This document provides learning objectives and content for several chapters on health care marketing and strategy. It covers factors that influence individuals' decisions to seek health care, including personal characteristics like age, gender, and income. It also discusses the major participants in health care systems, like providers, payers, suppliers and government. Additionally, it addresses strategic planning steps for health care organizations, including defining goals and conducting environmental analyses. Key trade-offs around cost, quality and access are also summarized. The document examines models for understanding different health care systems and the stakeholders involved. It analyzes how consumers and organizations make buying decisions in the context of health care.
Chapter 4Determinants of the Utilization of Health Car.docx
1. Chapter 4
Determinants of the
Utilization of Health Care Services
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LEARNING OBJECTIVES
What are the main factors driving people to seek health care?
How are people influenced by their personal characteristics
(such as age, gender, race, income and education) in seeking
health care?
What are the main factors and forces that reduce the demand for
health care?
What are the main factors that tend to increase the demand for
health care?
How do health care coverage and incidence vary
geographically?
LO1. What are the main factors driving people to seek health
care?Known illness, accident, or
injurySymptomsPrevention/check-upSecond
opinionLegalAdministrativeDiscretionary
2. *
Key Words:
LO1. What are the main factors driving people to seek health
care? (cont)It is important to identify what type of services is
involvedthe reason the patient is seeking carethe relevant
stakeholders for the encounterthe personal characteristics that
influence the likelihood that an individual will seek care
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Key Words:
LO2. How are people influenced by their personal
characteristics (such as age, gender, race, income and
education) in seeking health care?
AgeFirst two years of lifeWomen of childbearing
yearsElderlyGenderWomen more than men
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Key Words:
LO2. How are people influenced by their personal
characteristics (such as age, gender, race, income and
education) in seeking health care? (cont)
RaceDifficult category to defineDifferences can often be
3. explained by basis of socioeconomic or education
differencesCannot assume uniformity within any racial or ethnic
groupIncome - helps determine which services are
usedEducation - varied
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Key Words: culture
LO3. What are the main factors and forces that reduce the
demand for health care?
Consumer factorsDriven by insurance payers, medical groups,
and pharmaceutical benefits management companiesIncrease
out-of-pocket expensesDisease preventionElimination or
reduction of risky behaviorsSelf-management and
educationEnd-of-life issuesPromotion of healthier lifestyle
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Key Words: consumer-driven healthcare, social marketing,
rationing, futility
LO4. What are the main factors that tend to increase the demand
for health care?
Provider factorsDriven by profit(?), environmental and cultural
events Ways to limit costsDecreasing feesIncreasing or
decreasing the number of providersChanging the payment
methodReviewing utilization more carefullyImplementing
practice guidelines
4. *
Key Words: provider-induced demand (PID)
LO5. How do health care coverage and incidence vary
geographically?
Extreme variations in patterns of careNot related to variation in
illness patternsCan be related to Differences in health care
systemsDifferences in physicians’ practice stylesPhysicians’
own beliefs about effectiveness of careMedical trainingBeliefs
in own abilityDifferences in patient characteristics
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Key Words:
CONCLUSION
Key factors affect people’s decision to seek health care.Demand
is reduced by several factors, typically consumer driven.Yet,
demand is increased by provider-induces activities.Geographical
variations in health care utilization suggest provider-induced
activities play a role
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5. Chapter 3
The Health Care Industry and Marketing Environment
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LEARNING OBJECTIVES
What are the major characteristics and weaknesses of the U.S.
health care system?
What are the characteristics of an ideal health care system?
Who are the major active participants in health care systems?
How is the health care system changing demographically,
economically, socially, culturally, technologically, politically,
and legally?
LO1. What are the major characteristics and weaknesses of the
U.S. health care system?Health care is not a declared right so
common goals cannot be agreed upon.Benefit mandates are set
without a true healthcare budget.A centralized technology
approval process does not exist, driving higher health care
costs.
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Key Words:
LO2. What are the characteristics of an ideal health care
system?
6. Private, competitive systemJudged by the extent to which it
helps citizens maintain or improve health over the lifetimeCost-
benefit analysis to evaluate new technologiesHealth outcomes
should be measured and reportedReports should be made
transparent to patients, physicians, heath care providers, and
employees
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Key Words:
LO3. Who are the major active participants in health care
systems?
Care providers - organizations that provide medical services and
all the professionals that work in themHospitalsNursing
homesHospicesRehabilitation centersSurgical centersOutpatient
medical clinicsIndividual physician officesIn-store medical
centers
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Key Words:
LO3. Who are the major active participants in health care
systems? (cont)
PayersMCO - managed care organizationHMO - comprehensive,
coordinated medical service to voluntarily enrolled members on
a prepaid basisStaff modelGroup modelIndividual practice
associationNetwork modelPPO - gives more freedom of choice
of providerPOS -hybrid of HMO and PPOMedicare and
Medicaid
7. *
Key Words: managed care organization (MCO), health
maintenance organization (HMO), preferred provider
organization (PPO), point of service product (POS),
comprehensive, maintenance, coordinated medical service,
gatekeeper, primary care physician, prepaid, per member per
month, capitation, staff model, group model, individual practice
association (IPA), silent PPOs , Medicare, Medicaid
LO3. Who are the major active participants in health care
systems? (cont)
EmployersSupply OrganizationsPharmaceutical and
Biotechnology companiesDrug
manufacturersWholesalersPharmaciesPharmaceutical benefit
management companies Medical Device Supply
companiesDiagnosticTherapeuticsDurable medical equipment
(DME)ProstheticsDisposablesInformation systems
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Key Words: drug manufacturers, wholesalers, pharmacies,
pharmaceutical benefit management companies (PBMs),
detailing, sampling, direct-to-consumer (DTC) advertising,
medical journal advertising, diagnostics, therapeutics, durable
medical equipment, prosthetics, disposables, information
systems
LO3. Who are the major active participants in health care
systems? (cont)
Medical and Trade AssociationsProviders - AMAPayers - Blue
8. Cross Blue Shield AssociationHospitals - AHA and the
American College of Health Care ExecutivesSuppliers -
manyFunctional - HFMA, HIMSS, MMAHealth Advocacy
Organizations - non profits to improve health care in the nation
such as ACS, AHA, ALAFederal Government’s Health Care
Activities ie Department of Health and Human Services
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Key Words: social marketing, Stark laws, skilled nursing
facility (SNF)
LO4. How is the health care system changing demographically,
economically, socially, culturally, technologically, politically,
and legally?
