The USC Hospital Before and After Managed Care

Problem Statement

Inaugurated in 1878, the USC hospital, which is alternatively referred to as LAC+USC Medical Center is one of the biggest public hospitals and training centers in the US. The facility is the single biggest provider of healthcare in the county of Los Angeles (LAC+USC Medical Center par.5). The hospital offers care to the millions of medically underserved people within the Los Angeles region. With a 633-bed capacity and serving more than 39, 000 people and more than 1 million ambulatory care clients per annum, the University of Southern California and Los Angeles County (LAC) jointly run the facility. The hospital is classified as a level 1 trauma medical facility. It treats an excess of 28% of the total trauma cases within its region. The facility also offers healthcare to patients who suffer from AIDS and sickle cell anemia across southern California.

The USC hospital operates under the law. For example, the law demands all emergency rooms to evaluate patients to mitigate life-threatening situations, irrespective of the patients’ capacity to pay for the services. However, despite this legal provision to promote universality and inclusiveness in medical care, hospital care service is not offered free of charge. Indeed, the USC Hospital welcomes patients who are covered by health insurance such as Medicaid, managed care, and Medicare. It also accepts patients who directly pay for the services, including those who have private insurance arrangements.

In the case of patients who do not have any health insurance and/or have no capability of paying, a bill is presented to them. However, they are directed to the hospital’s financial services department near the emergency room. In the department, counselors review the current financial situation of the patient to evaluate the program for financial assistance that best suits him or her, including whether he or she qualifies for such a program.

The paper investigates the status of the hospital’s business strategy, reimbursement, and quality of healthcare after the implementation of managed care. The paper addresses this problem in four sections. The first section discusses the pros and cons of managed care. It also offers an overview of the situation at the hospital after the implementation of managed care. Section two presents the problem analysis. The third section presents the SWOT analysis of the hospital in terms of managed care. Looking into the future, the last section recommends the way forward for the hospital.


Managed care is the US’ most prevalent kind of health insurance. It has significant implications in terms of how patients receive their Medicare. It permits huge numbers of people to access affordable care in a variety of programs coupled with packages. Managed care involves health insurance plans that engage in contractual relationships to ensure that patients gain access to quality care at low costs (Jones and Bartlett LLC 3). People may enroll independently or as a form of benefit offered by an employer. Irrespective of the form of enrolment, those who have health insurance are more likely to get it via managed care. Common forms of care include Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and Point-of-Service Plans (POS).

Managed care became popular when the ‘fee-for-service’ healthcare system turned out to be inefficient in delivering quality care to a large number of people without discrimination. With its root in the 1980s, managed care facilitates patients to make choices for plans with different rates of co-payments. HMOs, pay medical care only within a given identified network. PPOs cover care that is delivered through their network and partial payments where providers who are not within the network deliver care. Every time that a patient needs care, POSs offer the freedom of switching between HMOs and PPOs. Managed care has its merits and demerits. It has also influenced the USC Hospital before and after its implementation in different ways.

Pros and Cons of Managed Care


Managed care was created to curb the escalating costs of medical care under the ‘fee-for-service’ healthcare system. Therefore, its major pro is the reduction of the cost of healthcare. Indeed, its main objective was to ensure that healthcare costs remained low without compromising the quality of care delivered. This goal has been achieved by contracting different care providers together with referring enrolled members to facilitate the accessibility to services at discounted costs. Hence, the care is most appropriate for employers and individuals who are unwilling or incapable of paying exorbitant fees for health care (Jones and Bartlett LLC 3).

People who are enrolled to the managed care system have readily accessible network of care providers. The professionals and healthcare facilities have undergone intensive accreditation to the extent that people who enroll for managed care remain assured that they can receive quality care at cost-effective rates. In fact, the professionals and healthcare facilities that form the networks for a given health care plan have their credentials and experiences proven through a careful analysis to ensure that they possess innate capacity to deliver quality care to all enrolled members (Jones and Bartlett LLC 3). Therefore, members rest assured of optimal care upon consulting with primary physicians when a medical need arises.


