Susanna E. Krentz
Tracey L. Camp

Even in good times, competitive analysis is a prudent exercise; in times of economic distress, it is an absolute business requirement. Although it's hard to describe the recent past as particularly "good" when hospitals and physicians have been dealing with payment cuts, increases in uninsured, higher regulatory scrutiny, and cut-throat competition, it does appear that today's extraordinary economic pressures will cause providers to feel the pain like never before. In today's climate, organizations will have to work harder at pinpointing their vulnerabilities and identifying where opportunities exist. Some ways to fine-tune a competitive analysis in light of the current economic concerns are discussed below.

After a sustained financial downturn, patient volume will likely decrease, particularly in routine, preventive, and elective services. As a result, a hospital's survival will be more about capturing or diverting market share in a stagnant market than relying on increased volume from an expanding market. Market share analysis will need to not only identify where that share is going to be shifted from, but also how much incremental volume that shift will bring. Shifting market share by 5 points (an extraordinarily difficult feat) will have no impact whatsoever in a small or esoteric service line, but it will make a huge difference in a larger, core service line. The challenge (and payoff) will be to shift large numbers of patients into financially attractive service lines.

In reviewing market share position, payer mix will be increasingly important to scrutinize. Most state market share databases identifying the payer source of patients. Mining these data to reveal your vulnerabilities and strengths and those of your competitors will be important for managing in a down market. For example, when a competitor captures market share from your primary service area, is that competitor simply going after the commercially insured patients? Do you have a disproportionate share of the Medicaid population? Are there particular service lines where the commercially insured patients are more willing to leave your community to access care elsewhere?

Portfolio planning, or the process of deciding what services to invest in, will be more important for hospitals in a down market. The weighting of today's portfolio planning criteria is likely to shift heavily toward expected financial performance and away from meeting mission criteria. While the possibility that the market may turn around may deter hospitals from choosing to divest services, they certainly will choose not to reinvest in certain service lines. Hospitals should be on the lookout for competitors that are retrenching in nonprofitable service lines. You may be the unwilling recipient of those patients, and forewarned is forearmed.

The nature of competition is likely to change somewhat under a sustained financial downturn, presenting both problems and opportunities for hospitals. Patients shunning elective procedures are likely to discourage specialty hospitals from penetrating certain markets, thus benefiting general hospitals. On the other hand, patients will seek out lower-cost retail providers for routine and preventive care instead of visiting their primary care physicians. To the extent that a hospital does not have a strong referral relationship with those retail clinics, the hospital may be vulnerable to losing those patients.

Physicians are going to be feeling the economic pinch as much as or more than hospitals. For the first time since capitation loomed in the mid-1990s, hospitals may have the opportunity to turn once stalwart physician competitors into employees. You can bet that most hospitals will try to tap into the physician enterprise. Hospitals that already have experience in that arena with strong physician networks may have a leg up. Therefore, understanding current physician loyalties, the competencies of hospital competitors in employing large physician networks, and what physicians will be looking for in an employer will be necessary to take advantage of that opportunity.

In today's climate, price may simply trump all else, particularly for outpatient care and elective services-the healthcare portal for many consumers. Understanding where your organization falls on price, how well your competitors field questions on price with consumers, whether they offer bundled services, and how they spin information on value (the relationship of outcomes and price) to consumers is vital to understanding how to compete.

Finally, the reality is that some organizations are going to be able to weather the storm better than others. In this economy, a comprehensive competitive analysis should incorporate a detailed profile of competitors' financial performance including payer mix, operating financial performance, cash position, and debt levels. This information is publicly available through sources such as American Hospital Directory (www.ahd.com). Capital financing will be increasingly difficult to get for all hospitals, but those with the best underlying credit strength will persevere. So while some competitors will have to forego or postpone capital projects, thereby providing some relief to hospitals facing fierce arms races, other hospitals may be in a better financial position to continue their building projects, thereby widening the gap between the haves and have nots.

Publication Date: Saturday, November 01, 2008

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