DemographicallyWorldwide Population Growth -
explosivePopulation Age Mix - agingEthnic Markets -
differencesEducational Groups - 5 groupsHousehold Patterns -
no longer typicalGeographical Shifts in Populations -
locationEconomicallyIncome Distribution - 4 typesHealth Care
Costs - risingSavings, Debt, and Credit Availability - high debt-
to-income ratio
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Key Words: world wide population growth, population age mix,
ethnic markets, educational groups, household patterns,
subsistence economies, raw-material economies, industrializing
economies, industrial economies,
LO4. How is the health care system changing demographically,
economically, socially, culturally, technologically, politically,
9. and legally? (cont)
Social-CulturalViews of selvesViews of othersViews of
organizationsViews of societyViews of natureViews of the
universeHigh persistence of core valuesExistence of subcultures
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Key Words: core beliefs, secondary beliefs, subcultures
LO4. How is the health care system changing demographically,
economically, socially, culturally, technologically, politically,
and legally? (cont)
TechnologicallyAccelerating pace of changeUnlimited
opportunities for innovationVarying R&D budgetsIncreased
regulation of technological changePolitical-LegalIncrease of
business legislationGrowth of special interest groups
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Key Words: certificate of need regulations
CONCLUSION
US health care system needs improvementMust start by
identifying and monitoring trends in six major environmental
factorsAll must be grounded in an understanding of the
stakeholders preferences among cost, quality, and access
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10. Chapter 5
Strategy and Market Planning
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This chapter is an introduction to the concept of marketing and
health care.
LEARNING OBJECTIVES
What are the main steps in building a strategic plan for a health
care organization?
What goes into conducting an environmental analysis?
How can SWOT analysis and Five Forces Analysis enrich the
strategic planning process?
What contents must be included in a marketing plan?
LO1. What are the main steps in building a strategic plan for a
health care organization? Business DefinitionHistory of aims,
policies, and achievementsCurrent preferences of owners and
managementMarket environmentResourcesDistinctive
competencies
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Key Words:
11. LO1. What are the main steps in building a strategic plan for a
health care organization? (cont)Customer identification -
internal and externalIdentify the usersPrioritize customer
categoriesThose most affected - currentThose wished to be
affected - expandThose to help further the businessDefine
service areaDefine segments to be served
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Key Words: customer, internal customer, external customer,
products, user
LO1. What are the main steps in building a strategic plan for a
health care organization? (cont)Value propositionDecide on
appropriate mix of cost, quality, and accessManage a value
chainConduct core business processesMarket sensingNew
offering realizationChannel bondingCustomer
acquisitionCustomer relationship managementFulfillment
management
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Key Words: value chain, core business processes, market
sensing, new offering realization, channel bonding, customer
acquisition, customer relationship management, fulfillment
management,
LO1. What are the main steps in building a strategic plan for a
health care organization? (cont)Goal settingGoals must be
12. clearly tied to the mission statement.Goals must be clearly
defined.Goals must be measurable.Goals must be
prioritized.Goal setting must include a target time by which
they must be achieved.
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Key Words:
LO1. What are the main steps in building a strategic plan for a
health care organization? (cont)Strategy - four steps
environmental assessment (internal and external) and
planningImplementation of the strategyEvaluation of the
strategy’s successReassessmentStrategy - four
levelsCorporateDivisionStrategic business unit (SBU)Product
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Key Words: SBU, marketing plan, strategic marketing plan,
tactical marketing plan
LO2. What goes into conducting an environmental analysis?
SWOTStrengths - resources and capabilitiesWeaknesses -
resources and capabilitiesOpportunities - environmental
activitiesThreats - current and projected
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Key Words: performance capabilities, human resource
capabilities, intensive growth, integrative growth,
diversification growth
13. LO2. What goes into conducting an environmental analysis?
Five Forces AnalysisInternal RivalryThreat of New
EntrantsThreat of Substitute ProductsBuying PowerSupplier
Power
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Key Words: internal rivalry, non-price competition, price
competition, excess capacity, undifferentiated products or
services, economies of scale and scope, direct buying power,
indirect buying power, supplier power
LO3. How can SWOT analysis and Five Forces Analysis enrich
the strategic planning process?
SWOT evaluates the environmentFive Forces Analysis provides
an approach to strategic implementationUse them to decide on
appropriate marketing strategiesChanging
forcesSegmentationPositioning
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Key Words: changing forces, segmentation, positioning
LO4. What contents must be included in a marketing plan?
Executive summary and table of contentsEnvironmental
14. analysisOpportunity and issue analysisObjectivesMarketing
strategyAction programsFinancial projectionsImplementation
controls
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Key Words: product leadership, customer intimacy, operational
excellence
Conclusion
The marketing process involves an exploration of creating,
communicating, and delivering superior value.Market-oriented
strategic planning establishes the framework to develop
corporate strategy at all levels.The plan is one of the most
important outputs of the marketing process.
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Key Words:
Chapter 2
Defining the Health Care System and Its Trade-offs
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LEARNING OBJECTIVES
15. What framework can be used to understand the health care
system regarding who pays, how much is paid, and where and to
whom care is provided?