Managed care, especially the HMO, operates under rigid rules. Under the plan, members have a fixed choice of care providers (Xu et al. 355). This situation is a con in case a member is dissatisfied with a service offered by a primary physician. He or she may want to seek further services from another physician outside his or her network of professionals and healthcare facilities. In such a situation where one enrolls for HMO, he or she has to seek the service externally to the network, but pay the full cost from his or her pocket (Xu et al. 356). Managed care may deploy cost-reduction tactics to attract more enrollments that may prejudice quality. Driven by the cost-reduction motives, a physician may also skip some tests that are necessary for proper diagnosis. The converse of this situation may also apply. Some physicians may make their patients undergo unnecessary test with the objective of making more money.

Managed care firms receive summaries of details of medical conditions and treatments that are delivered to patients. This plan has the limitation of interfering with the privacy of the patients’ medical conditions. The POS may require approval before the treatment commences. The locations of office where such approval is acquired may conflict with patients’ busy schedules at work. In some situations, patients may receive appointments that do not match work schedules, yet the care provider has to stick to an appointment due to the large number of people who require attendance.

Managed care may aid in resolving the challenges of inefficiencies in the payment systems by rewarding healthcare providers. However, Town et al. reckon that they may lead to the consolidation of the healthcare industry (225). This situation has implications such as some providers charging people more instead of less, especially when a given network of care providers dominates a particular geographical area.

The USC Hospital Before and After the Managed Care

Before the managed care, the USC Hospital business model was different from the way it is currently after the implementation of the plan. Before the execution of the managed care, the USC Hospital referred its patients for highly specialized medical care without necessarily considering whether referrals were made to specialists who fall within the health network for the patient. After the managed care, patients now have to decide whether to accept referrals to specified specialists by considering whether such specialists are outside their networks. The managed care systems provide more oversight compared to fee-for-service systems. Therefore, after the managed care, the USC Hospital considers its patients’ individualized health insurance plans before making any referral.

Before the managed care, the USC Hospital operated as a lone entity that delivers service under the ‘fee-for-service’ systems. At this time, the hospital had no networked medical facilities and care professionals that collaborate with it. However, with the onset of managed care, the hospital established a network with three other partnering organizations. They include H. Claude Hudson Community Healthcare Center, Roybal Community Healthcare Center, and El Monte Community Healthcare Center (LAC 2). The USC Hospital has managed to control 7.7% of the total healthcare market in LAC (California Healthcare Foundation 4). It takes the second position after Keiser network, which has seven hospitals. It controls 11.8% of the market share that is measured based on discharges (California Healthcare Foundation 4).

Managed care has made the USC Hospital change a number of its operations. For example, in the implementation of PPACA, LA County has not only streamlined its approval processes but also significantly reduced programs that aid patients in meeting their medical expenses. Although the Ability-To-Pay program that applied on a large-scale before the implementation of managed care is still available, with the current managed care, most patients are referred to the Medi-Cal program that receives financing from the PPACA. The reasoning here is that under the program, more people can qualify, it is simple, and that it ensures a comprehensive coverage compared to the Ability-To-Pay program, which requires renewal after every six months. The hospital no longer accepts the LAC Healthy Way Financial Assistance. LAC moved all people under the program to the Medi-Cal program that was expanded by PPACA. This move permits people to select between the HMO plan and the pay-per-point healthcare plan. Under the new operational model, people can access services at LAC+USC Hospital or clinics that are funded by LAC.


Disease Management and Case Management for the USC Hospital

Disease management and case supervision are critical in the USC Hospital when it comes to fostering good health, especially for people who suffer from chronic ailments. The American Society of Case Management defines disease management as “a collaborative process, which assesses, plans, implements, coordinates, monitors, and evaluates the options and services required to meet an individual’s health needs, using communication and the available resources to promote quality and cost-effective outcomes” (Jannetti Publications 5). In the USC Hospital, case management concepts have been successfully deployed in acute care together with outpatients for diverse population demographics and different states of diseases.

At the USC Hospital, deploying the case management processes has produced both qualitative and quantitative positive health improvements. The case management programs for the USC Hospital are designed in a manner that they reduce costs while at the same time fostering effective utilization of the resources of the hospital. Indeed, as chronic conditions increase in LAC, and as the population of the county ages, the USC Hospital model of case management helps in enhancing hospital performance coupled with fostering effective allocation of the available healthcare resources. In acute care, case management approaches have reduced the stay time at the facility. The reduction has also been witnessed in care levels, duration, and the frequency of the various services that are provided in the facility. Besides reducing the related ancillary services, it has also resulted in the lowering of bed days. This situation, which reveals the unutilized bed capacity of the USC Hospital, has resulted in its downsizing strategy from 900-bed capacity to about 633-bed capacity.

