Changes in hospital competitive strategy: a new medical arms race?

OBJECTIVE

To describe changes in hospitals' competitive strategies, specifically the relative emphasis placed on strategies for competing along price and nonprice (i.e., service, amenities, perceived quality) dimensions, and the reasons for any observed shifts.

METHODS

This study uses data gathered through the Community Tracking Study site visits, a longitudinal study of a nationally representative sample of 12 U.S. communities. Research teams visited each of these communities every two years since 1996 and conducted between 50 to 90 semistructured interviews. Additional information on hospital competition and strategy was gathered from secondary data.

PRINCIPAL FINDINGS

We found that hospitals' strategic emphasis changed significantly between 1996-1997 and 2000-2001. In the mid-1990s, hospitals primarily competed on price through "wholesale" strategies (i.e., providing services attractive to managed care plans). By 2000-2001, nonprice competition was becoming increasingly important and hospitals were reviving "retail" strategies (i.e., providing services attractive to individual physicians and the patients they serve). Three major factors explain this shift in hospital strategy: less than anticipated selective contracting and capitated payment; the freeing up of hospital resources previously devoted to horizontal and vertical integration strategies; and, the emergence and growth of new competitors.

CONCLUSION

Renewed emphasis on nonprice competition and retail strategies, and the service mimicking and one-upmanship that result, suggest that a new medical arms race is emerging. However, there are important differences between the medical arms race today and the one that occurred in the 1970s and early 1980s: the hospital market is more concentrated and price competition remains relatively important. The development of a new medical arms race has significant research and policy implications.

Discount cosmetic surgery: industry trends and strategies for success

Discount cosmetic surgery is a topic of interest to plastic surgeons. To understand this trend and its effects on plastic surgeons, it is necessary to review the economics of cosmetic surgery, plastic surgery's practice environment, and the broader business principles of service industries. Recent work looked at the economics of the plastic surgery market. This analysis demonstrated that increased local density of plastic surgeons was associated with lower adjusted fees for cosmetic procedures. A survey of plastic surgeons about their practice environment revealed that 93 percent categorized the majority of their patients as very or moderately price-sensitive. Fully 98 percent described their business climate as very or moderately competitive and most plastic surgeons thought they lost a sizable number of cosmetic patients within the last year for reasons of price.A standard industry analysis, when applied to cosmetic surgery, reveals the following: an increased number of surgeons leads to lower fees (reducing their bargaining power as suppliers), patients are price-sensitive (increasing their bargaining power as buyers), and there are few barriers to entry among providers (allowing potential new entrants into the market). Such a situation is conducive to discounting taking hold-and even becoming the industry norm. In this environment, business strategy dictates there are three protocols for success: discounting, differentiation, and focus. Discounting joins the trend toward cutting fees. Success comes from increasing volume and efficiency and thus preserving profits. Differentiation creates an industrywide perception of uniqueness; this requires broadly positioning plastic surgeons as holders of a distinct brand identity separate from other "cosmetic surgeons." The final strategy is to focus on a particular buyer group to develop a market niche, such as establishing a "Park Avenue" practice catering to patients who demand a prestigious surgeon, although this is likely a small segment of the overall patient population. Plastic surgeons that buck the trend toward discount cosmetic surgery must take concrete and potentially costly steps to implement a plausible strategy for distinguishing their practices within the crowded cosmetic surgery market.

The end of the golden age of doctoring

Eight interrelated reasons for the decline of the golden age of doctoring are discussed in this article. Major extrinsicfactors (generally outside the control of the profession) include (1) the changing nature of the state and loss of its partisan support for doctoring, (2) the bureaucratization (corporatization) of doctoring; (3) the emerging competitive threat from other health care workers; (4) the consequences of globalization and the information revolution; (5) the epidemiologic transition and changes in the public conception of the body; and (6) changes in the doctor-patient relationship and the erosion of patient trust. Major intrinsic factors are (7) the weakening of physicians' labor market position through oversupply; and (8) the fragmentation or weakening of the physicians, union (AMA). Despite the recent sociopolitical transformation of modern U.S. medicine, our thinking remains wedded to a now inadequate theoretical approach. A future sociology of the professions can no longer overlook now pervasive macrostructural influences on provider behavior (corporate dominance). Until these influences are appropriately recognized and incorporated in social analyses, most policies designed to restore the professional ideal have little chance of success.

A post-1990s assessment of strategic hospital alliances and their marketplace orientations: time to refocus

In past years, many SHAs formed in local urban markets to better compete for managed care contracts. In response to 1990s forces, these SHAs appear to have adapted product, production, and selling orientations to their markets, aimed at large institutional purchasers of health care. However, health care markets have evolved differently than anticipated. SHAs and their hospitals should now adopt the marketing orientation and focus more on patients and enrollees.

Dr. Discontent

Physicians are angry, that that's bad news for hospitals. Increasingly, doctors are unable to pay soaring liability insurance premiuyms, are refusing to accept new Medicaid and Medicare patients, and are balking at taking ED calls. What's more, many physicians are setting up niche facilities that compete directly with hospitals in the most lucrative service lines.

HealthMarts, HIPCs (health insurance purchasing cooperatives), MEWAs (multiple employee welfare arrangements), and AHPs (association health plans): a guide for the perplexed

This paper considers how pending proposals to authorize new forms of group purchasing arrangements for health insurance would fit and function within the existing, highly complex market and regulatory landscape and whether these proposals are likely to meet their stated objectives and avoid unintended consequences. Cost savings are more likely to result from increased risk segmentation than through true market efficiencies. Thus, these proposals could erode previous market reforms whose goal is increased risk pooling. On the other hand, these proposals contain important enhancements, clarifications, and simplification of state and federal regulatory oversight of group purchasing vehicles. Also, they address some of the problems that have hampered the performance of purchasing cooperatives. On balance, although these proposals should receive cautious and careful consideration, they are not likely to produce a significant overall reduction in premiums or increase in coverage.