Who are the main stakeholders in the health care system?
What are the main trade-offs, among cost, quality, and access
that health care organizations must face in allocating their
resources?
LO1. What framework can be used to understand the health care
system regarding who pays, how much is paid, and where and to
whom care is provided?Health is “the state of complete
physical, mental, and social well-being and not merely the
absence of disease or infirmity.”US health care system is “an
apparently ad hoc arrangement of small units, each with its own
goals and incentives, whose purpose is treatment of acute
diseased of insured populations.”Disconnect exists between
definitions of health and health care system.
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Key Words: disease, health, health care system
LO1. What framework can be used to understand the health care
system regarding who pays, how much is paid, and where and to
whom care is provided? (cont)Anderson’s model -
continuumMarket maximized version - favors private and profit-
oriented insurance (United States)Market minimized version -
eventual state-owned, stated-financed, and state-salaried health
care system, paid for by general tax revenues (Cuba)Roemer’s
model - Starts with Anderson’s political spectrum (laisez-faire
to socialist) Adds economic dimension (affluent to poor)
16. *
Key Words: Anderson’s model, Roemer’s model, market
maximized, market minimized
LO1. What framework can be used to understand the health care
system regarding who pays, how much is paid, and where and to
whom care is provided? (cont)Must include more than political
and economic factors
Insert Table 2.1 for discussion
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Key Words: customer, consumer, stakeholders
LO2. Who are the main stakeholders in the health care system?
Individuals and their advocates - recipients of care and those
interested in themPublic sector - public programs differentiated
from one another by who they cover for health care
benefitsPrivate sector - defined by what they do Payers -
insurance companies, employers, unions, business associations,
charitable organizationsProviders - physicians, hospitals,
nursing homes, pharmacies, independent diagnostic
facilitiesSuppliers - guides to explore theme and variation
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Key Words: individuals and their advocates, public sector,
strategy, payers, providers, suppliers
17. LO2. Who are the main stakeholders in the health care system?
(cont)
StrategyHandling major issuesSetting organizational
directionProvided framework for short-term decisionsTrade-off
analysis=strategic choicesCostQuality Access
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Key Words: strategy, cost, quality, access
LO3. What are the main trade-offs, among cost, quality, and
access that health care organizations must face in allocating
their resources?
Cost is actual payment based
onPriceDemandSupplyVolumeProduction costsCost shiftingWho
pays VolumeEfficiency of execution Number of units of care to
be appliedIntensityLevel of serviceMedical technologySite of
Service
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Key Words: supply, demand, volume, production costs, cost
shifting, level of service, technology, site of service
LO3. What are the main trade-offs, among cost, quality, and
access that health care organizations must face in allocating
their resources? (cont)
QualityAmenities - first impressionService - support actual
business of delivering careTechnical - work that most directly
affects outcomesAccessAvailabilityWhat is available? What is
18. covered?When care can be provided?InfrastructureSustainability
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Key Words: amenities, service, technical, availability,
infrastructure, sustainability
CONCLUSION
Many domains must be considered in a framework to understand
health care systems. The main stakeholders in the healthcare
system are individuals, the public sector and the private
sector.Each company must make strategic choices. It cannot
focus on cost, quality, AND access.
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Chapter 6
How Health Care Buyers
Make Choices
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This chapter is an introduction to the concept of marketing and
health care.
LEARNING OBJECTIVES
19. What are the main stages in the consumer buying decision
process?
What are the main characteristics, roles, and stages influencing
the organization’s buying process?
LO1. What are the main stages in the consumer buying decision
process? 4 key psychological responses that influence consumer
response to marketing stimuliMotivationFreud - behavior is
unconsciousMaslow - human needs hierarchyHerzberg -
satisfaction vs dissatisfactionProchaska - Stages of
ChangePerception - Health Belief ModelLearning -
experienceMemory - associations
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Key Words: psychogenic, motive, Freud, Maslow, Herzbegr,
Prochaska, laddering, dissatisfiers, satisfiers, Stages of Change,
perception, selective distortion, selective retention, health
believe model, drive, cues, short-term memory, long-term
memory, associative network memory model, nodes, links,
brand association, memory encoding, memory retrieval
LO1. What are the main stages in the consumer buying decision
process? (Cont) Buying Decision Process - captures full range
of consideration that arise when a consumer faces a highly
involving new purchaseProblem Recognition Information
SearchEvaluation of AlternativesPurchase DecisionPost-
purchase Behavior
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Key Words: information neediness, heightened attention, active
20. information search, low-involvement model, learning model,
rational ma hypothesis, dissonance attribution model, personal,
commercial, public, experiential, total set, awareness set,
consideration set, choice set, belief, attitude, expectancy-value
model, consumer involvement, attitude of others, anticipated
situational factors, critical contact situation, perceived risk
LO2. What are the main characteristics, roles, and stages
influencing the organization’s buying process? Three types of
marketsBusiness market - ie. making of a
wheelchairInstitutional market - ie. food supply to a
hospitalGovernment market - bureaucracyThree types of buying
situationsStraight rebuy - routine order from listModified rebuy
- change specificationsNew task - create something different
*
Key Words: organizational buying, business market,
institutional market, government market, straight rebuy,
modified rebuy, new task, systems buying, prime contractor,
systems contracting, buying center
LO2. What are the main characteristics, roles, and stages
influencing the organization’s buying process? (cont)Roles in
the purchase decision
processInitiatorUserInfluencerDeciderApproverBuyersGatekeep
ers
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Key Words: initiator, user, influencer, decider, approver,
buyers, gatekeepers, key buying influencer, multilevel in-depth
21. selling, price-oriented customer, solution-oriented customers,
gold-standard customers, strategic-value customers
LO2. What are the main characteristics, roles, and stages
influencing the organization’s buying process? (cont) Buy
Phases (typical new-task buying)Problem recognition -
discovered needGeneral need description - what and how
muchProduct specification - product value analysisSupplier
search - list of qualified suppliersProposal solicitation - request
for proposalSupplier selection - choosing the best
qualifiedOrder-routine specification - final
negotiationsPerformance review - is it working?
