insurance firms which now control a big chunk of health care dollars, other external industry factors are the shift to consumerism in the health care industry and impending implementation of the health exchanges in each state as required by the new Affordable Care Act. Today, most buyers of health care find consumer-driven health plans (CDHP) to their liking because these newer plans combine with either a health savings account (HSA) or the health reimbursement account (HRA) with tax incentives for both accounts. Although the CDHP have higher than a usual deductible, consumers still prefer them because it gives them control over their plans. A good way to prepare for the coming industry changes will be to look for a corporate partner that can further boost the size of Kaiser Permanente to counter a growing power of insurance companies to allocate health care payments by going into consolidation mode. A market entry strategy for Kaiser is to acquire a similar-sized hospital group system. However, any new acquisitions must be consonant with its avowed aim to shift to specialized practice of medicine as advocated earlier by Prof. Porter in his Harvard Business article. The way to survival is consolidation and this is the direction Kaiser Permanente will take. Recent financial crisis and economic downturn dictate medical groups must find ways to further cut operating costs and a good way to achieve that is either acquisitions or mergers like the one in New York recently between 3 hospitals: St. Peter’s Health Care Services, Northeast Health and Seton Health; budget cuts led to funding shortfalls of public hospitals (Pinckney, 2010, p. 1) in most states and many local governments are forced to consolidate their hospitals. The 4 essential parts of the implementation plan will be unqualified support from top management and the group's Board of Directors, a clear and honest communications plan to all employees, especially the doctors and other allied health professionals, an emphasis on teamwork and of running an advertising and promotional campaign (Zietlow, Hankin & Seidner, 2007, p. 55). To be effective, the implementation of the strategic plan consist of SMART which means being specific, measurable, achievable (or agreed upon), relevant and time-bound. In this regard, the first order would be implementing the shift towards specialization of medical practice. Doctors who belong to the same specialty will be grouped together so they attain the needed expertise and experience such as cardiovascular surgeries, for example. This will in turn hopefully reduce operating costs but at the same raise the standards of quality care in the long run. A key measurement will be through the use of transparent pricing and other crucial medical information such as success rates or survival rates after surgeries that will allow for meaningful and relevant comparisons between providers. Eventually, the price charged to a patient for treatment of a medical condition should go down as the group gains experience. This shift towards distinctive is theoretically built around unique expertise and tailored physical facilities specific to a certain ailment and all doctor groups must agree on the idea this approach will give them an edge in the coming liberalization of the industry. This is also very achievable since doctors would most likely agree on combining their specific expertise with other doctors who share the same specialty like them. They will effectively be working on the same page, so to speak, so they understand each other better and work gets done faster with better results, lower costs and higher quality. The proposed changes are also very relevant in view of the profound transformation in the industry in which there is now more corporate medicine being practice instead of the usual individual private medical practice. The lone wolf operator will not be very effective today in terms of most patients relying on their prepaid health plans instead of the fee-for-service type of medical care model. In other words, specialization will lead to distinctiveness which in turn will lead to the institutionalization of group practice which is inevitable considering the trends in the industry today. Even hospital systems found the need to likewise consolidate most of their operations in a time when cost containment is necessary but somehow provide value. The time frame for the implementation is the three-year period outlined earlier. But it must be kept in mind that a strategic plan is not cast in stone or just a one-off thing. This only means the company must be ready to adjust its implementation if circumstances warrant some changes in it. The company should be flexible enough to admit its strategic plan is not really a perfect document and implementation could be subject to changes when necessary. However, it is better to stick to the plan despite some difficulties but of course not at any cost. At some point, obstacles may necessitate the changes but these should be considered carefully. Benchmarks or balanced score cards will be utilized to measure effectiveness of the new strategic plan. This phase will use clear and measurable achievements so fair comparison can be made before and after the implementation. Examples would be total costs involved in a certain medical procedure, the time spent during the actual surgical operation, success rates adjusted for risk factors and the use of consumer surveys or questionnaires to help measure the level of customer satisfaction in terms of perceived added value to health care. Any company that has a strategic plan must have taken into consideration any possible contingencies and uncertainties. However good a plan is, it cannot really predict the future with 100% accuracy and so any firm must be prepared to evaluate periodically its progress during implementation with the view towards getting updates and making the corrections. For Kaiser Permanente, the first year of implementation is a good time frame to evaluate if the plan is being effectively implemented or not. The first year anniversary is a good time to re-assess everything and I would consider revising