Hospital Industry and

health care IT strategy Hospitals form one element of the health care industry, proving medical care for patients. There are three main types of hospitals in the U.S. -- for profit, non-profit and government. While many hospitals operate independently, some are part of larger groups. But overall, they are diffuse. The annual revenues for the hospital business around estimated to be around $1 trillion (IBIS World, 2015). There are an estimated 5.5 million people working in hospitals, mainly in nursing, administration and doctors. There are approximately 2900 hospital businesses in the U.S.

(IBIS World, 2015). The largest hospital operators in the U.S. are Community Health Systems, based in Tennessee, which runs 188 hospitals, and Hospital Corporation of America, which is also based in Tennessee and which has 166 hospitals (Marshall, 2015). The 10th-largest chain, however, only has 8 hospitals, so outside of the major groups the hospital business is fairly fragmented. Among non-profit groups, Ascension Health in St. Louis has 73 hospitals, making it the largest. There are more medium-sized groups among non-profits than there are among for-profit hospitals (Gamble, 2014).

The nature of competition among hospitals is unique. On one hand, health care is a service that nobody would demand if given a choice. But when someone needs health care, they tend to be sensitive more to their immediate needs, and have low information. The range of different payers is another factor in the hospital business -- larger payers such as government programs and insurance companies will often have contracts to work with specific hospitals or hospital groups.

Much of the marketing that hospitals do with respect to building their share thus comes down to how they market to the larger payer groups. Such groups are attracted by the ability of the hospitals to provide a reasonable standard of care at a reasonable cost. Government payers have the most bargaining power, by virtue of their market share.

For profit hospitals will also compete on the service mix, offering more high-margin services, whereas non-profit hospitals on average might offer a broader range of services and treat more clientele who are unable to pay. Suppliers are generally concentrated in the health care industry. The major medical equipment suppliers have to receive FDA approval for their products, which come along with monopoly protections on their medical devices. The same is true for new drugs. These factors result in fairly high costs from suppliers.

Hospitals, even the larger groups, have only limited bargaining power due to these monopolies, and the fact that no hospital group is large enough to move the market on supply prices. In general, however, because health care providers can pass along cost to the end payer, they are able to earn profits on their services. Even not-for-profit hospitals will often earn profits on their services.

Brief History Hospitals began centuries ago as religious institutions to care for the sick and indigent, and this tradition still exists in health care today, as many hospitals are run by religious groups as not-for-profit facilities. But medical care has advanced considerably, and is now a technology-based business. Fields have become more specialized, and this greater degree of specialization has allowed for highly-refined services. The industry has been subject to increasing regulation for the past hundred years, as it has evolved into a highly-complex industry.

Health care remains one of the most heavily-regulated industries today. The U.S. system has several different payer types -- these payers are not the end user of the service, however, and that difference is one of the unique features of this industry. The modern health care system features three types of hospitals -- government, not for profit, and for profit. These hospitals all perform the same basic service, which is to provide health care to their immediate communities.

There are many different types of health care that are provided, and each hospital sets its own service mix. Typically, hospitals service their immediate geographical region. The modern hospital is comprised of specialized workers, who typically have a high level of training, and high-tech equipment that is used to perform specific tasks necessary to the provision of health care. Customers The split between payer and end user is one of the most important features of the health care industry, and it affects how companies in this industry compete.

The payer is typically either a private insurance company or a government program (Medicaid, Medicare). There are also private payers (cash payers), though these are less common -- some people are uninsured by choice but many of these would be uninsured as a result of poverty or immigration status. The Affordable Care Act has sought to reduce the amount of uninsured in America.

The government and the insurance companies have a fair amount of bargaining power, especially the government, on account of the number of patients that they can deliver to a hospital. However, the market remains driven by monopoly power of suppliers, information asymmetry between hospitals and payers, and other factors that leave America with a high cost of health care, but that also allow hospitals to be generally profitable. The other customer is the end user.

This is typically a patient with a medical condition, and the hospital is charged with the task of treating that condition to the best of their abilities. The patient is sometimes the payer, but often is not. The interests of the patient is strictly related to health, and improving one's health. There are both acute patients and long-term patients at most hospitals. The patients present with symptoms, enter triage, and then are treated according to what those symptoms mean. There are often specialists who are involved in the treatment.

