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 competitive advantage. He describes it as the edge an organization has over its competition to create greater profits. That edge comes from distinctive offerings built on 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 built its success on cutting expenses to offer consumers “Everyday Low Prices,” often significantly lower than other retailers.
• Differentiation Advantage: When products or services are better than those offered by competitors. “Better” could be an actual product improvement or simply a more attractive way of selling that product or service. Apple is an obvious example. 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.). It should focus instead 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 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. Patients get deeper expertise across a full cycle of care, because conditions are often complex and interrelated. IPUs and condition-focused care have also been shown to improve efficiency (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.

Measure at the level where the team works. Carilion Clinic in Roanoke, Virginia, runs department scorecards with metrics that apply across a group of providers, such as “surgical site infection rate” for subspecialties that perform frequent surgeries. Section scorecards go one level down, to teams such as Internal Medicine or Dermatology, and often include patient experience metrics like “physician kept you informed.” Carilion builds cascading metrics from system-wide goals down to individual providers, so a team can see how its results add up.

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 choose the measures that matter most to it, then track them against set standards. The results show the value of care. Positive outcomes generally mean high value and are competitive advantages. Poor outcomes usually go with higher costs and subpar care.
• Costs: Rather than treating each separate service or department as a line item, hospitals can use time-driven activity-based costing (TDABC). TDABC calculates the costs of treatment and resources as a patient moves through the care cycle. Costs are recorded more accurately, so teams understand and communicate the true cost of care and manage it better.

Tracking outcomes and costs reveals strengths and areas for improvement. Making strategic changes to improve the value of care is another way hospitals gain a competitive edge in cost, differentiation, or both.

Tracking by patient can be very concrete. At San Juan Regional Medical Center, a 198-bed, Level III trauma center in New Mexico, stroke accreditation requires treatment within certain time frames. The stroke manager reviews 10 charts in a month and records details for individual cases, like patient timestamps, in the analysis field in ClearPoint. That makes it easy to tell the quality control committee how close the team came to the goal and what happened in each case.

The cost side works the same way. Our list of hospital cost reduction ideas points to repeated or duplicate lab and radiology tests and to “convenience testing” done during a stay only because the patient is there. To find savings there, you need a tracking system that shows why each test was given.

Using Technology For Reporting

Measuring healthcare results to the extent Porter and Teisberg advise is hard. The amount of data to collect and interpret is huge, even for smaller facilities. Electronic health records (EHRs) have made tracking patient outcomes much easier, but aggregating and analyzing the data from EHRs can be difficult.

San Juan learned how much time this costs. Creating a single report used to take half a day, including formatting it for committee meetings. Some departments tracked everything in Excel and did manual calculations, formatted graphs and printed them every month. With ClearPoint, the hospital cut reporting time for management reports by 89% and improved build time for new reporting requirements by 83%.

Ease of use mattered as much as speed. Jennifer DeChellis, the data scientist responsible for implementing ClearPoint, said: “Being a hospital, that’s key, because the last thing you want is to make a manager whose primary responsibility is overseeing patient care have to learn a new tool that’s super complicated.” Once managers could see their own department’s performance, they used the system for process improvement, not only data entry.

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. The software automates most of the data collection, tracking, measuring, and reporting, so hospitals can focus on patient outcomes. When facilities know the numbers behind each aspect of care, their competitive advantages are easier to see and to use.

The Competitive Edge

These are a few ways hospitals gain a competitive edge with a cost or differentiation strategy. Competing on value generates more profit and strengthens a hospital’s competitive advantage.