*
Key Words: buy phases, buy grid, product-value analysis,
request for proposal (RFP), customer value assessment (CVA),
MRO items, blanket contract, stockless purchase plan, corporate
expertise, corporate trustworthiness, corporate likeability,
specific investments, opportunism
CONCLUSION Individual consumers’ choices are influenced
by many things.Five roles are played out in the buying
process.Organizations’ buying processes vary slightly
depending on the type of purchase.Business relationships are a
important, but risky.
*
Key Words:
22. Chapter 1
The Role of Marketing
in Health Care Organizations
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This chapter is an introduction to the concept of marketing and
health care.
LEARNING OBJECTIVES
1. What are the major areas in health care in which marketing is
regularly applied and practiced?
2. What is the purpose of marketing thinking and planning in
health care organizations?
3. What are the major concepts, tools, and skills in marketing?
4. How is marketing normally organized in health care
organizations?
LO1. What are the major areas in health care in which
marketing is regularly applied and practiced?Marketing takes
place when at least one party to a potential transaction thinks
about means of achieving desired responses from other parties
includingPurchasing a product or serviceIncreasing awareness,
interest, or preference toward an offering or supplierChanging
behaviorVoting or expressing of preference of some kind
*
Key Words: Marketing
23. LO2. What is the purpose of marketing thinking and planning in
health care organizations?
Purpose of marketing“old” Transaction view - sell more“new”
Customer satisfaction view - serve the customer“New
Marketer’s” purpose - create a long-term, trusted, and valued
relationship with the customer by getting the whole
organization to think about and serve customers and their
interests
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Key Words: transaction view, customer relationship building
and satisfaction view; consumer; patient
LO3. What are the major concepts, tools, and skills in
marketing?
Concepts - the “who” of market segmentation and target market
(CCDVTP)CreateCommunicateDeliver value - as perceived by
the customerTarget market - well-defined
populationProfitability - even for non-profits
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Key Words:
Concepts: market segmentation, target market, CCDV, CCDVTP
24. LO3. What are the major concepts, tools, and skills in
marketing? (cont)
Tools“Old” Tools - 4 Ps of the marketing mixProduct - features,
benefits, styling, packagingPrice - list price, rebates, discount
programPlace - where is it available and distribution
strategiesPromotion - advertising, personal selling, direct
marketing“New” Tools - 4 As of marketingAwareness of the
offering by the consumerAcceptable - value of the offering by
the consumerAvailable - right time and place for the
consumerAffordable - value of the offering by the
consumerPositioning - requires how to best implement 4As of
the target market
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Key Words:
Tools: 4 Ps of the marketing mix, product, price, place,
promotion, 4 As of marketing, STP
LO3. What are the major concepts, tools, and skills in
marketing? (cont)
Using concepts and tools for a robust marketing
strategy:Segment firstTarget position next, thenDetermine 4As,
and finallySet appropriate 4 Ps
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Key Words:
Tools: 4 Ps of the marketing mix, product, price, place,
promotion, STP
25. LO3. What are the major concepts, tools, and skills in
marketing? (cont)
7 SkillsMarketing research Primary data - firsthand observation,
interviews, surveys, and statistical data on customer attitudes
and needsSecondary data - sources such as population size, age,
income, and education distributionProduct design - to appeal to
consumerDistribution - readily accessible to customersPricing -
internal constraints and reality of the marketplaceAdvertising -
best media mix (TV, billboards, newspaper, magazine,
radio)Sales promotion - incentives to stimulate trialSales
management - hire, train, compensate, motivate and evaluate
sales people
*
Key Words:
Skills: marketing research, product design, distribution, pricing,
advertising, sales promotion, and sales management, primary
data, secondary data
LO4. How is marketing normally organized in health care
organizations?
Two new positionsDirector of Marketing - provides and
orchestrates marketing-related activities and resourcesVice-
president of marketing - develops policies and strategies and
brings the voice of the customer into management and board
meetingsPublic relations (PR) person vs. Marketing personPR
person -Trained in communication skills and work closes with
the mediaMarketing person - Trained in economic analysis and
social sciences to understand and analyze markets and customer
choice behavior
26. *
Key Words: director of marketing, vice president of marketing,
PR person, marketing person,
CONCLUSION
Marketing plays important health care roleModern marketers
start with consumers instead of products or servicesMarketers
have traditional skillsTraditional skills must be supplemented
with new skills
*
Health Services Marketing
HSA 305
Analyzing the Environment
Kotler, P., Shalowitz, J., & Stevens, R. J. (2008). Strategic
marketing for health care organizations. San
Francisco: Jossey-Bass
*
Welcome to Health Services Marketing. In this lesson, we will
discuss
Please go to the next slide.
27. ObjectivesUpon completion of this lesson, you will be able
to:Analyze the competitive environment of a health services
organization and prepare a course of action that will allow for
strategic marketing success
*
Upon completion of this lesson, you will be able to:
Analyze the competitive environment of a health services
organization and prepare a course of action that will allow for
strategic marketing success.
Please go to the next slide.
Strategy and Market PlanningPurposeMission statementWhat is
our business?Who is the customer?What is of value to the
customer?What will our business be?What should our business
be?What could our business be?
*
In this lesson, we will look at the guidelines on developing
marketing strategy in order to achieve desired outcomes as well
as how health care consumers make choices. Every organization
has a specific reason for its existence. That specific reason is
usually included in its mission statement. The mission statement
should be specific and customer outcome oriented. In defining
a mission statement, an organization needs to address the
following questions:
What is our business?;
Who is the customer?;
What is of value to the customer?;
28. What will our business be?;
What should our business be?; and
What could our business be?
