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Harvard Makes Case Study of Hoag Orthopedic Institute

How is the 5-year-old joint venture between nonprofit Hoag Memorial Hospital Presbyterian and a pair of doctors’ groups going?

Well enough to catch the eye of Harvard Business School, which made the Hoag Orthopedic Institute in Irvine the subject of a case study on hospital operations in the age of healthcare reform.

The institute opened in 2010, shortly after the opening of Hoag Hospital Irvine, where it leases space. It is a for-profit venture between Newport Beach-based Hoag Memorial and two large orthopedic surgery groups—the Newport Orthopedic Institute, also in Newport Beach, and the Orthopedic Specialty Institute in Orange.

Harvard Business School Professor Emeritus Robert Kaplan and research associate Jonathan Warsh spent nearly three months last fall conducting interviews with Hoag Orthopedic Chief Executive Dereesa Purtell Reid, other executives and doctors.

“They wrote the case history, wrote about our competitive environment and an analysis of our model of care,” Reid said.

She helped Kaplan and Warsh present the report to Harvard Business School students last month.

The classroom presentations expanded on some of the key points laid out in the report, including the view that Hoag Orthopedic knows “that healthcare reform is happening and we understand why,” as Reid told the researchers. “Our goal is not simply to survive in a world of cost containment, but to leverage our core capacities in a way that actually gives us a strategic advantage. How well we do that will be the story of the next 10 years.”

‘Validation,’ Elevation

Reid called the case study “an acknowledgement and validation” of how Hoag Orthopedic is providing care to its patients, and she also expressed pride that the hospital is “in the repertoire of cases taught to students” at Harvard Business School.

Being selected as one of the business school’s cases “elevates the great work we do in healthcare on not only a national level, but an international level,” she said, adding that several international students were part of the January case presentations.

Reid noted that the “case unfolds like a true story” for those who read it.

Origins, Challenges

Kaplan and Warsh shared some behind-the-scenes information about how Hoag Orthopedic came to be and how it tackled certain challenges.

One anecdote detailed several trips to Washington, D.C., made by Dr. James Caillouette, a surgeon and Hoag Orthopedic’s chief strategy officer; then-Hoag Chief Executive Dr. Richard Afable; and Robert Braithwaite, then Hoag’s chief operating officer.

The trio worked with members of Congress on a successful effort to delay implementing a provision in federal healthcare reform that banned the creation of any new doctor-owned hospitals in order to give Hoag Orthopedic time to finish construction and get certification.

Another story delves into what Kaplan and Warsh characterized as Reid’s desire to have a publicly available patient-outcomes report to “address the suspicions and skepticism from local clinicians and the public” about Hoag Orthopedic, which operates in a region dominated by nonprofit providers.

Reputation

“For-profit hospitals have a poor reputation for quality and pricing,” Kanoe Allen, Hoag Orthopedic’s chief nursing officer, told the professors. “Several of our clinical staff got a whispered conversation from a colleague at a social occasion, starting with, ‘I hear you’re going to work for a for-profit. Why do that? You guys are crazy.’ ”

Reid told Warsh and Kaplan that she felt such concerns could cause local doctors to be reluctant to refer their patients to surgeons affiliated with the institute and patients to resist having procedures there, and that making a report on patient outcomes public “would help us earn our brand and win the argument.”

Hoag Orthopedic chose to promote itself through the report rather than advertising, Reid said.

The institute has 70 beds and nine dedicated operating rooms. It provides knee replacement, hip replacement, and other surgeries and treatments for various conditions, including arthritis and spinal disorders. It is the only hospital in Orange County dedicated to orthopedic care.

Hoag Orthopedic performed 11,417 surgeries between the hospital and two surgery centers in the period ended in September 2013, according to its most recent annual outcomes report.

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