Marketing Health Care Into the Twenty-First Century

The Changing Dynamic

Alan K Vitberg, William Winston

• Publisher: Routledge
• Year: 2014
• Topic: Business
• eBook ISBN:
  9781317740261
• Subtopic: Business General
• Index: Business

Marketing Health Care Into the Twenty-First Century explores recent and anticipated changes and trends--legislative, economic, organizational, clinical, and operational--from a strategic marketing perspective. Author Alan K. Vitberg, a respected consultant in health care marketing, takes an unabashedly strong, direct, and aggressive perspective on these trends, maintaining that a state of war exists in the health care industry--a war that will only increase in fervor and intensity as organizations fight for survival and their share of hundreds of billions of dollars spent in America on health care.According to Marketing Health Care Into the Twenty-First Century, those payers and providers who understand that they're fighting a war and act accordingly stand the best chance of short term survival and long term prosperity. Those who bury their heads in the sand, awaiting the storm of war to blow over, will find themselves prisoners of their inactivity.Marketing Health Care Into the Twenty-First Century succinctly captures and explores issues and trends affecting participants in the battle for consumers'health care dollars, including: the growth of managed care; emerging health care systems; formation of provider networks and other organizational structures; the relationship between risk and product, target market, and organizational options; the emerging clout of primary care; mergers and acquisitions; and shifts in health care dollar flow.Marketing Health Care Into the Twenty-First Century is also one of the first books in the market examining changes being made to Medicare and Medicaid programs and their strategic and tactical implications for health care industry participants.In order to take advantage of these changes and trends, Vitberg moves from the conceptual to the practical by defining and delivering insights into the concept of competitive innovation and its relationship to competitive advantage--hearing, listening, and responding to the voice of the market through meaning brand identification, product differentiation, and intrusive marketing communications that motivate customers to a preferential purchase decision.Anyone in the health care industry--marketing, planning, and development professionals with hospitals, HMOs, PPOs, networks/alliances, insurance companies, and medical groups--is among those who will find Marketing Health Care Into the Twenty-First Century a valuable resource for embracing strategic marketing now and in the near future. The book also serves as informative, stimulating reading for professors and students in graduate level health care administration courses.

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CHAPTER 1:
THE CHANGING DYNAMIC

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Where is the WISDOM we have lost in knowledge? ^*
Where is the KNOWLEDGE we have lost in intelligence?^*
Where is the INTELLIGENCE we have lost in information?
Where is the INFORMATION we have lost in data?
Where are the DATA we have lost in ignorance?

Source: Vincent P. Barabba and Gerald Zaltman, Hearing the Voice of the Market. Boston: Harvard Business School Press, 1991, pp. 41 and 46. Reprinted by permission.

^*T.S. Eliot, "The Rock."

Wars are often won or lost based upon intelligence gathered from the field. Commanders must be aware of both the big picture as well as specific battlefield conditions in order to develop successful strategies and tactics. They must have historical perspective as well as an uncanny ability to chart the future by understanding, recognizing, and responding to today’s environment while spotting tomorrow’s trends.

The health care marketer of today and tomorrow must serve a critical role of information gatherer and interpreter. Health care battles will be fought on the fields of managed care, integration, consolidations and mergers, and government programs, among others.

Consequently, more than ever before, providers and payers must listen to and correctly interpret the voice of the market. They must be fully attuned to the signals that come from customers and competitors in order to make the right decisions at the right time. Organizations that lose touch with the market, that either ignore or misinterpret its signals, will fail in today’s and tomorrow’s health care industry.

Barabba and Zaltman¹ maintain that competitive advantage lies in a process of hearing, listening, and responding to the voice of the market. In the health care industry, this voice tells us that change is occurring on an evolutionary scale on many fronts, from provider reimbursement methods to information needs and uses. Within this changing environment, the payer, medical delivery, and health care system marketer ultimately holds responsibility for making sure that customers understand the basic concept behind a product or service; showing customers the relevance of the product or service to their needs; and removing or significantly reducing barriers to transactions or exchanges so that customers can engage in a transaction with minimum effort.²

Like any evolution, industries evolve because forces are in motion, creating incentives or pressures to change.³ Understanding these forces and their implications (i.e., "the voice of the market"), and creating strategically based, customer responsive products and services must lie within the domain of today’s payer, medical delivery, and health care system marketers.