We will analyze each of these questions through guidelines on
developing a market strategy to achieve desired customer
outcomes.
Please go to the next slide.
Business DefinitionHistory of aims, policies, and
achievementsCurrent preferences of owners and
managementMarket environmentResourcesDistinctive
competenciesAdditional three dimensions
Strategic planning begins with a definition of the business. The
definition of a business has at least five elements:
One. History of aims, policies, and achievements. It pertains to
having an understanding of
Why the organization was formed;
The processes that have contributed to or reduced from its
success;
And what it has accomplished.
It is important for the members of the organization to have an
understanding of its history so that the leaders can predict how
members will react to the process as well as the content of
changes pertinent for strategy implementation.
Two. Current preferences of owners and management. It must be
in sync with the mission. It must determine not only which
services it seeks to provide, but also the relative importance of
the mix of those services. Hence, these preferences must be
clear and explicit prior to the organization writing a mission
statement or embarks on a strategy formulation.
Three. Market environment . This can be achieved by
conducting an environmental assessment in a mission
29. formulation.
Four. Resources of an organization. It sets restraints regarding
the mission statement. The resources are both tangible and
intangible. Tangible resources are resources such as cash, plant,
and equipment and intangible resources are things such as
reputation and image.
And five. Distinctive competencies. It should be determined in
order to see what it does better than other similar organizations.
In addition, a business can be defined in terms of three
dimensions: customer groups, customer needs, and technology.
Having realistic addition resources, what that business look like
and what it could accomplish can assist an organization to begin
the process of realistic goal setting and capital budgeting.
Please go to the next slide.
*
Strategic PlanningCustomer IdentificationValue
PropositionPrimary activitiesSupport activitiesCore business
processesMarketing sensingNew offering realizationChannel
bondingCustomer acquisitionCustomer relationship
managementFulfillment management
The next phase in strategic planning is customer identification.
Customer identification makes it necessary for the organization
to answer the following questions:
Who are our customers?;
Where are they? and;
What are their characteristics?
A quality expert, J. M. Juran indicated that customers include
all people who are affected by an organization’s processes,
products, and services. The people can be internal customers
who are a part of the organization or external customers who are
not a part of the organization.
30. A user is anyone who carries out positive actions regarding an
organization’s product such as suppliers being external
customers and patients are both customers and users of health
care services. An organization must prioritize the importance of
its different customers. This can be achieved by implementing
three categories:
Those who are most impacted by what the organization does;
Those who the organization desires to impact the most by
diversifying or seeking unfulfilled mission objectives; and
Those who can assist the organization in furthering its business
by crafting a symbiotic relationship with its important
customers like with health plans and physicians.
Once the organization has defined its customers and prioritized
its relevance, the service area must be defined to include the
scope of its geographic coverage. The next step is to define the
segments of the market the organization is looking to serve.
The next phase in strategic planning is value proposition. Value
is defined as the trade off among cost, quality and access.
Porter’s value Chain Model is a tool for identifying ways to
create customer value. The value chain identifies nine
strategically relevant activities or five primary activities and
four support activities that create value and cost.
Primary activities are activities that:
Bring materials into the organization or inbound logistics;
Converting them into final products and services or operations;
Shipping out final products and services or outbound logistics;
Marketing them to the targeted market; and
Servicing them.
Examples of support activities are procurement, technology
development, human services management, and organization
infrastructure. These are usually handled in specialized
departments. The organization should analyze its cost and
performance of each value creating activity and look for
improvement opportunities. In addition, it should estimate its
competitors’ costs and performance standards as benchmarks.
The core business processes also contribute to the success on
31. how well each department performs its work as well as how
well the different departmental activities are coordinated. The
core business processes are as follows:
Marketing sensing which includes gathering market
intelligence, disseminating it within the organization, and
acting on the information;
New offering realization which is researching, developing, and
launching new, high quality offerings quickly and within
budget;
Channel bonding is developing strong partners regarding the
supply and distribution side of the organization;
Customer acquisition is defining target markets and prospecting
for new customers;
Customer relationship management is building a profound
understanding, relationships, and offerings to individual
customers; and
Fulfillment management is receiving and approving orders,
shipping goods or delivering services on time, and collecting
payment.
Please go to the next slide.
*
Strategic Planning, continuedGoal settingTied to the mission
statementClearly definedMeasurablePrioritizedTarget
timeStrategyEnvironmental assessment and
planningImplementation EvaluationReassessment
Once the mission statement is determined, then the goals should
be formulated. The goals are the milestones that indicate how
well the organization is progressing. Goals must have at least
the five elements:
Must be clearly tied to the mission statement;
Must be clearly defined;
32. Must be measurable;
Must be prioritized; and
Must include a target time by which they must be achieved.
An organization must have a business strategy to achieve its
mission and goals. There are at least four steps in drafting a
useful and appropriate strategy:
Environmental assessment and planning that includes both the
internal and external environments;
Implementation of the strategy;
Evaluation of the strategy’s success; and
Reassessment.
There are four levels of strategic planning. These are:
Corporate;
Division;
Strategic business unit; and
Product;
Please go to the next slide.
*
Environmental Assessment Models SWOT
AnalysisStrengthsWeaknessesOpportunitiesThreatsLimitations
Internal and external environments
Not provide a systematic means of analysis
Not offer an approach to strategic implementation
The environment of an organization can be assessed with a
SWOT analysis and-or the Porter’s Five Forces Analysis.
SWOT is the oldest of the two models. It looks at the strengths
and weaknesses of the internal environment and the
opportunities and threats of the external environment. Strengths
can be divided into two categories:
Resources which are what the organization has; and
33. Capabilities which are what the organization do well.
Both of these categories can be tangible or intangible. In
addition to looking at the resources and capabilities,
organizations need to include assessing potential capabilities
given the current resources. This can be perceived as what the
organization should be.