Disease management constitutes a derivative of managed care. It comprises a system of various coordinated care interventions in which patients’ efforts of self-care significantly help in the recovery and/or management of an ailment. At the USC Hospital, this strategy promotes the relationship between patients or the practitioners and the care plan, which in turn improves health through “utilizing evidence-based practice guidelines and patient empowerment strategies for evaluating clinical, humanistic, and economic outcomes on an ongoing basis” (Freeman, Lybecker, and Taylor 18). The USC Hospital disease management approaches have six major components. The first component entails the process of identifying populations while the second aspect involves developing and compiling evidence-based guidelines and practices. The third component includes the development of collaborative models that bring together patients, providers of support-service, and the physicians.

At the USC Hospital, disease management initiated as a plan for managing patients’ chronic conditions. It later developed into various programs that addressed patients’ wellness, instruction of dietary needs, and the coaching on patients’ health. Later concepts of intensive care and management of chronic ailments were incorporated. The USC Hospital deploys two approaches to disease management. Primary care can be embedded into MCO. Alternatively, commercial vendors may enter into contracts where they can provide various protocols for disease management in non-integrated manner.

Integrated Delivery System (IDS) or Organized Delivery System (ODS)?

The USC Hospital has formed an integrated network with H. Claude Hudson Community Healthcare Center, Roybal Community Healthcare Center, and the El Monte Community Healthcare Center (LAC 2) with the objective of delivering a range of health services. Hence, the USC Hospital operates as IDS. This claim is evidenced by the fact that these players represent different kinds of ownership coming together to form strategic linkages between different hospitals, insurers, and physicians. The IDS care system accepts to take responsibility for the health of the population that the care providers are in charge of as stated in their contract with the MCOs.

Type of Reimbursement Methods

The USC Hospital mainly uses the capitation reimbursement methods. Indeed, under this approach, several approaches may be deployed to guarantee flow of financial resources within a healthcare facility in the US. Some of the most important mechanisms include managed care, Medicare, Medicaid, or other current legislative measures such as the Affordable Health Care Act of 2010. At the USC Hospital, compliance with legislative directions is important in ensuring harmony between the organization and its network partners’ operations and the legal environment. The organization values the importance of accepting different financial flow mechanisms. The USC Hospital values the contribution of managed care through HMO and the Affordable Healthcare Act of 2010 (PPACA) to the reimbursement of healthcare funds. However, other reimbursement approaches such as Medicaid, Medicare, and the ability to pay programs are still acceptable at the USC Hospital.

The HMO is the most known kind of managed care in the US. Hence, it is one of the reimbursement methods deployed by the USC Hospital. It is restructured into the group model and the Individual Practitioner Association (IPA) model. Under the two models, all patients are included in a prepaid fee termed as capitation charge. The focus of the HMOs involves the preventive care with the final goal of ensuring that all covered people remain healthy and not hospitalized in the facility.

Through the Affordable Care Act of 2010, the central driving force for the healthcare plan is the need to avail affordable health care to all Americans together with the minimization of the number of uninsured Americans (Antos, Wilensky, and Kuttner 462). To realize this endeavor, the healthcare reform plan provides mechanisms such as offering subsidies, tax credits, and mandates to individual and/or employers with the view of hiking the health insurance coverage rate. The plan has some other additional reforms aimed at improving healthcare outcomes together with streamlining the health care delivery. The Act places an obligation to insurance companies to ensure that all applicants are subtly covered at equal rates with the gender and the pre-existing conditions of the applicants. At the USC Hospital, it ensures smooth flow of revenues since many LAC residents now have a health insurance cover. Nevertheless, the USC Hospital treats thousands of underinsured people within LAC.

Risks Involved

The USC Hospital embraces managed care reimbursement approaches. Although managed care aims at reducing healthcare costs, it presents some risks to hospitals, including the USC Hospital. In the era of Medicare, cost-plus, and indemnity insurance, research by Cox suggests that competition has different outcomes in hospital settings when compared to the predictions of economic theories (111). The ultimate buyers of the services offered by hospitals were price-insensitive. Physicians served as the purchasers of various hospital services, instead of patients who directly make such purchases. However, the physicians served as imperfect agents since they could benefit either financially or non-financially by ordering expensive care. Indemnity insurance made the full care cost invisible. Managed care helped to resolve these risks. However, it is crucial to note that the hospital requires financial resources to execute its growth strategies and/or deliver care.

