From forum sponsor Kaufman, Hall & Associates, LLC

The potential for hospitals and health systems to differentiate themselves from their competitors in the shifting healthcare environment depends on their ability to coordinate care, increase efficiency, and adopt a consumer-oriented focus.

Numerous forces are converging to move health care to a value-based business model, including increased consumer “skin in the game” through enrollment in plans with high deductibles, the proliferation of retail health clinics, and the emergence of services offered via mobile applications. Such forces are driving a fundamental transformation in U.S. health care, changing the ways in which hospitals, health systems, physician groups, and other industry stakeholders compete in their respective service areas.

Looking at the big picture, an industry’s basis of competition is the collection of benefits that most influence a customer’s choice between competing products or services. Basis of competition is not static. It is customer segment-specific and variable, changing over time as circumstances and customer needs shift at different speeds in different markets. As the basis of competition rapidly evolves in today’s healthcare industry, organizations are compelled to compete based on new criteria.

Shifting Focus Areas

In the recent past, patients played largely passive roles, relying heavily on their providers to direct their care choices. Hospitals gained patients primarily via physician referrals. Competition among hospitals, health systems, and other industry participants focused largely on factors such as physician relationships (driven by the hospital’s role as the physician’s workshop), location/payer mix, and reputation.

As patients become more engaged in their health and health care, they increasingly compare their options and seek companies capable of organizing care for them in ways that ensure high-quality services, low costs, and convenient access. These organizers of care, i.e., “healthcare companies,” may be health systems, health plans, independent practice associations, or other entities.

Whereas the focus in recent decades was on building new facilities and expanding services to increase revenue, the new healthcare era emphasizes improving quality while also reducing costs by optimizing efficiencies and eliminating redundancies. For providers, these changes require new emphasis on criteria such as customer engagement and transparency of cost and quality measures. Cost likely will be a top determinant in patient choice moving forward as patients bear more out-of-pocket expenses through participation in healthcare exchanges and high-deductible health plans.

Other competitive criteria are an organization’s level of clinician/physician alignment, network configuration and rationality, and care management capabilities. In particular, hospitals and health systems wishing to fulfill the “healthcare company” role will have to demonstrate their ability to manage care across the care continuum and “right-size” their care delivery system. They must be able to create a product that will be price-competitive in the evolving market.

As health care becomes more consumer-oriented, organizations also will need to build substantial clinical and business intelligence to track patient needs and preferences. Factors such as ensuring quality and safety, while critical, are increasingly assumed and less significant as competitive differentiators.

Four Dimensions of Competition

At a core level, an industry’s basis of competition typically involves four distinct dimensions:

  • Functionality: Does the product or service actually work?
  • Reliability: Is the product or service consistent and replicable?
  • Convenience: Is the product or service readily accessible?
  • Price: Is the product or service worth the cost?

The speed and level of change within and across these dimensions can vary by market segment and service, and the dimensions often overlap. In some markets, for example, two health systems may be competing to make emergency services more accessible to rural residents through freestanding sites, extension of transport capabilities, or telehealth connections with specialists in a metropolitan area. In a more evolved urban market, residents may have multiple options for accessible emergency services and ready substitutes for non-emergent care. These health systems must compete at a higher level based on price, consumer engagement, and care coordination.

History is full of examples of organizations that either succeeded or failed in reshaping their business models to adapt to basis-of-competition changes. Apple, for example, has remained a leader in its industry over the years by successfully transitioning from offering hardware to offering software, and now an array of mobile and cloud-based products and services.

For hospitals and health systems, success in navigating new bases of competition will hinge on their ability to significantly streamline internal operations and to partner with other providers to maximize efficiencies and coordinate care within a delivery network.

Brian Fuller is a senior vice president in the Strategy Practice at Kaufman, Hall & Associates, LLC, Skokie, Ill.

Sidebar: Questions for Provider Leadership Teams to Ask Themselves

  • What is the basis of competition in our market today?
  • How is the basis of competition changing, and how quickly?
  • How are we adapting our business model?
  • What are the likely triggers or catalysts that will signal full-scale market conversion to value-based care delivery and payment?
  • On what bases of competition would we have an advantage in a value-based care environment? How might we leverage those advantages?
  • What would be our biggest gaps or deficiencies in a value-based environment? How can we address those gaps?

Publication Date: Wednesday, July 15, 2015