The beginning of the industry’s evolutionary path can be traced to an era where fee-for-service for physicians and cost-plus-reimbursement for hospitals encouraged spending without recourse to efficiency. Free choice of provider and differential subsidies favoring inpatient hospital care began to contribute significantly to rising medical costs.⁴ Faced with unlimited demand and the prospect of unlimited payment for the likely sickest of our population, commercialization of health care began in earnest.⁵

Motivated by a cost-based payment system and a price insensitive environment that encouraged and rewarded system growth,⁶ the industry witnessed the rapid expansion of horizontally integrated multiple hospital systems. According to Fottler and Malvey, the pursuit of horizontal integration can be:

… Attributed in part to hospitals’ attempts to deal with an increasingly complex and often hostile environment that created intense financial pressures and risks that threatened institutional survival. System affiliation offered hospitals opportunities to reduce or diversify certain facility-specific risks. Hospitals could gain management expertise, access to capital, and improve their overall financial status through afflictions with well-managed, financially sound institutions.⁷

Horizontally integrated systems were expected to offer hospitals advantages ranging from economies of scale to increased political power, but … the only advantage that system hospitals have demonstrated is an increase in labor productivity through more efficient use of personnel… . Because cost-based reimbursement offered few incentives to systems to operate efficiently, there were no rewards for reducing costs."⁸ In fact, S.M. Shortell maintains that hospital systems have failed to fully integrate and have been unable to perform as systems rather than as collections of facilities, and that in order for a system to be fully and functionally integrated, both administrative and clinical services must be vertically integrated within the system.⁹

Stimulated by government and employer reactions to rising health care costs, and given momentum by Federal grants, managed care began to truly develop in the early 1970s. This process was a reaction to a flawed payment system that rewarded health professionals for utilization To this day, the echoes of this reaction reverberate in the hallways of providers and payers across the nation as providers and payers seek to position themselves to capitalize upon a growing demand for cost control.

Insurers began to manage their payments for health services, and found that in indemnity markets, the combination of minor changes in benefit structures and discounts from providers could produce astounding profits. The HMO Act of 1973, for example, was based on evidence that medical costs could be reduced with incentives to prevent and reduce hospitalizations.¹⁰ Wolford, Brown, and McCool maintain that the emergence of HMOs:

… Came at a time when health insurance companies were moving away from community-rated insurance to corporate or group rated insurance. The sense of community sharing of health care risk was being lost as corporations and other groups chose to reduce their health care costs by extracting themselves from the community pool. The focused marketing of HMOs toward young, healthy groups exacerbated the flight from the concept of community health. The results are massive cost shifting among buyers of health services and massive displacement of potential buyers of health insurance who are either deemed an unhealthy risk or insufficient in group size to be afforded affordable health care rates.¹¹

Control over medical costs during the 1980s through the early 1990s focused upon component level cost control. According to John Eichert, President of Hastings Healthcare Group, under component level control, utilization management techniques are used to reduce the demand for individual products or services or to optimize utilization of appropriate resources. However, component management, maintains Hastings:

1. Emphasizes the treatment of disease rather than prevention which would avoid costly complications;

2. Wastes time, money, and human resources as a consequence of lack of coordination and continuity of treatment;

3. Shows a bias against expensive treatments that cost more in the short-term but save money in the long term;

4. Produces few provider incentives to treat the entire disease; and

5. Encourages an overall increase in utilization of services as a result of revenue based reimbursement.¹²

Concurrently, hospitals began to offer volume discounts under the assumption that economies of scale, afforded by size, would protect their market share. By the mid-1980s, however, declining demand, excess capacity, increased managerial control by managed care organizations, and continuing cost containment pressures magnified critical flaws in horizontal integration. This led to the development of national-scale vertically integrated systems, attempting to combining medical services and insurance under one umbrella.¹³

Thus, the structure of the health care industry has changed in fundamental ways, and as Michael Porter maintains, industry evolution takes on critical importance for formulation of strategy:

Understanding the process of industry evolution and being able to predict change are important because the cost of reacting strategically usually increases as the need for change becomes obvious and the benefit from the best strategy is highest for the first firm to select i t . ¹⁴

Into the twenty-first century, participants on the battlefields of the health care industry will face the need to deal with a number of key trends that will determine whether they decline, survive, or thrive. These include:

• The growth of managed care

• The frenzy of provider integration activities

• Provider and payer consolidations and mergers

• The explosion of information and information technology

• Government initiatives to increase managed Medicare and Medicaid.

Each of these are explored in this chapter.

THE CONTINUED GROWTH OF MANAGED CARE

The growth of managed care has sparked evolution in clinical, financial, administrative, and strategic relationships between and among payers, physicians, and hospitals that must be incorporated into the strategic, tactical, and operational battle plans and activities of the payer, medical delivery, and health care system marketer of today. In particular, the evolution of managed care has fostered movements toward vertical integration and consolidations, mergers, and acquisitions. It has changed and expanded the scope of information needs and technologies. A...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• About the Author
• Table of Contents
• List of Figures
• List of Tables
• Acknowledgments
• Introduction: Revolution or Evolution?
• Chapter 1: The Changing Dynamic
• Chapter 2: Health Care Battlefields
• Chapter 3: Health Care Plan Structures and Systems
• Chapter 4: Winning the War-Critical Factors for Success in the Changing Dynamic
• Chapter 5: Preparing for Battle-The Art and Process of Competitive Innovation
• Chapter 6: Fighting The Battle The Art and Process of Market Excitation
• Chapter 7: Conclusion
• Index