An organization can assess its internal weaknesses through:
Finances;
Performance capabilities; and
Human resource capabilities.
An organization has three options if they want to exploit
environmental opportunities to enhance its operations:
Intensive growth opportunities ;
Integrative growth opportunities; and
Diversification growth opportunities.
An analysis of threats will reveal current and projected threats.
The limitations of SWOT are as follows:
One. Although an organization may be able to clearly indicate
its internal and external environments, it may not be able to
correlate appropriate elements to achieve organizational
success.
Two. It does not provide a systematic means of analysis. It may
overlook important environmental factors; and
Three. It does not offer an approach to strategic
implementation.
Please go to the next slide.
*
Environmental Assessment Models Porter’s Five Forces
Analysis
Internal rivalry
Threat of new entrants
Threat of substitute products
Buyer power
34. Supplier powerLimitations
Growth of demand
Focuses on the industry
Does not account for nonmarket
Qualitative model
Porter’s Five Forces Analysis consists of :
Internal Rivalry;
Threat of New Entrants;
Therat of Substiture Products,
Buyer Power; and
Supplier Power.
One. Internal Rivalry. It is the competition among like firms.
The organizations compete in non-price and price competitions.
Non-price competition has three categories: products and
services, promotion and branding, and access.
Products and services are determined by the organization’s
mission.
Promotion and branding can be determined by the reputation of
the organization.
Access has four dimensions regarding health care: location,
delivery of services, convenience, and insurance contracting
status.
Many organizations engage in price competition under three
circumstances:
One. They may reduce their prices when the costs to their
customers for switching providers are low;
Two. They may also reduce their prices when they seek to gain
market share or avoid losing the market share they currently
have; and
Three. Price reduction happens in sectors in which the
organizations view themselves as independent actors instead of
as part of a cohesive industry.
In addition, there are also six environmental circumstances that
encourage price reductions:
35. Excess capacity;
The presence of many sellers;
Absence of a history of cooperation and facilitation among
organizations;
Undifferentiated products or services;
Sellers can set prices secretly; and
Sales orders are large and infrequent.
Two. Threat of New Entrants. New Entrants must overcome the
following barriers:
Economies of scale and scope;
Capital requirements;
Access to key resources or distribution channels;
Legal restrictions;
Branding;
Exclusive and or long term agreements with major customers;
and
Current firms with excess capacity.
Three. Threat of substitute products or services. A substitute
drug does the same thing as those that they replace such as
generic drugs. Complements are used in addition to the product
or service.
Four. Buyer Power. It is promoted by two circumstances:
Direct buyer power occurs when the buyer is so large that the
seller cannot turn away the business; and
Indirect buyer power occurs when the purchasers are motivated
and able to shop around.
And five. Supplier Power. It can be determined by the extent to
which suppliers can exert their power over an organization.
To do this, the following questions must be answered:
How important is the product or service that the supplier
provides?
How many similar supplier competitors are there?
How high is the cost of switching form one supplier to another?
The limitations to using the five forces model are:
One. It does not deal with the growth of demand in a given
industry.
36. Two. It focuses on the industry as a whole and not the
individual organization.
Three. It does not account for nonmarket forces such as the role
of government or nongovernmental organizations.
And four. It is a qualitative model and not a quantitative model.
Please go to the next slide.
*
Marketing StrategiesChanging
forcesSegmentationPositioningProduct leadershipCustomer
intimacyOperational excellence
Both the SWOT and five forces analyses can be used in
assessing an organization’s environment; however, they are not
as useful in deciding on implementation strategies that will
assist the organization in surviving and prospering. An
organization may elect to use any of the three approaches:
Changing forces. An organization may choose to change one of
more of the five forces that are working against it. This has
been evident in legislative initiatives in increasing the OB/GYN
availability for women who have managed care plans.
Segmentation. This involves finding a sector or part of the
industry that is not so affected by the five forces. Hospitals
began to diversify into health care segments that were less
affected by reimbursement changes such as in rehabilitation
services, pediatrics, home health care, and skilled nursing
facilities.
Positioning. This is when the organization develops a
differential advantage from other organizations that protects it
from the five forces. When positioning, a specific value driven
strategy is selected. The specific strategy will depend upon the
organization’s mission and target population. There are three
37. positioning strategies:
Product leadership. An organization that uses this position is
completely devoted to producing the best product or service and
all organizational processes are subservient to this function. An
example of this type of organization is a start of biotechnology
firm. This position provides a benefit advantage to customers.
Customer intimacy. An organization that uses this position,
realize that it cannot satisfy everyone; therefore, it targets
specific customers and add value by providing total solution
products and services in a long term relationship. Consulting
firms are examples of organizations that usually adopts this
position. This position provides a benefit advantage to
customer; and
Operational excellence. An organization that uses this position
aims to provide its products and services at a low price in a
standardized, low stress environment. Its profit depends on high
volume sales and adoption of the notion of variety is not good
for efficiency. This position provides cost advantage to
customers.
Please go to the next slide.
*
Next StepsReassessment of mission statementVision and
valuesAlliancesMarket planningMarketing plan
componentsExecutive summary and table of
contentsEnvironmental analysisOpportunity and issue
analysisObjectivesMarketing strategy
Once the organization has evaluated its environment and its
strategic options, then it should review its mission statement to
determine if it is still feasible. The reassessment can validate
the reasons for the statement and the organization’s purpose; it
can cause the organization to realistically assess its purpose,
38. and the organization may find out that it can accommodate a
broader mission than it first envisioned.
Health care organizations have discovered that they need
strategic partners to complement or leverage their capabilities
and resources. Many have and are doing this in the form of
alliances.
