- November 2, 2014
- Posted by: Treadstone Management Partners
- Category: Risk Management, Strategy
Health-care companies are one the fastest growing sectors of the management consulting industry. More and more healthcare companies are trying to modify and fine-tune their businesses to appear more attractive. Changes in the industry brought about by regulations under the Affordable Care Act are triggering such dynamic behavior in firms. A significant change that can be observed is the fact the many healthcare providers are now providing health insurance themselves instead of following the tradition of relying on independent health insurers. Some are taking a middle ground and contracting directly with businesses to provide health insurance. This article will look at how healthcare providers can make themselves more attractive to their target market. It will also cover the options that healthcare providers must consider in order to take such strategic decisions.
The term healthcare providers encompasses individual healthcare personnel, healthcare facilities and medical products (“NHS private sector…”, 4). In the US, the private sector dominates the healthcare system. Healthcare providers face huge challenges in order to obtain licenses to prescribe and sell drugs and other medication. In recent years the American Medical Association has further increased the limitations in the number of licenses that are handed out (Cassidy, 4). Furthermore, psychologists, nurses and pharmacists are not allowed to prescribe medication. Thus current healthcare providers share an exclusive right to prescribe drugs to cure illnesses and promote healthy lifestyles.
According to the Health Insurance Association of America, health insurance is defined as “coverage that provides for the payments of benefits as a result of sickness or injury. Includes insurance for losses from accident, medical expense, disability, or accidental death and dismemberment” (“Health Insurance …”, 4). Healthcare providers want to provide insurance to make themselves more attractive to customers. The insurance is being used as a competitive advantage over providers who do not offer insurance. However, what businesses must aim for is sustainable competitive advantage. Can insurance be sustained as an advantage for these businesses? As we can see, more and more providers are now willing to provide insurance and thus we might fairly predict that this will result in a shutdown of independent health insurers. When all providers start giving insurance, it no longer remains a competitive advantage. In addition to that, the shutdown of the insurance industry may have negative impacts. The first consequence that might come to our mind is that this might result in loss of jobs and therefore an increase in unemployment. However that may not necessarily be true. Healthcare providers will need to expand their businesses in order to provide insurance and therefore they will need to create new jobs and hire new employees there resulting only in a transfer of jobs. This will cause frictional unemployment, but will not affect the unemployment rate of the country since every person will ultimately find a job in a new company.
The question we should think about is whether this move will make the healthcare system more efficient. As we know, the larger a company is, the harder it is to manage. Although a large multi-tasking company that provides all related services sounds desirable, it is not quite so. While some healthcare providers may successfully provide insurance too, other companies may start facing huge problems like over or under-employment, over or under-capitalization and plenty of bureaucracy. If the insurance industry was completely wiped out and customers went to providers to simply purchase insurance, the providers might face time-related issues and cause delays in transactions. This is because the whole idea behind providers providing insurance is that when they prescribe drugs or medication to customers, they will also offer an insurance package. A sole insurance purchaser might find it troublesome to get her job done. Finally there is the problem of location. When providers start becoming insurers, customers will have to locate the providers instead of the old insurers. Providers might be located in distant places and this might make the purchase of insurance more costly to certain consumers.
Healthcare providers should also look at the price that they are able to offer. They must keep in mind that they can attract customers only if they can provide insurance at a lower cost. Achieving this goal will not be a simple task since the provider has to incorporate a new service into their business. They will incur huge costs of personnel and infrastructure and might have to remain content with zero profits for the first few years. Providers must make sure that this move does not displease their shareholders, especially if they are doing well or running a smooth business at present.
The companies which can prescribe medication and drugs, have an exclusive right to do so and thus do not face any big threats (Cassidy, 4). A strategic decision like providing insurance to expand the target market, should only be undertaken by the two extreme ends of the healthcare industry – the biggest firms, and firms which are not performing well. The biggest firms in the industry will not face too many challenges in expanding their business to include insurance. On the other extreme, the under-performing companies might want to take this new dynamic and try to revive their business by providing an additional service. However, companies that fall in between these two extremes should stick to their original business of providing healthcare services, medications and healthcare products. Expanding their business can be risky and do more harm than good.
The mid-market healthcare providers do have any alternative course of action. It would be in their best interest to collaborate with health insurers and contract directly with these businesses. This will not only help the providers to attract more consumers but will also help under-represented insurers to get market exposure. Through a direct contract and collaboration, providers and insurers will reap the benefits of more fluid and profitable business. The healthcare industry is not just a fast-growing one, but is also a very sophisticated industry. Participants in this industry will fare better by following the market rules and regulations while incorporating minor modifications. To survive in this industry, individual providers must not get carried away by the dynamism in big firms but should instead concentrate on reaching out to the target market through feasible and comprehensible means.
Cassidy, Amanda. “Nurse Practitioners and Primary Care (Updated)”. Health Policy Briefs. 05/15/2013. Web. 05/25/2014
“Health Insurance Association of America”. Health Insurance Providers. 03/13/2010. Web. 05/25/2014
“NHS private sector tenders could be worth up to £20bn, according to new report”. Out-Law.com. n.d. Web. 05/25/2014