Health care as an industry is set apart from the other sectors of the economy because of its specific characteristics. The nature of health care organizations, that is, the institutions, manufacturers and service providers, don’t operate under normal free market assumptions.
Here, we discuss four free market assumptions often violated in health care at the organizational level: 1) the free-market assumption that firms operate in the market orientation, 2) the assumption that firms focus on core competencies & seek a competitive advantage, 3) the assumption that the ultimate goal is to increase the wealth of its owners, and 4) the free market assumption that firms develop a direct relationship with customers.
Free Market Assumption: Firms operate in the market orientation.
Firms operate based on one of five marketing philosophies or orientations: production, product, sales, market, or societal marketing. Firms subscribing to the production orientation concentrate on the production process and their internal capabilities. These firms believe that consumers prefer products that are widely available and inexpensive. Managers focusing on this concept concentrate on achieving high production efficiency, low costs, and mass distribution. Firms operating with a product orientation concentrate all efforts on the product itself. This orientation holds that consumers favor products that offer the most quality, performance, or innovative features. Here managers assume that buyers admire well-made products and can appraise quality and performance, so they concentrate on making superior products and improving them over time. Sales oriented firms focus on aggressive sales techniques and believe that high sales result in high profits. Managers concentrate on selling what they make rather than making what the market wants. While these orientations are inward-looking, market and societal marketing orientations are outward looking.
Firms with a market orientation focus on addressing the needs, wants, and demands of the market. Managers believe that the key to achieving its organizational goals consists of the company being more effective than competitors in creating, delivering, and communicating customer value to its selected target customers. An extension of the market orientation, the societal marketing orientation seek to satisfy customer needs, wants, and demands while enhancing individual and societal well-being.
Most firms operating in developed economies seek to operate with a market orientation, determining the needs, wants, and interests of target markets and delivering the desired satisfactions more effectively and efficiently than competitors. However, many health care organizations, particularly hospitals, still operate in the production or product orientation of marketing. They focus on themselves and fail to take into account the interests of the target market. This may have worked in the old medical model of health, but it doesn’t fit the new health care model. As a whole, the industry operates in silos organized by specialty and service, not around the needs of health care consumers.
For decades, health care providers have operated with the, Field of dreams mentality. That is, they operate based on the line from the movie, “If you build it, [they] will come.” Building hospitals and facilities, acquiring expensive equipment, and opening practices not based on the needs of health care consumers and the community, but instead on their own desires. Traditionally, health care providers have focused on their own needs rather than the needs of health care consumers. For example, hospitals were designed with staff efficiency in mind, not patient comfort and care. Practice hours were established for the benefit of the physician and not the patient who often had to take time off or work for a doctor’s appointment. Even the term that we use to refer to the person receiving health care, patient, reflects an emphasis on the health care industry and not the individual.
Today, the tide is slowly turning. For example, we now talk about the patient as a health care consumer. But health care as a whole is still very much stuck in the product orientation.
Organizations operating in the product orientation constantly seek to answer the question ‘What can we make or do best? While organizations in the marketing orientation “What do customers want and need?”
Free Market Assumption: Firms focus on core competencies & seek a competitive advantage.
Health care organizations tend to be multipurpose organizations. From the general practitioner who may treat an adolescent with a broken arm, an adult with the flu, an elderly patient with a diabetes and more in a single day; to hospitals that treat patients for a variety of issues such as stroke, brain injury, cancer, and back pain. Most health care providers attempt to be all things to all people. They provide a variety of services which may (or may not) be profitable, needed, or among the provider’s core competencies. Research has shown that health care providers who are exposed to a particular health issue become more knowledgeable in the area and have better outcomes. By not concentrating on core competencies, health care providers are unable to acquire adequate knowledge and experience to become proficient or take advantage of economies of scale.
Further complicating the issue is the fact that health care providers must increasingly devote more time to administrative and support duties—processing forms, reviewing labs, learning computer systems and processes. It’s estimated that physicians and medical practitioners spend just 12 to 17 percent of their day with patients. The rest of the time is spent on other activities.
Free Market Assumption: The ultimate goal is to increase the wealth of its owners.
Not-for-profit organizations have historically played a major role in health care. Only within the last fifty years or so has profit been a motive for health care providers. Accounting, finance, budgeting, profit, and cost were considered foreign concepts to practitioners whose focus was to heal the body, health care was about curing the ailment, not something to be done for financial gain. Health care providers have traditionally seen themselves as healers, answering a calling, or being agents of god, anything but a business enterprise. Many in the industry operate as a non-profit organization or with a core mission to heal, teach, or otherwise benefit society. As a result, health care organizations often provide services that are not profitable. Unlike most industries that may discontinue product lines that perform poorly, health care organizations may find it difficult to do so. Similarly, firms in other industries can choose to operate in a geographic market or not; however, the universal need for health care dictates that some health care organizations may find it difficult to do so. Additionally, in other industries, potential buyers who do not have the ability to pay or who, for some other reason, are considered to be undesirable customers can be refused service, but health care providers have a moral and ethical (and sometimes legal) obligation to provide service.
Industry-wide, the importance of finance in health care becomes even more important as we consider that U.S. health care spending reached $4.1 trillion or $12,530 per person in 2020. As a share of the nation’s Gross Domestic Product, health spending accounted for 19.7 percent.
Free Market Assumption: Firms develop a direct relationship with customers.
Physicians have traditionally relied almost exclusively on referral relationships—prior to 1979, courting peer referrals defined health care marketing efforts. n most industries however, firms seek to build a relationship with the consumers of the product directly, or indirectly through the supply chain. This is especially true today with advancements in technology that allow the final consumer to deal directly with manufacturers, for example, consumers can design and purchase their shoes online directly from Nike. While the role of user, purchaser, and influencer of any given purchase may be held by different individuals, the parties involved typically try to work in harmony to achieve a shared goal. However, in health care, the user (that is, the patient) often has a minor role in the purchase process. With other health care professionals as the target market, the interest of health care consumers is often ignored while peers are courted for referrals. As the use of third-party payers has grown, so too has their influence and their need to be catered.
While it may be easy to identify the sick or injured individual in need of health care. Identifying the “customer” may be much more complicated. Is it the patient who receives the care, the loved-one or advocate who advises the patient, the insurance company that pays for the care, or the health care provider that prescribes the care?