Managed care reduces the USC Hospital’s space to bargain for better prices. The rule of demand and supply no longer applies. Before managed care was enacted at the USC Hospital, private buyers of its services had no form of organization. Therefore, even if they had concerns about the costs of care, they had no combined platform for negotiating with the hospital. This situation is no longer the case with the managed care. Through the managed care, the USC Hospital faces the risk of losing a competitive edge in bargaining for better prices since organized purchasers of care services have a higher bargaining power (Howard et al. 246). Even with these risks, the USC Hospital has no legal permission to reject patients in its emergency departments (ED). Such patients may not have the ability to pay, yet they must be treated. This situation increases the risk of decreasing financial returns from health care services (Cox 111). In fact, even if they are insured, some of the patients who seek the ED services may have managed care providers outside their networks. This case has effects on the patient’s ability to pay. Managed care networks are rigid. They only pay for services delivered by professionals and groups of hospitals in their network.

Managed care presents financial risks to the USC Hospital and its affiliated network of hospitals. The organization must manage costs while still avoiding related risks such as legal suits. Therefore, they must employ highly qualified and accredited professional such as doctors and psychologists. This plan translates into high operational costs. It may result in suboptimal operations. Funded by the county of LA, the USC Hospital faces the risk of attracting a large number of underinsured people who can cause long queues, thus prompting highly insured people to seek services elsewhere. Indeed, the hospital’s financial mix is 44% Medi-Cal, 5% Medicare, 5% private insurance, and 30% uninsured while others account for 16% (LAC 7).

The Impact of Managed Care on Business Strategy, Finance, and Operations

Managed care streamlines the USC Hospital’s costs. It also provides room for physicians who purchase healthcare services on behalf of patients to bargain for better prices. This strategy affects the USC Hospital’s business strategy, finances, and operations. Before the onset of managed care, many hospitals in the US operated as market-driven entities. Hence, hospitals, including the USC Hospital, have the freedom for setting their quality and quantities for service delivery.

The market-driven hospital operational model attracted challenges. For instance, profit motives would harm patients in terms of increasing care costs. Under the old model, hospitals pursued business strategies that aimed at increasing their competitive advantage compared to their rivals. The strategies included heavy investments in growth by adopting new technologies, hiring highly qualified professionals, and even advertising to draw clientele. These strategies have the implication of increasing the cost of care delivered (Politzer 297). In this era, since the hospital had to break even, the cost of care increased due to the investment in technology where sophisticated diagnosis and treatment approaches were to be utilized.

According to Marton and Yelowitz, managed care gives patients a higher buying bargaining power through their primary purchasers for healthcare services (535). Hence, hospitals could no longer have a high supplier bargaining power. Amid the investments in new expensive technologies, the USC Hospital could no longer regulate financial flows by raising the cost of care without consulting with the consumers of the health care services. Consequently, the USC Hospital has currently considered exploring different business operation strategies, which include consolidation, downsizing, and placing more emphasis on the performance of its human resources to guarantee optimal utilization of labor. For example, the USC Hospital downsized from a 900-bed capacity to just above 600-bed capacity facility. Its operation strategy changed from growth in its bed capacity to the management of healthcare of its healthcare service purchasers.

SWOT Analysis

In the normal operations of any organization, situations are encountered which act as strengths, weaknesses, opportunities, or even threats to its success. These aspects define the concept of SWOT analysis. The analysis is a theoretical methodology for analyzing external and internal factors that influence the operations of an organization (Hill and Westbrook 47).


Strengths are the traits that enable an organization to have an advantage in comparison with other business establishments.

  1. The USC Hospital has the strength of its ability to provide quality care in its facilities or through its network partners
  2. Its human resource is highly capable of initiating and maintaining positive healthcare service seeker relationships as the source of competitive advantage
  3. The hospital accepts a variety of reimbursement options that range from Medicaid, Medicare, and the managed care to pay for service options
  4. The hospital is proud to have served a large number of underinsured people across LA
  5. It has secured sources of funding from the LAC
  6. Since LAC runs the USC Hospital, it is shielded from losses that arise from providing ED services to a person who turns later to be incapable of paying due to the lack of insurance coverage


Weaknesses or the limitations are the traits of an organization that place it at a disadvantage in comparison with other business establishments in the same industry (Hill and Westbrook 47).

