Competition in Healthcare: How Hospitals Can Develop A Competitive Advantage

While the term “competitive advantage” applies in every arena, from evolutionary science to athletics, it has a specific interpretation in the healthcare strategic planning world that originates from the philosophies of Michael E. Porter.

Porter has written several seminal books on the topic of competitive advantage, and explains it as the leverage an organization has over its competition to create greater profits. That leverage is developed by deriving distinctive and unique offerings from a business's resources and capabilities. According to Porter, there are two ways organizations can gain a competitive advantage:

• Cost Advantage: When products or services are offered at a lower price than competitors. For example, Walmart’s success has been based on cutting expenses to offer “Everyday Low Prices”—often significantly lower than other retailers—to consumers.
• Differentiation Advantage: When products or services are better than those offered by competitors. “Better” could be an actual product improvement or simply a different, more attractive way of selling that product or service. Apple is one of the most obvious examples of differentiation as an advantage. The company is known for innovation, and the debut of the iPhone redefined the technology industry.

In the early 2000s, Porter began studying competitive advantage as it applies to hospitals specifically. He recognized that healthcare organizations “compete” differently from the rest of the business world because profit and patient outcomes are interdependent. A 2006 book co-authored by Porter and Elizabeth O. Teisberg argued that the healthcare industry was competing on the wrong principles (health plans, networks, hospitals, etc.), and should instead be focusing on factors such as diagnosis, treatment, and preventative care. Porter and Teisberg proposed that organizations compete on the basis of value delivered to the patient, or “value-based healthcare.”

Finding A Competitive Advantage In Healthcare

The concept of value-based healthcare was groundbreaking for the industry—it has reshaped the approaches to hospital competitive analysis and strategic planning. Here are three ways facilities are using Porter and Teisberg’s research to find competitive advantages in the healthcare industry:

Organizing Care Around Condition

Rather than offering only primary (generalist) or specialty care, hospitals are delivering more value by blending the two into what’s called integrated practice units (IPUs). Care is focused on the condition and delivered by multidisciplinary teams of both primary and specialty groups. This offers patients deeper expertise across a full cycle of care, recognizing that conditions are often complex and interrelated. IPUs and condition-focused care has also proven to improve efficiencies (e.g. lower patient care costs, integrated scheduling, etc.) and health outcomes.

If your healthcare facility can organize care around conditions and implement the IPU model on even a small scale, it could create a competitive advantage in both the cost equation and the health outcomes.

Measuring Outcomes And Costs By Patient

By tracking patient outcomes and costs, hospitals are uncovering areas of competitive advantage:

• Patient Outcomes: There are countless patient-centered quality measures that healthcare facilities can track and measure to determine value. Examples range from patient-to-staff ratios and patient complaints to occupancy rates. Each hospital needs to determine the most valuable measures for its needs, and then begin tracking and measuring them against set standards. The results will be indicators of the value of care. Generally speaking, positive outcomes translate to a high value and would be competitive advantages. Low outcomes usually correlate to increased costs and subpar healthcare.
• Costs: Rather than treating each separate service or department as a line item, hospitals can use time-driven activity-based costing (TDABC). This calculates the costs of treatment and resources as a patient moves through the care cycle. The result is a more accurate recording of costs—and therefore a better understanding and communication of the true cost of care—and improved ability for teams to manage costs.

Tracking outcomes and costs can not only reveal strengths, but also areas of improvement. Making strategic changes to improve the value of care is another path hospitals use to gain a competitive edge in cost, differentiation, or both.

Using Technology For Reporting

Measuring healthcare results to the extent that Porter and Teisberg advise is no easy undertaking. The sheer amount of data that must be collected and interpreted is staggering, even for smaller facilities. For example, electronic health records (EHRs) have made tracking patient outcomes much easier, but aggregating and analyzing the data from EHRs can be difficult.

The most successful hospitals use technology to extract data and report on outcomes, so they can evaluate overall performance and continually improve care. Strategic reporting software like ClearPoint helps facilities create dashboards to report on their quality measures, trends, industry benchmarks, costs, projects, and much more. This technology automates the majority of the data collection, tracking, measuring, and reporting, so hospitals can focus on patient outcomes. The competitive advantages in healthcare organizations are easier to see (and can then be leveraged) when facilities know the numbers and results behind each aspect of care provided.

The Competitive Edge

These are just a few examples of how hospitals are gaining a competitive edge using a cost or differentiation strategy. The ability to compete in a value-based way not only generates more profits but also earns more certifications (such as the esteemed PHAB), increasing their competitive advantage.

FAQ:

Why is competition important in healthcare?

Competition in healthcare is important because it drives improvements in quality, efficiency, and innovation. When healthcare providers compete, they are incentivized to offer better services, adopt advanced technologies, and optimize operations, ultimately leading to enhanced patient care and satisfaction. Competition also helps control costs and provides patients with more choices.

What is perfect competition in healthcare?

Perfect competition in healthcare is a theoretical market structure where numerous providers offer identical or very similar healthcare services, and no single provider can influence prices. In such a scenario, patients have complete information, can easily switch providers, and services are homogenous, leading to optimal allocation of resources and fair pricing. However, perfect competition is rare in the healthcare industry due to the complexity and variability of services.

What is managed competition in healthcare?

Managed competition in healthcare is a market-based approach where insurers and providers compete within a regulated framework designed to control costs and improve quality. It involves creating standardized benefit packages, ensuring transparency of information, and setting rules to foster fair competition. The goal is to balance the benefits of market competition with the need for regulation to ensure access, affordability, and quality of care.

What is competition in healthcare?

Competition in healthcare refers to the rivalry among healthcare providers, insurers, and other stakeholders to attract patients and deliver services. It can take many forms, including competition on price, quality, convenience, and innovation. Effective competition can lead to better healthcare outcomes, lower costs, and increased patient satisfaction by encouraging providers to continuously improve their services.

How do you increase competition in healthcare?

To increase competition in healthcare:

- Enhance Transparency: Provide clear and accessible information about healthcare costs, quality, and outcomes to patients.
- Encourage Innovation: Support the development and adoption of new technologies and treatment methods.
- Regulatory Reforms: Implement policies that reduce barriers to entry and promote fair competition.
- Promote Choice: Ensure that patients have a variety of providers and insurance options to choose from.
- Value-Based Care: Shift towards payment models that reward quality and efficiency rather than volume of services.