It is December of 2021. 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, 2021 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 ACA. Republicans have been unsuccessful in repealing the ACA, but even with Democrats in power, its fate remains far from clear. Most believe it will not go away but could be expanded. Since the ACA’s inception, bad debts and charity care across the system have dropped by $6 million to $10 million per year as a result of more people having insurance or Medicaid coverage.

• A move to value-based purchasing. More of Medicare and Medicaid 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 populationbased system founded on value indicators. The challenge remains to expand this to private employers.

• Drug prices. One of the largest increases in hospital costs has been the escalating cost of drugs. Many suggest that these increases will continue. The government continues to try to pass legislation to reduce costs, but the pharmaceuticals lobby has successfully prevented this so far.

• 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?