the strategic plan at this point after a review. Additionally, quality controls must be instituted so quality levels can be measured against benchmarks especially with regards to the management of delivery systems in the health care industry. Quality controls are very much in demand especially in managed care where there are different expectations by various stakeholders (Boland, 1993, p. 421). Considering the vast and profound changes in the health care industry coupled with the economic slowdown, it is reasonable to expect a tolerance range of 10% to 15% in desired goals or benchmarks. The purpose of using key critical success factors (CSF) is only to serve as a guide for management and employees alike to measure their performance but these are admittedly not perfect in the sense many other factors can influence its outcome. Anyone who is reasonable enough should first look for reasons causing the variance and only then consider whether these are valid or not, attributable to some person or group and whether the plan itself conformed to the requirements of SMART mentioned earlier. Deviations during implementation of the strategic plan with regards to the key areas as determined by the benchmarks will have to be thoroughly investigated and studied very well for future corrective action. If observed deviations are due to external factors, then the plan is faulty and may need revisions to it such as the targets in costs and other crucial data. Revision is the appropriate corrective action for this instance. If the real causes are found to be internal to the organization, then the appropriate corrective actions will be to secure cooperation and support of all stakeholders especially from the doctor-groups themselves. If this is the case, one solution would be to implement more team training where doctors will be re-acquainted with benefits of teamwork. It might be necessary to introduce new concepts of mentoring and peer coaching in some extreme cases so that everybody is up to par on this one. Another possible corrective action will be to adjust the performance targets or criteria used to measure the effectivity of the implementation and see if these are realistic enough. It is sometimes easy to think in theoretical or hypothetical terms but when faced with the harsh reality, some strategic plans are found to be unrealistic. The only realistic corrective actions that can be taken will be to constantly evaluate and review the plan as it goes along. The key control areas for this purpose will be revenues generated, services rendered and the patients’ attitudes or satisfaction levels (Williamson, Stevens & Loudon, 1997, p. 132). Conclusion The health care industry is undergoing tremendous changes from political and also economic changes. The industry landscape has been altered to a great extent by government efforts to promote affordable universal health care but the economic slowdown has made it a bit more complicated than expected. As such, industry players like Kaiser Permanente has to adjust their corporate philosophy in terms of mission, vision and value to conform to the new changes which is beyond anyone’s control. Because the US health care industry is largely a private enterprise rather than controlled by government policies, giant health insurance firms now effectively control how health care is delivered to and consumed by American patients. The industry trend is towards consolidation such as by mergers or acquisitions because a key factor for success is specialization which results in lower costs and higher quality care. A player like Kaiser Permanente has to change its core philosophy from treating its doctors as physicians first and foremost to making sure this crucial employee group understands the business logic of implementing a new strategic direction for the firm to survive and avoid the pitfalls it had suffered a few years ago when it was forced to seek bankruptcy protection. The way for Kaiser is to acquire local hospital systems to strengthen its hand when it comes to the question of getting or negotiating for higher reimbursement rates from insurance payers. One result of industry changes is the growing trend towards corporate medicine but it is still too early to precisely gauge how all the moves to hospital consolidations will affect the players and more importantly, the consumers. As it is now, health insurance firms have a big say on when and how much they will agree to reimburse medical care services. Hospitals and other medical groups will have to move towards specialization to lower their operating costs but at the same time raise their quality levels from increased expertise and experience. In this regard, a medical group’s strategy will determine its success (Cuellar & Gertler, 2003, p. 77). References Boland, Peter (1993). Making Managed Healthcare Work: A Practical Guide to Strategies and Solutions. Gaithersburg, MA, USA: Aspen Publishers. Bryson, John M. & Alston, Farnum K. (2004). Creating and Implementing your Strategic Plan: A Workbook for Public and Nonprofit Organizations. Hoboken, NJ, USA: John Wiley and Sons. Cuellar, Alison Evans & Gertler, Paul J.(2003). Trends in Hospital Consolidation: The Formation of Local Systems. Health Affairs 22 (6), pp. 77-87. Pinckney, Barbara. (2010, June 22).Three Health Care Systems Sign, Flesh Merger Agreement. The Business Review. Retrieved from http://www.bizjournals.com/albany/stories/2010/06/21/daily18.html Society of Human Resource Management or SHRM (2006). The Essentials of Corporate Communications and Public Relations. Boston, MA, USA: Harvard Business School Press. Sultz, Harry A. & Young, Kristina M. (2010). Health Care USA: Understanding its Organization and Delivery. Sudbury, MA, USA: Jones & Bartlett. Zietlow, John T., Hankin, Jo A. & Seidner, Alan G. (2007). Financial Management for Nonprofit Organizations: Policies and Practices. Hoboken, NJ, USA: John Wiley and Sons. Williamson, Stan, Stevens, Robert E. & Loudon, David L. (1997). Fundamentals of Strategic Planning for Healthcare Organizations. Binghamton, NY, USA: The Haworth Press, Inc. 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