This article was written by Jim Cagliostro.

Remaining Competitive in the Healthcare Marketplace

According to the Health Care Cost Institute (HCCI), nearly 75% of US hospital markets are considered highly concentrated. If this is the case, how can your hospital remain competitive in the marketplace?
While many factors contribute to a high concentration of hospitals, the key driver behind the increase is consolidation, due to rising levels of mergers and acquisitions. Since 2010 there have been 680 hospital mergers in this country. [1] Additionally, more independent physicians are joining or forming physician groups – and more physician groups are aligning with hospitals and health systems[2]. The majority of Americans also live in the metropolitan areas where these concentrated hospital markets are found.
According to the Commonwealth Fund, from 2010 to 2016: [3]

• Physicians in hospital owned practices rose from 25 to 40%.
• Specialists employed by hospitals rose from 20 to 54%.
• Primary Care Physicians (PCPs) employed by hospitals rose from 26 to 38%.

Today these rates are higher.

The business case for mergers and acquisitions

The healthcare market in the US is becoming more consolidated and, as a result, less competitive. From a business perspective, mergers and acquisitions make sense for a number of reasons, including:

• Increased savings on necessary purchased services (“economies of scale”).
• Decreased competition (“if you can’t beat them, join them” strategy).
• Increased ability to make capital investments.
• Open sharing of cost savings initiatives.
• Open sharing of expertise and technology that improves care.
• Improved coordination and quality of patient care.
• Increased volume leads to increased productivity and improved outcomes.

From a healthcare organization’s perspective, the rationale for merging with a competitor is extremely convincing. At a time when hospitals face increased regulation, stricter reimbursement rules, and tighter (even negative) operating margins, a merger is often determined to be a hospital’s only hope for survival.
However, there is a less positive side to concentrated hospital markets as they are frequently associated with higher healthcare prices. For instance, from 2010-2016:

• Premiums for individual coverage rose by 12% in highly concentrated markets.
• The cost of a specialty outpatient visit was 9% higher than less concentrated markets.
• The cost of a PCP visit was 5% higher than less concentrated markets.
• No corresponding gains in quality care were seen.

Increased concentration in healthcare markets frequently means less competition and higher prices for patients. Click To Tweet
In these situations, the patient experience suffers. Hospital closures, patient preferences, and changes in insurance can also have an impact on market concentration.
Ultimately, patients face fewer choices and higher bills as they seek to navigate their care in a health system that appears to become more complex every year.
The following additional factors must also be considered with regard to healthcare market concentration:

• As a general rule, hospital markets in most metropolitan areas become more concentrated over time.
• Smaller metropolitan areas, such as Cape Coral, Florida and Springfield, Missouri, have populations under 300,000.
• These areas have higher concentration levels than larger metropolitan areas like New York City, Philadelphia, and Chicago which recorded 3 of the 5 least concentrated
• A further contributing factor to hospital market concentration is the degree to which patients from one metropolitan area seek care in a neighboring region. For example, both New York and Philadelphia attract patients seeking care from a wide area.

How should your response respond to increased market concentration?
The answer to this critical question depends largely on your location and the level of competition in your area.
VIE Healthcare® Consulting has extensive experience working with hospitals from every type of market:

• You may be located in a rural area that faces little to no competition due to the fact that there are no neighboring healthcare organizations and your patients have no other choice.
• You may be situation in a smaller metro area that is experiencing increased market concentration. Your organization may have been acquired by or merged with a larger health system. Alternatively, you may be in the daunting position of competing with that larger system.
• You may find yourself in a larger metro area where high levels of competition are, and will continue to be, the reality of daily business operations.

