Health Services Marketing 1-3 Discussions
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Week2LectureSlides.pptHealth Services Marketing
HSA 305
The Health Care Industry and Marketing Environment
Kotler, P., Shalowitz, J., & Stevens, R. J. (2008). Strategic marketing for health care organizations. San
Francisco: Jossey-Bass
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Welcome to Health Services Marketing. In this lesson, we will discuss the health care industry and marketing environment.
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Objectives
- Upon completion of this lesson, you will be able to:
- Describe the health care system and the role of marketing.
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Upon completion of this lesson, you will be able to:
Describe the health care system and the role of marketing.
Please go to the next slide.
Defining a Well-Designed Health Care System
- Background
- Health care in the US accounts for sixteen percent of the gross domestic product however the system is not effective nor efficient
- US poor outcomes
- Primary reasons for the health disparities:
- Health care is not a right
- All other countries have budgets for health care
- The US does not have a centralized technology approval process
- Best v. worst health care system
- Zero sum model
- Positive sum model
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Health care is one of the most complex and extensive industries in modern economies. It impacts everyone and includes many different professionals and institutions. Health care in the US accounts for sixteen percent of the gross domestic product. And interestingly, it is expected to continue rising regardless of cost containing efforts. Although the US is spending a lot of money on health care, the system is not effective nor efficient. For example, there is about 45 million persons who do not have health insurance. There is variability in the quality and safety of healthcare from region to region. Many patients are unsatisfied by the high and rising cost of health insurance and medications as well as the limits placed on their choice of physicians and procedures. Employers are unhappy with the cost of health care premiums. Hospitals are affected uncompensated cost of new technology. Health care benefits itself are difficult to understand. Coverage is limited. The patients’ out of pocket expenses for professional services, products, and prescriptions are increasing. There is a significant increase in paperwork as well as bureaucratic paperwork and hurdles for patients, physicians, employers, and health plans. There is a concern regarding what measures are essential to place on the Medicare and Medicaid programs to make them financially stable. Many stakeholders agree that a secured electronic medical records system is needed, but not many are willing to pay for it. And finally, the health care system needs to invest more on prevention, early detection, and lifestyle changes that will reduce the incidence and prevalence of conditions such as obesity, heart disease, breast cancer, prostate cancer, and HIV/AIDS.
The US invests more in health care then any other country, but has poor health outcomes. There are three primary reasons for the health disparities:
One. Health care is not a right in the United States as it is in other countries;
Two. All other countries have budgets for health care; and
Three. The US does not have a centralized technology approval process.
Research is inconclusive regarding which health care system the best or the worst. Some advocate to replace the current employer-based system with a single payer system run by the federal government. Some confused universal health system with the need to have a single payer system. Almost all nations operate a privately financed system with a government sponsored one. Some believe that the private health care system is better than a single payer system and that the private health care system can be improved by controlling the price of drugs, limiting duplicate technology, keeping premiums down, covering the uninsured, and discouraging physicians from over testing and over medicating. Porter and Teisberg indicate that some operate on a zero sum model where the winners gain at the expense of the losers. They also indicate that some operate on a positive sum model where everyone wins. From this they, indicate that private, competitive system needs to operate on the premise that every health care practice and activity should be judged on the value that it contributes to patients’ health.
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Major Participants
- Care providers
- Payers
- Health Maintenance Organizations (HMOs)
- Preferred Provider Organizations (POSs)
- Point of Service (PPOs)
The major participants in most health care systems are:
Care providers;
Payers;
Employers;
Government organizations;
Medical associations;
Health advocacy organizations; and
Supply companies.
Care providers are organizations that provide care such as hospitals, nursing homes, rehabilitation centers, surgical centers, out patient clinics, individual physician offices, and in store medical centers as well as the professionals who work in them. Each provider has may variations and may have different types of customers such as hospitals being classified by size, location, scope of services and for profit status. Residential care have different levels of service such as from independent living facilities to skilled services.
