Problem Definition
Our client is Unified Health, a health care company in the US. It insures patients and provides health care services. Employers pay a premium to UH for their employees and UH covers all necessary medical costs. UH has 300,000 patients enrolled. It has 300 salaried physicians covering 6 health centers which aren't owned by UH, but UH contracts local hospitals. If a patient needs medical care not covered by a UH physician, the patient is reffered outside the network and UH pays for all costs.
Over the past 6 months UH has suffered declining profitability and you are hired to figure out what is wrong.
Comments
This case is made to be interviewer-led. Therefore the interviewer should guide the candidate through the interview.
Through questions from the interviewer, the candidate is tested on problem-solving skills, so the entire case will have a question/answer format.
Short Solution
- UH physicians are referring cardiac patients too often and in cases where a referral might not be required. This is pushing overall costs and affecting profitability.
- Recommended to look into training UH staff to deal more with basic & minor cardiac problems.
Detailed Solution
Paragraphs highlighted in green indicate diagrams or tables that can be shared in the “Case exhibits” section.
Paragraphs highlighted in blue can be verbally communicated to the interviewee.
The following framework/structure provides an overview of the case:
I. Background
1. What areas would you want to explore to understand the client's decline in profitability?
Possible answers:
- Looking into revenue & costs of UH.
- Looking into UH's main cost components including fixed & variable.
- Understanding how the medical & non-medical costs are build up and how revenue is segmented & how revenue & costs have moved historically.
II. Analysis
2. After a thorough analysis, we discovered that UH has a big problem in the way it manages her medical costs, in particular the costs of referrals to specialists outside the UH network. As a benchmark, we have collected data on the average cost of referral for UH and their main competitor. What do you think is the cause for the higher referral cost at UH?
Share Table 1 with candidate.
Possible answers:
- UH might be paying higher referral rates whereas HMO has negotiated better prices.
- HMO physicians might be more capable and well-rounded to treat medical conditions that UH might need a referral for.
- UH might have older or sicker patients that require outside medical treatment for a longer period.
3. UH CEO mentions that they pay too much in cardiology referral costs. He asks us to look closer at his cardiac patient population to see how many referrals he should expect on an annual basis.
Share additional information upon request of the candidate.
- UH has 300,000 patients in any one year.
- 25% of UH patients are 65 or older.
- In the US, cardiac patients visit a specialist 5 times a year on average.
- 25% of the population of >65 risks serious heart diseases.
- 10% of the population <65 risks serious heart diseases.
Answer:
- 25%*300,000=75,000 UH patients are 65 and older.
- That means 225,000 are 65 and younger.
- 75,000*25%=18,750 patients over 65 who risk heart diseases.
- 225,000*10%=22,500 patients under 65 who risk heart diseases.
- UH should expect ((18,750+22,500)*5)=206,250 external referral visits.
4. After hearing that UH should expect around 200,000 referral visits, he mentions that UH currently pays for 300,000 referral visits. What do you think causes the difference here?
Possible answers:
- Patients could demand referrals from UH phyisicians.
- UH physicians are not capable enough to deal with basic cardiac issues or aren't confident enough to keep a patient at UH.
- No clear internal guidelines on when to refer a cardiac patient.
- No incentives or penalties for physicians who refer cardiac patients when it's not necessary.
III. Solution
5. You come across the CEO in the hall and he asks you to quickly summarize findings & recommendations. How do you address him?
Possible answers:
- UH physicians are referring cardiac patients too often and in cases where a referral might not be required. This is pushing overall costs and affecting profitability.
- Recommended to look into training UH staff to deal more with basic & minor cardiac problems.
- Recommended to define clear guidelines on when to refer cardiac patients.
- Benchmark other health providers to see how they keep their referral rates at a minimum.
Difficult Questions
- Do you think UH could solve this issue by not accepting people of 65 or older into their insurance program?
- What barriers might present itself to such a solution?