Let’s consider the distance and the time it would take for a patient to travel to a competing healthcare facility. For example, many Akron, OH residents travel to receive care in Cleveland, OH and many Allentown, PA residents travel to receive care in New York City or Philadelphia.
The Health Care Cost Institute created a detailed interactive map to demonstrate the percentage of patients traveling to receive care in neighboring metro areas. [4] Tools like these, together with simple data collection and analysis through patient interviews, can help your hospital to determine which health systems are attracting patients away from you.
Over the past five years, 53.2% of the nation’s ‘’standalone’’ hospitals have lost money on an operating basis compared with 25.9% of system owned hospitals. [5]
Furthermore, a growing number of independent hospitals are struggling to compete with expanding health systems.
Still more have no idea where to begin in terms of remaining profitable against such overwhelming odds.
Why your hospital is losing patients
There are numerous reasons why patients choose to bypass your hospital and travel a further distance for their care. These include:

• Preference for a teaching hospital.
• Preferred specialists.
• Lower prices.
• Better care or outcomes.
• Better reputation.
• Greater marketing efforts or techniques.
• Quality improvements or initiatives.
• Changes in insurance.
• Media coverage.
• Culture of organization and courtesy of staff.
• Ease of access or transportation.
• Appearance of facility.
• Shorter wait times.
• Patient experience.
• Recommendation from a physician, family member, or friend.
• Online reputation.

According to award winning speaker and author, Joey Coleman:
“If you’re providing a remarkable customer experience, customers will continue doing business with you. And they will bring their friends along as well.”
(Never Lose A Customer Again, 2018)
If your organization is losing patients, you may be failing to provide that remarkable customer experience that your competition is delivering.
If your hospital is losing patients you may be failing to provide the exceptional patient experience that your competition is delivering. Click To Tweet
When considering why your hospital is losing patients, you must factor in where your competition is succeeding, in addition to where you are failing to meet expectations.

• What steps have they taken to lower prices, improve outcomes, increase patient satisfaction, transform the culture, establish a good reputation in the community, etc?
• What strategies can be imitated to mirror their success and increase yours?

One of the best ways to determine where your organization has failed is to observe where your competition has prevailed.
Interviewing patients, while time consuming, is perhaps the most effective way to gather valuable qualitative data in highly concentrated markets. Patients are the focal point of your operations. If their needs and expectations are not being met, then your organization will struggle to compete. The iSUGEZT app from VIE Healthcare is an invaluable tool to empower your patients to connect with hospital leaders and provide feedback on the patient experience in real-time.
Collaborating with management and clinical staff on the frontline is also extremely important as you develop a strategy to remain competitive. In our experience, financial demands are often the most pressing for an organization seeking to remain competitive.
Since 1999, we have proven our expertise in helping hospitals achieve unparalleled cost reduction and increase operational efficiencies.
Merger or acquisition as a strategy for your hospital

After evaluation your options, your hospital may determine that a merger or acquisition is the most cost effective – or only – option going forward. This is simply becoming the reality of modern healthcare in our country.
Due to the relentless financial burden, the conversation for hospitals now is less about competition and more about survival.
VIE Healthcare has partners with hospitals to successfully overcome the financial obstacles that accompany mergers and acquisitions, including:

• Developing a unified strategic vision.
• Setting goals (both financial and non-financial).
• Aligning leadership from both organizations.
• Merging cultures and visions.
• Maintaining and improving patient safety and quality of care.

In closing
One of a hospital’s primary purposes is to improve the overall health of its surrounding community.
Effectively serving your patients means understanding the services and care they need, at prices they can afford, together with the conveniences they expect.
It also means knowing what services are offered by competing healthcare organizations. If your hospital is to continue serving its community successfully, you must understand your marketplace and act accordingly.
[1] https://docs.house.gov/meetings/IF/IF02/20180214/106855/HHRG-115-IF02-Wstate-GaynorM-20180214.pdf
[2] https://www.commonwealthfund.org/publications/journal-article/2017/sep/health-care-market-concentration-trends-united-states
[3] https://www.commonwealthfund.org/publications/journal-article/2017/sep/health-care-market-concentration-trends-united-states
[4] https://www.healthcostinstitute.org/research/hmi/hmi-interactive#HMI-Price-Index
[5] https://www.modernhealthcare.com/article/20190223/NEWS/190229993/fewer-independent-hospitals-can-weather-operating-headwinds