Payers include managed care organizations, preferred providers, traditional insurance companies, government, and individuals. Most health insurance coverage is provided by the employer in the form of managed care organizations (MCOs). There are three types of MCOs:
Health Maintenance Organizations (HMOs) which is a health care plan that provides comprehensive, coordinated, medical service to enrolled members on a prepaid basis. There are many types of HMOs. They are defined by how the physicians are organized and their relationship to the health plan. The four types are:
Staff model. This model is where the physicians are employees of the health plan. The physicians in this model can only see patients in the health plan.
Group model. This model is where the physician belong to a medical group that has mutually exclusive relationship with a health plan. The group is capitated and the physicians within the group decide the distribution of funds within themselves. Decision making is split between the physician and health plan. This model can only see patients within the health plan.
Individual practice association (IPA) has different variations. In the first variation, the health plan contracts with each individual physician. In another variation, the physicians organize into virtual medical groups with the purpose of contracting with health plans. IPAs can see fee for service patients and contract with other health plans.
Network. The network model is an organizational hybrid of the group and IPA models. The health plan contract with established medical groups to provide health care services to enrolled members.
Preferred Provider Organizations (PPOs) is the second major type of managed care organizations. It is an alternative to HMOs that provides the patients more freedom of choice regarding providers. All health care must be approved and referred by the patient’s primary care physician except in emergencies.
Point of Service (POSs) are hybrids of HMOs and PPOs.
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Major Participants, continued
- Employers
- Government organizations
- Medical associations
- Health advocacy organizations
- Supply companies
The majority of larger employers offers more than one type of health insurance. When and if the health plan is chosen by the employer, the health plan must market to the employees.
The federal government is a single payer and has legislative powers. It provides coverage for its employees through the Federal Employee Health Benefit Program, military veterans through the Veterans’ Administration, active military and their dependents, and Medicare and Medicaid. The Medicare program covers individuals aged 65 and older who have contributed to payroll tax for at least ten years or individuals less than the age sixty-five who have been permanently and continuously disabled for twenty-four months and are eligible to receive Social Security Disability payments. The Medicaid program is funded by both the federal and state governments. The level of coverage varies from state to state. The criteria to qualify is complicated, but is tied to annual income as a percentage over the Federal Poverty Line.
There are two types of for profit supply companies:
Pharmaceutical and biotechnology companies
Medical device and supply companies.
Most drug manufacturers invest most promotional spending in promoting drugs directly to the physicians through sampling. Detailing, professional journals, and direct to consumer advertising.
Wholesalers such as McKesson, Cardinal Health, and sourceBergen dominate the market by profiting from the spread between the volume discounts they receive from manufacturers and what they charge their pharmacy, hospital, long term care facility, and physician clients.
Pharmacies such as Walgreens, CVS Caremark, and Rite Aid provides most pharmaceuticals to patients. A patient can fill a prescription in person at a local pharmacy or by mail order from a distant warehouse.
Phamaceutical Benefit Management Companies are contracted entities that employers who self insurance as well as many insurance companies use to provide pharmacy benefits to insured members. These companies perform services such as:
Pharmacy network establishment;
Mail-order pharmacy capability;
Formulary establishment and maintenance;
Beneficiary eligibility tracking;
Claims processing;
Negotiation of rebates from manufacturers;
Utilization review of prescription patterns;
Generic drug and therapeutic substitution protocols; and
Disease management.
These companies make their money by contracting for some or all of the administrative services, accepting risk for performance criteria, and retaining some of the rebates they negotiate with manufacturers. CVS Caremark, Medco Health Solutions, Express scripts, and ACS State Health Care are four of the top firms.
Medical device and supply companies are divided into to six categories:
Diagnostics
Therapeutics;
Durable medical equipment
Prosthetics;
Disposables; and
Information systems.
Many people joining medical and trade associations for many reasons such as professional development and recognition . Examples are
AMA;
American College of Physicians;
American Nursing Association;
American Insurance Plans
American Hospital Association
American college of Health Care Executives
Pharmaceutical research and Manufacturing Association (PhRMA)
Biotechnology Industry Organization
Medical Device Manufacturers Association;
Health Care Financial Management Association
Healthcare Information and Management Systems Society; and
Medical Marketing Association.