After the environmental analysis has been completed and the
mission statement has been reassessed, then a marketing plan
should be developed. A marketing plan is a written document
that summarizes what the organization has learned about the
environment and describes how the organization plans to reach
its goals within the frame of the strategic plan. A marketing
plan has the following components:
Executive summary and table of contents. The plan should have
a brief summary of the main goals and recommendations. The
table of contents outlines the plan, the supporting rationale, and
operational detail.
Environmental analysis. This contains relevant background data
regarding sales, cost, profits, the market, competitors, channels
and they key forces in the environment. It also should have a
detailed description of the customer and competitive behavior.
Opportunity and issue analysis. This section should be the
opportunities indicated from the SWOT analysis and identifies
the key issues likely to impact the organization’s ability to
achieve its objectives.
Please go to the next slide.
*
Next Steps, continuedObjectives & Marketing StrategyAction
programsFinancial projectionsImplementation controls
A marketing plan should also have:
Objectives. This section outlines the plan’s major financial and
39. marketing goals usually illustrated in sales volume, market
share, profit, and any other relevant terms.
Marketing strategy. This section defines the target segments. It
provides the competitive positioning. It also has the branding
and customer strategies that will be implemented.
Action programs. This section specifies the activities for
achieving the business objectives to include each strategy
elements.
Financial projections. This section includes the financial impact
of the action programs. It also illustrates the forecasted sales
volume in units and average prices as well as the expected costs
of operations, distribution, and marketing. And implementation
controls. This section outlines the controls of monitoring and
adjusting the plan.
Please go to the next slide.
*
Key Psychological ProcessesMotivationPerceptionHealth Belief
ModelLearningMemory
Next, lets discuss how health care buyers make choices. It is
necessary to have an understanding of consumer and buyer
behavior to improve or introduce products or services, setting
prices, devising channels, crafting messages, and developing
other marketing activities. To begin, there are four key
psychological processes:
Motivation. There are three know theories of human
motivation. Sigmund Freud’s theory is applied in the context of
consumer behavior by indicating that when a person analyzes
specific brands, he will react not only to their indicated
capabilities, but also to their, less conscious cues. Abraham
40. Maslow’s theory explains why people are driven by particular
needs at specific times. Frederick Herberg’s two factory theory
distinguishes the factors that cause dissatisfaction and factors
that cause satisfaction. James Prochaska and Carlo
DiClemente’s Stages of change theory indicates that behavior
change does not happen in one step. Individuals go through
different stages.
Perception. Perceptions can vary significantly among
individuals exposed to the same phenomena due to three
perceptual processes:
Selective attention. This is the process where a person screens
out almost all of the stimuli exposed to.
Selective distortion. This is the tendency to manipulate
information into personal meanings and interpret information in
a way that fits one’s perception.
And, selective retention. This is retaining information that
supports one’s attitude and beliefs.
The Health Belief Model is a model related to perception. It
indicates that recognizing a personal health behavior threat is
impacted by three factors:
General health values including interest and concern regarding
health;
Specific health beliefs regarding vulnerability to a particular
health threat; and
Beliefs regarding the consequences of the health problem.
This model indicates an individual who perceives a health threat
and then takes action to prevent a health problem most likely
have:
Perceived susceptibility;
Perceived seriousness;
Perceived benefits of taking action;
Perceived barriers to taking action;
Perceived cues to action; and
Perceived efficacy.
Learning. Theorists believe learning is produced through the
interaction of drives, stimuli, cues, responses, and
41. reinforcement.
Memory. Memory can be applied to consumers in that they
brand knowledge in their memory which can be conceptualized
as having a brand node in memory with a variety of linked
association. Encoding is how and where information gets into
memory. Retrieval is how information is pulled out of memory.
Please go to the next slide.
*
Buying Decision ProcessFive Stage ModelProblem
recognitionInformation searchEvaluation of
alternativesPurchase decisionsPost purchase behavior
The Five Stage Model can be used to explain customers’ buying
decision process.
The first stage is problem recognition. The buyer recognizes
there is a need or problem. This is triggered by an internal or
external stimuli.
The second stage is information search. The information
neediness of a target market and the information sources. The
information sources can be personal, commercial, public, and or
experiential.
The third stage is evaluation of alternatives. Consumers forms
attitudes, judgments, and preferences toward some brands by an
attribute evaluation procedure. The expectancy value model of
attitude formation indicates consumers assess products and
services by combining their brand beliefs. The assumption of
this model is that there is high consumer involvement.
The fourth stage is Purchase decision. This stages is where the
consumer develops preferences regarding the brands in the
choice set. An intention to purchase the most popular or
preferred brand may also be formed. The attitude of others,
unanticipated factors, and perceived risks are factors that can
42. intervene between a purchase intention and a purchase decision.
And the last stage is Post purchase behavior.It must be
monitored to help the consumers to feel good about a purchase
because some purchasers experience buyers remorse.
Please go to the next slide.
*
Organizational BuyingThree types of
marketsBusinessInstitutionalGovernmentBuying
situationsSystems Buying and SellingBusiness Buying Process
Decision MakersBuying Center
Now, we will look at how organizations make their purchase
decisions. There are three types of organizational markets:
Business markets. These markets consist of organizations that
acquire goods and services implemented in the production of
other products or services that are sold, rented, or supplied to
others. More characteristics of this market are they deal with
fewer larger buyers; have close supplier-customer relationship;
have professional purchasing agents; have multiple buying
influences; have multiple sales calls; have derived demand; are
inelastic demand; have fluctuating demand; have geographically
concentrated buyers, and buys directly from manufacturers
instead of through intermediaries.;
Institutional markets. These markets are hospitals, nursing
homes, prisons, and other institutions that must provide health
care goods and services to people in their care.; and
Government market. The US government is the largest customer
of goods, services, and technology in the world. Its spending
decisions are subject to public review. Hence, it requires a
significant amount of paperwork, bureaucracy, regulations,
decision making delays and shifts in procurement personnel.
