Business Case Studies & Business Publications

Red Rock Hospital: Navigating the Shift ...

Herpfer, Christoph...

Case

Red Rock Hospital: Navigating the Shift to Outpatient Care

Herpfer, Christoph; Adkins, Thomas

F-2157 | Published July 28, 2026 | 13 Pages Case

Collection: Darden School of Business

Product Details

In February 2024, Wendy Norton, CEO of Red Rock Hospital (RRH) in Colorado, was presented with a proposal from an enterprising orthopedic surgeon, David Moga, to build a stand-alone ambulatory surgery center (ASC). The new facility would be dedicated exclusively to two types of procedures: total knee arthroplasty and total hip arthroplasty. These procedures were the highest-margin service line at RRH and helped subsidize departments such as emergency medicine, family medicine, obstetrics, and behavioral health. By spinning these surgeries out into a purpose-built ASC, Moga and his colleagues would enjoy greater professional autonomy and, most importantly, economic upside through equity in the facility. Norton faced a classic cannibalization dilemma: Should the hospital proactively partner with its surgeons to cannibalize its most profitable business, or risk losing the surgeons altogether as they built an independent ASC and took both the volume and the revenue with them? The case reviews the economic drivers of site-of-service migration, the clinical advantages and risks associated with outpatient procedures, payment structures under fee-for-service and emerging value-based contracts, and the cross-subsidization dynamics that make profitable surgeries critical for hospital sustainability. Students are asked to evaluate whether RRH should invest in the proposed ASC, maintain the status quo in the inpatient setting, or choose a compromise by expanding its existing hospital outpatient departments (HOPDs). They must consider timing, partnership structure, and the long-term consequences for both the hospital and the community it serves. Underlying this decision is a broader industry shift from hospital inpatient surgery to lower-cost outpatient settings such as HOPDs and ASCs.

Understand the drivers behind site-of-service migration; evaluate the economics of ASCs; appreciate the clinical outcomes and risk factors associated with each site of service; analyze cross-subsidization and hospital sustainability; examine policy trends and payer incentives