Health advocacy Organizations are predominately nonprofit entities that seek to contribute to and improve health care in the nation. Examples of these entities are:
American Cancer Society;
American Diabetes Association;
American Heart Association; and
American Lung Association.
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Dynamic Relations Among Health Care Stakeholders
- Physicians and hospitals
- Stark’s law
- Hospitals and skilled nursing facilities
- Physicians and pharmacies
Stakeholders may cooperate or compete with each other; therefore, it is important to be cognizant of the dynamic relationship among health care stakeholders. In analyzing the relationship between physicians and hospitals, issues may occur if a:
Physician is wasteful;
Physician sets up a business to compete with the hospital; and
Hospital hire physicians who compete directly with independent health care practitioners.
Stark law has prevented hospitals from offering physicians anything of value due to the possibility of legal inducement to send patients to a specific facility.
The relationship between hospitals and skilled nursing facilities may become problematic hospitals establish step down facilities that are short term sty skill nursing facilities until the patient is ready to go home. Skill nursing facilities are offering services that only hospitals have offered such as chronic ventilator care.
The relationship between physicians and pharmacies can be an issue when pharmacies offer in store clinics. As a result, some physicians have offered in-office medication dispensing aided by management services form entities such as Allscripts.
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Six Major Uncontrollable Forces
- Demographic
- World population growth
- Population age mix
- Ethnic markets
- Educational groups
- Household patterns
- Geographical shifts in populations
- Economic
- Income distribution
- Health care costs
- Savings, debt, and credit availability
The health care environment is dynamic. There are six major uncontrollable forces that contribute to trend in changes:
One. Demographic environment includes world population growth, population age mix, ethnic markets, educational groups, and household patterns. The world population is experiencing rapid growth. This growth brings two concerns: limited resources to support the growth such as food, fuel, and land and population growth in areas that cannot afford it. The population age mix and the populations’ needs for various services. The ethnic markets has specific needs, wants and buying habits. There are five educational groups: illiterates, high school dropouts, high school graduates, college graduates, and professional and post graduate degree holders. The more educated a population is, the higher the demand for health care information from media such as books, magazines, and the Internet. The traditional household is diverse or nontraditional. Examples of this includes single parent families, single live alones, unmarried adults of one or both sexes who live together, childless married couples, and empty nesters. Each group has its own distinctive buying habits and health care needs. People have moved from and between countries. In addition, some have moved between urban and rural communities. Locations have an impact on goods and services preferences.
Two. Economic environment includes income distribution, health care cost, and saving, debt, and credit availability. Income distribution and level vary from nation to nation. There are four types of industrial structures: subsistence economy, raw materials exporting economies, industrializing economies, and industrial economies. The correlation between health care insurance coverage and income is strong. Health care costs are high. In addition, employers have continued to shift some of the cost to the employees through consumer driven plans that include increased deductibles, added co payments, or eliminated coverage for some treatments or certain drugs. Savings, debt, and credit availability have affected consumer spending. Americans have high income to debt ratios. Some doctors have partnered with financial services companies to market credit cards to patients to assist patients who have more responsibility for out of pocket health care expenses.
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Six Major Uncontrollable Forces, continued
- Social-cultural
- Persistence of core values
- Subcultures
- Natural
- Technological
- Rapid pace of change
- Unlimited opportunities of innovation
- Varying research and development budgets
- Increased regulation of technological change
Since culture shapes our beliefs, values, and norms, markets of a specific product or service need to determine what is important to the stakeholder. This determination will include any of the following:
Views of themselves;
Views of others;
Views of organizations;
Views of society;
View of nature; and views of the universe.
In addition to the above, the persistence of core values that are passed down generations are reinforced by schools, religious institutions, businesses, and governments. The existence of subcultures tend to share the same common beliefs, preferences, and behaviors.
The nature environment is undergoing destruction and is a major international concern. The technological environment is one of the most impactful force changing the lives of people. It is rapidly changing the pace especially in biotechnology in creating new medical cures, new foods, and new materials. In addition, scientist are revoluntionizing products and production processes by working on cures and vaccines for AIDS, moe potent and less addicting painkillers, safer contraceptives, and tasty nonfattening foods. With the complexity of product, the increase need to reassure the public regarding the product’s safety. Health and safety regulations have increase to include food, automobiles, clothing, electrical appliances, and the release of new products.