The USC Hospital’s main weakness is its lack of capacity to compete with other healthcare providers, which only rely on funding from reimbursements from managed care plans. Such organizations do not accept people who are not within their care plans. This situation ensures that for every service they give to a patient, payment is made by the purchaser as agreed in the contract for healthcare provision with the insurer.


Opportunities are the existing external chances, which while utilized make an organization to improve its performance.

  1. The USC Hospital’s opportunities include using its highly capable human resource to build long-term relationships with network partners
  2. The fact that the facility accepts a wide range of reimbursement options implies that it has many people who seek diagnosis and treatment. Therefore, it has an opportunity to demonstrate its capability to offer evidence-based treatment options that lead to less bed stay and reduced frequencies of attendance to the hospital
  3. The acceptance of a wide range of payment options is an opportunity for acquiring economies of scale. Achieving such economies will help to reduce rivalry in the industry


Threats are the external chances that impair the performance of an organization (Hill and Westbrook 49).

  1. The fact that the USC Hospital receives funding from the LAC presents an immense threat. With the managed care plan, healthcare providers need to deploy effective mechanisms for reducing costs since the purchasers of health services have an upper hand in bargaining for lower prices. Lower prices mean that hospitals generate low profit. Therefore, they have limited funds to invest in growth strategies and/or acquire new technological infrastructure
  2. Besides, the risk of inability to offset costs from reimbursements from various care plans due to the extra services that are delivered to the underinsured and vulnerable communities, which are unable to pay for services present an immense threat to the sustainability of the business of the USC Hospital.


Located in LA and operated by the University of South California and LA County, the USC Hospital delivers care to a large and diverse population segments. This service delivery role is accomplished under various healthcare plans such as the managed care, Medicaid, Medicare, affordable care, and private insurance. Under the managed care, the hospital faces bargains in the prices of care services from patients’ insurers. Through arrangements such as capitation, low cost of healthcare implies that the organization has to manage its costs effectively. However, quality should not be compromised. Hence, the hospital has to maintain highly qualified professionals and high-quality facilities for delivering healthcare.

A possible strategy for dealing with the situation includes ensuring that all patients who receive care can pay for the services that are delivered directly or through an insurer. This strategy involves rejecting uninsured or underinsured patients together with those who are incapable of paying. Unfortunately, the hospital is not legally allowed to take such an action, especially in case of ED services. To ensure that the facility manages its costs while providing services at low prices, it should review its technological capabilities, including procuring new technologies to replace the old ones as a way of enhancing the speed of diagnosis and treatment and the rate of service delivery. This plan can help in serving a high number of patients, a move that will see economies of scale resulting in additional cost savings.

Works Cited

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Hill, Terry, and Roy Westbrook. “SWOT Analysis: It’s Time for a Product Recall.” Long Range Planning 30.1(1997): 46–52. Print.

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Jones and Bartlett LLC. Major characteristics of U.S health care delivery, 2015. PDF file.

LAC. LAC+USC healthcare network, 2014. PDF file. Web.

LAC+USC Medical Center. Keck School of medicine: University of Southern California, 2016. Web.

Marton, James, and Aaron Yelowitz. “Health insurance generosity and conditional coverage: Evidence from Medicaid managed care in Kentucky. Southern Economic Journal 82.2(2015): 535-555. Print.

Politzer, Martin. “The future role of health centers in improving national health.” Journal of Public Health Policy 24.3(2003): 296–306. Print.

Town, Robert, Douglas Wholey, Roger Feldman, and Lawton Burns. “Revisiting the relationship between managed care and hospital consolidation.” Health Service Research 42.1(2007): 219-238. Print.

Xu, Peng, Burgess, James Burgess, Howard Cabral, Rene Soria-Saucedo, and Lewis Kazis. “Relationships between Medicare Advantage contract characteristics and quality-of-care ratings: an observational analysis of Medicare Advantage star ratings.” Annals of Internal Medicine 162.5(2015): 353-358. Print.

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