BUS 532 Module 2 The Health Care Marketplace Example

Still Independent in a Consolidating Market: The Forces Shaping Marketing for an Orthopedic Group in Boise

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MBA Program, Aspen University

BUS 532: Healthcare Marketing

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Still Independent in a Consolidating Market: The Forces Shaping Marketing for an Orthopedic Group in Boise

Treasure Valley Orthopedics, a composite physician-owned group in Boise, Idaho, has eleven orthopedic surgeons, a physical therapy department and an imaging center. For twenty years it has drawn patients through referrals from primary care physicians and its reputation for sports medicine and joint replacement. In the past five years, two regional health systems have hired orthopedic surgeons, built their own clinics and directed more of their primary care physicians' referrals to their own specialists. The group's partners must decide how to respond. This paper analyzes the market forces they face.

The Decline of Independent Practice

The group is part of a national trend. Kane (2023), analyzing the American Medical Association's physician practice benchmark surveys, found that the share of physicians working in practices wholly owned by physicians fell from 60.1% in 2012 to 46.7% in 2022, while the shares employed by hospitals or working in practices partly owned by hospitals rose. The trend has several causes, including the cost of technology and administration, payment changes favoring larger organizations and younger physicians' preference for employment. For Treasure Valley, the trend means fewer independent primary care physicians who refer freely and more referrals controlled by systems.

Hospital Consolidation

A JAMA review of the evidence on hospital consolidation concluded that mergers among hospitals in the same market tend to raise prices to private insurers, often substantially, without clear evidence of improved quality (Cutler & Scott Morton, 2013). Consolidated systems also acquire physician practices, which allows them to keep referrals inside their networks. In Boise, the two systems' growth strengthens their hand in negotiations with insurers and control over a growing share of the primary care physicians who send patients to orthopedic surgeons. They also compete directly with the group's imaging and therapy services.

The Shift to Outpatient Joint Replacement

Medicare removed total knee replacement from its inpatient-only list in 2018 and total hip replacement in 2020, and later added both procedures to the list of services payable in ambulatory surgery centers. Many commercial insurers have moved in the same direction. For healthy patients, outpatient joint replacement can mean going home the same day at lower cost. This shift creates an opportunity for physician groups that own or partner in surgery centers, which can offer lower prices to employers and insurers, and a threat to those that depend on hospital operating rooms controlled by competitors.

Payer Pressure

Insurers and self-insured employers are pushing for lower prices and better results, through narrow networks, prior authorization and bundled payments that pay one price for an episode of care. For orthopedics, bundled payments for joint replacement reward groups that can manage the whole episode, from surgery through rehabilitation, at a predictable cost. Groups that cannot show their costs and outcomes may be excluded from networks.

Consumer Expectations

Patients increasingly research surgeons online, compare ratings and ask about recovery times and costs, especially as high-deductible plans make them pay more out of pocket. Sports medicine patients, often younger, expect online scheduling and quick appointments. These expectations favor providers that publish clear information and make access easy.

Five Forces in Orthopedic Care

Porter (2008) argued that competition is shaped by five forces. Rivalry in Boise orthopedics is high and rising as systems add surgeons. The threat of new entrants is moderate; surgeons can join systems or start practices, and national physician management companies have entered nearby markets. Substitutes include physical therapy, injections and watchful waiting for some conditions. Buyer power, held by insurers and large employers, is strong and growing. Supplier power, through implant manufacturers and the systems that control operating rooms, is moderate to high for a group without its own surgery center.

Forces and Their Effects

What Patients and Referrers Told the Group

Interviews conducted by the group's practice manager added detail to the national picture. Primary care physicians who had joined a health system said they were expected to refer within the system but still sent patients to Treasure Valley when a patient asked for a particular surgeon or when the system's wait for an appointment exceeded a month. Patients recovering from knee surgery valued the group's therapy department, which allowed them to see the same therapist throughout, and several said cost estimates had been hard to obtain from both the group and the hospitals. These comments suggest that access, continuity and price clarity are where the group can still differentiate itself.

Regulatory Factors

Several rules shape the group's options. Federal limits on physician self-referral restrict how physician owners can refer patients to entities in which they have a financial interest, which matters for ownership of imaging and surgery centers and requires careful legal structuring. Prior authorization requirements from insurers add administrative work that larger organizations can absorb more easily. Price transparency rules for hospitals give patients and employers more information about system prices, which could help an independent group whose prices are lower, if it publishes its own.

The Choices Ahead

The analysis leaves the group with three broad choices. It could partner with one of the systems, gaining referrals and operating room access at the cost of independence. It could build or buy a share of an ambulatory surgery center focused on joint replacement and offer bundled prices directly to employers and insurers. Or it could remain independent without a surgery center and compete on sports medicine reputation and access. Later modules will evaluate these choices.

Conclusion

Treasure Valley Orthopedics faces a market reshaped by the decline of independent practice, hospital consolidation, the shift to outpatient joint replacement, payer pressure and more demanding patients. These forces threaten its referral base but also open paths to compete on value. Understanding them is the first step in choosing a marketing strategy.

References

Cutler, D. M., & Scott Morton, F. (2013). Hospitals, market share, and consolidation. JAMA, 310(18), 1964-1970. https://doi.org/10.1001/jama.2013.281675

Kane, C. K. (2023). Recent changes in physician practice arrangements: Shifts away from private practice and towards larger practice size continue through 2022 (Policy Research Perspectives). American Medical Association.

Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86(1), 78-93.