Cutting Edge Issues

eHealth:
Towards A New World of Communications in Medicine

Case Study: Overlake Hospital Medical Center

Information on Demand: Consumer-Controlled Medical Records

Finding Leaders for Internet Health Care

Building the Security-Capable Enterprise

Planning Business Strategies with Internet Support

Internet Use as a Survival Strategy

Case Study Zone

Who is eMed?

Planning Business Strategies with Internet Support

Part 2

Cost pressures are going to continue to escalate. The population is getting older. Somehow, the drug pipelines have not closed down; in fact, the human genome project is going to create a massive explosion in new therapies and devices. These are true advances in treatment, so costs are simply going to keep rising.

What happens to costs in today’s system? Health care insurance is sold at market prices to employers. A health care company looks at its operating expenses as composed of medical trend costs and administration costs. Medical trend costs, which in other areas of the insurance industry can be referred to as loss ratios, are the percent of premiums spent on medical care costs. They cannot be managed, so provider contracts are written in such a way that the cost per unit of service drops if the total units of service increase. Frustrated physicians resent interference with their autonomy, along with being paid less and less to do more and more. Hospitals typically see a 2% to 2.5% annual increase in fees, but have cost increases of 3.5% or more each year, leaving them perpetually in the red.

These cost components (physicians, health plans, and hospitals) pursue zero-sum–game survival strategies. Physicians, for example, organize themselves into groups so that they can dictate their terms to hospitals or health plans. Health plans attempt to enroll enough members to allow them to dictate their terms to hospitals and physicians. Hospitals seek mergers and alliances for the same reason: to dictate their terms to health plans and require physicians to use their facilities. What is wrong with this? All three components are losing money. Trying to procure an advantage at the expense of one of the other components, when none are making money, cannot work.

Because these tendencies favoring ever-larger enterprises are ineffective, there must be major changes in strategy. Sustainable changes are those that do not provide one component with an advantage that is detrimental to one or both of the other components. Instead, they deliver true value, adding advantages to the whole system.

ADDING VALUE

An organization wishing to undergo sustainable change must first answer one fundamental strategy question: will it shape the market or merely attempt to outrun its competitors? Whether an organization can lead the market depends on its characteristics and choices. Most hospital administrators come from the business administration world, where the best position for an organization is considered to be closely following the leader. The leading edge is the bleeding edge, and what it hemorrhages is money.