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Six Uncontrollable Forces, continued
- Political-legal
- Increase in business legislation
- Growth of special interest groups
The political legal environment includes laws, government agencies, and the pressure some groups place to influence and limit various organizations and individuals has a strong impact on marketing decisions. The purpose of the increase in business legislation is to protect companies from unfair competition, to protect the interest of society from unfair business conduct. Its ultimate purpose is to charge business the social cost created by their products and production processes. The growth of special interest groups has significant increased in the past thirty years. Many of these groups lobby government officials and pressure businesses to pay more attention to the rights of consumers, women, senior citizens, minorities, the disabled and gays.
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Why People Seek Health Care?
- Factors
- Age
- Gender/sex
- Race
- Income and socioeconomic status
- Education
- Availability of care
- Culture and patients’ beliefs
The main factors influencing people to seek health care are as follows:
Age- the age groups that seeks the most health care services are children, women of child bearing years, and the elderly;
Gender/sex- women use health care services and products more than men;
Race;
Income and socioeconomic status-the more affluent have more opportunities to use health care products and services;
Education is an independent determinant of health care utilization;
Availability of care; and
Culture and patients’ beliefs have significant influence on health services usage.
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Multiple Factors Influence Health-Seeking Behavior
- Consumer Factors
- Increase in out of pocket expenses
- Elimination and reduction of risky behaviors
- Self management and education
- End of life issues
- Promotion of healthier lifestyles
- Provider Factors
- Small area variation
There are multiple factors that influence peoples’ health seeking behaviors. There are two factors:
Consumer factors; and
Provider factors.
The consumer factors consists of the following:
Increase in out of pocket expenses;
Elimination and reduction of risky behaviors;
Self management and education;
End of life issues; and
Promotion of healthier lifestyles.
The provider factor consists of the provider induced demand. This demand is when providers influence the use of their services or products for financial gain. Physician behavior include factors influencing local area variations in practice patterns, organizational culture norms, and professional aversion to uncertainty especially in the context of malpractice fears.
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Check Your Understanding
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Summary
- Participants in health care system
- Dynamic relationships in health care
- Six uncontrollable factors in health care
- Determinants of why people seek health care
- Multiple factors that influence health seeking behaviors
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We have now reached the end of this lesson. Let’s take a look at what we’ve covered.
First, we discussed the participants of the health care system. They consist of the following:
Care providers;
Payers;
Employers;
Government organizations;
Medical associations;
Health advocacy organizations; and
Supply companies.
Next, we discussed the dynamic relationships that exist in the health care system. They are as followings:
Physician and hospitals;
Hospital and skilled nursing facilities; and
Physicians and pharmacies.
Next, we discussed the six uncontrollable factors in health care:
Demographic environment with its subcomponents: world wide population growth, population age mix, ethnic markets, educational groups, household patterns, and geographic sifts in population;
Economic environment with its subcomponents of income distribution, health care costs, and savings, debt, and credit availability;
Social-cultural environment with its subcomponents of high persistence of core values and existence of subcultures;
Natural environment;
Technological environment with its components of accelerating pace of change, unlimited opportunities for innovation, varying research and development budgets, and increase regulation of technological change; and
Political-legal environment with its subcomponents of increase of business legislation and growth of special interest groups.
Then we discussed determinants of why people seek health care. The determinants are as follows:
Age;
Gender/sex;
Race;
Income and socioeconomic status;
Education;
Availability of care; and
Culture and patients’ beliefs.
Finally, multiple factors that influence health seeking behaviors were discussed. The include:
Consumer factors such as the drive to reduce the customers’ demand, the increase of out of pocket expenses, the elimination and reduction of risky behavior, prevention, self management and education, end of life issues, and promotion of a healthier lifestyle; and
Provider factors such as provider induced demand and local area variation.
This concludes this lecture.
