Publications
Publications
- July 1996 (Revised January 2024)
- HBS Case Collection
THG Management Services
By: Regina E. Herzlinger and D. Scott Lurding
Abstract
THG Management is in the second module of the Innovating in Health Care course that discusses how to start an innovative health care firm, in this case, a firm that deals with health insurance. THG Management, now bankrupt, examines the risks of lack of diversification and of being a first mover. It also discusses the pros and cons of owning versus managing insurance risk and the impact of these choices on how the firm operates and its bottom line.
Formed by two entrepreneurs, THG Management was hired by a prominent Academic Medical Center (AMC), which ran an insurance program for a state Medicaid program to control their health care costs. Benefiting from early experience managing these lives, the founders moved quickly into Medicare and the commercial health plan markets. They were the first to pay physicians and hospitals a capitated fee for all their services, rather than a fee for each service. The two also carefully designed their culture and prioritized their managerial activities.
Unfortunately, when a company is stuck between bigger suppliers—The AMC and customers—the Medicaid program—it loses any leverage. After THG spent considerable sums in educating providers about capitation, competitors moved in that did not need to spend their money on this education.
Formed by two entrepreneurs, THG Management was hired by a prominent Academic Medical Center (AMC), which ran an insurance program for a state Medicaid program to control their health care costs. Benefiting from early experience managing these lives, the founders moved quickly into Medicare and the commercial health plan markets. They were the first to pay physicians and hospitals a capitated fee for all their services, rather than a fee for each service. The two also carefully designed their culture and prioritized their managerial activities.
Unfortunately, when a company is stuck between bigger suppliers—The AMC and customers—the Medicaid program—it loses any leverage. After THG spent considerable sums in educating providers about capitation, competitors moved in that did not need to spend their money on this education.
Keywords
Managed Care; Capitation; Entrepreneurship; Insurance; Health Care and Treatment; Risk Management; Motivation and Incentives; Expansion; Health Industry; Insurance Industry
Citation
Herzlinger, Regina E., and D. Scott Lurding. "THG Management Services." Harvard Business School Case 197-011, July 1996. (Revised January 2024.)