43. There are three types of buying situations that every business
buyer encounters:
Straight rebuy refers to reordering routinely from preapproved
suppliers;.
Modified rebuy occurs when the buyers wants to modify product
specifications, prices, delivery requirements, or some other
terms. This usually involves more participants on both sides;
and
New task involves purchasing a product or service for the first
time. This type goes through awareness, interest, evaluation,
trial, and adoption stages.
Many business buyers prefer to purchase a total system from
one seller. This practice is called system buying. Systems
contraction is a variant of systems selling where a single
supplier providers the buyer with the entire requirement of the
maintenance, repair and operating supplies. The benefit of
system contracting is that it lowers the buyer’s cost due to the
seller managing the customer’s inventory and less time is spent
on selecting a supplier.
There can be more decision makers in new buy situations such
as finance personnel, physicians, nurses, and technical experts
in information systems who share some common goals and risk
from their purchase decisions. This is also known as the buying
center. The members of the buying center play any of the
following roles:
Initiators request something to be purchased;
Users are the ones who will use the product or service;
Influencers impact the buying decision;
Deciders decide on product requirements or on suppliers;
Approvers authorize the proposed actions of deciders or buyers;
Buyers with formal authority can select the supplier and arrange
the purchase terms; and
Gatekeepers have the power to prevent sellers or information
from reaching members of the buying center.
44. Since there is a mix of decision makers in the buyer center, each
participant has personal motivations, perceptions, and
preferences that are influenced by the buyer’s age, income,
education, job position, personality, attitude regarding risk and
culture. The result is buyers have different buying styles.
When defining target segments, there are four types of business
customers:
Price oriented customers;
Solution
oriented customers
Gold standard customers; and
Strategic value customers.
Please go to the next slide.
*
Stages in the Buying CenterProblem recognitionGeneral need
review description and product specificationSupplier
searchProposal solicitationSupplier selectionOrder routine
specificationPerformance
45. Buy phases includes eight stages that business buying goes
through. The process begins with someone recognizing a
problem or need that needs to be met by obtaining a good or
service. Next, the buyer must determine the general
characteristics and the number required. Then the buyer search
for the most appropriate suppliers. This may be done by
through trade directories, contacts with other companies, trade
advertisement, and trade shows. The buyer will obtain a short
list of qualified suppliers based on the criteria that the buying
center sets. The buyer will invite qualified buyers to submit a
proposal. The buying center will provide the number of
suppliers to use. Once the suppliers are selected, the buyer
negotiates the final order to include listing the technical
specifications, the number needed, the expected time of
delivery, return policies, warranties and so on. With
maintenance, repair and operating items, many buyers move to
having blanket contracts instead of periodic purchase orders.
The last stage of the buying process is the performance review
of the chosen suppliers. This is done by one of the following
methods:
Contact the end users and ask for their evaluations;
Rate the supplier on several criteria using a weighted score
method; and
Combine the cost of poor supplier performance to come up with
46. the adjusted cost of purchase to include price.
The performance review can lead to continue, modify or stop
the relationship with a supplier.
Please go to the next slide.
*
Check Your Understanding
2.unknown
Summary Strategy and market planningSWOT and Porter’s Five
ForcesComponents of a marketing planKey psychological
processes in consumer decision makingFive Stage model for
consumer buying processOrganizational buying and decision
makingStages in the buying process
*
47. We have now reached the end of this lesson. Let’s take a look
at what we’ve covered.
First, we discussed the purpose of strategy and market planning.
This included defining the business, the target segment, value
proposition, goal setting, and strategy. We also discussed the
strategy in detail to include:
Environmental analysis;
Implementation;
Evaluation; and
Reassessment.
Then we discussed two models of environmental analysis:
SWOT; and
Porter’s Five Forces.
Along with these two models, we discussed the caveats to using
them and how some organizations have controlled for some of
the caveats. The components of a marketing plan are:
Executive summary and table of contents;
Environmental analysis;
Opportunity and issue analysis;
Objectives;
Marketing strategy;
Action programs;
Financial projections; and
Implementation controls.
Then we discussed the key psychological processes involved in
48. customer decision making regarding purchasing:
Motivation;
Perception;
Learning; and
Memory.
Also, the five stage model regarding consumer buying process
and its components were discussed. These are
Problem recognition;
Information search;
Evaluation of alternatives;
Purchase decisions; and
Post purchase behavior.
Next, the organization’s business markets were discussed along
with buying situations, systems buying and selling, buying
center, and the buying center’s decision makers.
Finally, the stages in the buying center were discussed. These
are:
Problem recognition;
General need review description and product specification;
Supplier search;
Proposal solicitation;
Supplier selection;
Order routine specification; and
49. Performance.
This concludes this lecture.
Health 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
*
Welcome to Health Services Marketing. In this lesson, we will
discuss the health care industry and marketing environment.
Please go to the next slide.
ObjectivesUpon completion of this lesson, you will be able
to:Describe the health care system and the role of marketing.
50. *
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
SystemBackgroundHealth care in the US accounts for sixteen
percent of the gross domestic product however the system is not
effective nor efficient US poor outcomesPrimary reasons for the
health disparities:Health care is not a right All other countries
have budgets for health careThe US does not have a centralized
technology approval processBest v. worst health care
systemZero sum modelPositive sum model
*
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
51. 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.
52. 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,
53. 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.
Please go to the next slide.
Major ParticipantsCare providersPayersHealth 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
54. 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
55. 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.
56. Please go to the next slide.
*
Major Participants, continuedEmployersGovernment
organizationsMedical associationsHealth advocacy
organizationsSupply 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
57. 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
58. 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