Value Proposition The value proposition in health care lies in treating people who are in need of medical attention. Medicine is a high-end skill that requires substantial training, as well as investment in equipment. End users are strongly oriented towards positive outcomes for their health, and that is why they seek out the health care system in general. Hospitals in particular will often focus on surgeries and emergency care, as part of their role, though services will vary from one hospital to another.

There is tremendous utility provided to end users in terms of helping people to overcome medical conditions, and in general people are willing to make tremendous sacrifices in the pursuit of good health. How IT Contributes to the Value Proposition There are many different ways in which information technology contributes to healthcare's value proposition. These include information storage and sharing (medical records), decision-making optimization, and advances in technologies such as diagnostics.

If a hospital is a research hospital, there may be other technologies at work as well in terms of developing new ways of treating some conditions. Information storage and sharing is valuable in that it aids in better health outcomes. As medical practitioners know more about a patient and that patient's history, and have access to this information more quickly, and more accurately, they are better able to make diagnoses and they are better able to prescribe solutions.

One of the major issues in health care is reducing the risk of negative outcomes, because those can expose a health care provider to legal liability. Electronic medical records, and the ability to access the full wealth of a patient's medical history and data quickly, can reduce the risk of misdiagnosis, of mixing prescriptions and other sources of error and medical problems.

Furthermore, electronic medical records can be used to help coordinate care among multiple providers, and to track outcomes, something that is the basis for quality control (Hillestad et al., 2005). Expanding on the use of electronic medical records, decision-making software. Decision-making support software takes in past data, and matches it with the present information on a patient. This data can help physicians to make better decisions based on evidence from all over the world. This reduces the likelihood of error, and instills best practices on the industry.

Information is uploaded into the system on a wide range of factors including different drugs, different symptoms or conditions, and this data is then run through algorithms (Versel, 2011). The result is that the medical staff are armed with much more accurate knowledge, something that can be especially valuable in non-routine situations, but which may even help to increase provider accuracy in routine situations. This adds to the value proposition in two ways. First, the quality of care is better, and second, the costs associated with malpractice are reduced.

Thus, there are discernable benefits to both the payer and the end user. Health care innovations are also common, and often based on technology. Sometimes the technology is used to develop solutions, and sometimes the technology is the solution. In most cases, the hospital does not develop this technology, but purchases it. This is true of the information systems for health records, and for decision-support systems as well. Nevertheless, hospitals typically use technology as part of their competitive advantage.

Some payers, in particular insurance companies, prefer to utilize the hospitals that have the most up-to-date innovations in health care. Such hospitals are more attractive to the end users, and that makes them more attractive as a selling point for the insurance companies as well. So for hospitals, investment in technology is often about providing better service to the end user, which means improving health outcomes, and if they can lower the cost to the payer as well, that is usually something that they will do.

Contribution of Innovation On an industry level, there is generally no disruptive technology. That said, for any individual procedure there very much can be disruptive technology. Such innovations have become increasingly common in recent years, in particular with better understanding of genetics. However, individual hospitals are seldom the creators of such innovation, nor are they likely to ever monopolize such innovations.

The result is that innovations in health care, whatever benefit that they convey to patients and practitioners, are not likely to be the source of competitive advantage in the industry. A hospital that has a pattern of routinely investing in the latest technology, however, will have an advantage over a hospital that does not make such investments. Where competitive advantage could conceivably be gained is when the larger groups are able to implement things like electronic medical records and decision-making support software.

Such packages may be too costly for individual hospitals, but could be licensed or purchased at the group level. So groups might have the sort of bargaining power needed to upgrade their technology when individual providers cannot. Thus, innovation can contribute in some respects, in particular on the administrative side of the business, to improving outcomes. Innovations, as noted, allow health care companies and hospitals in particular to make better decisions driven by data.

This makes hospitals more attractive to insurance companies and other payers, and such tools can also allow for lower risk, which in turn may result in lower insurance premiums and payouts. There is no likelihood that any innovation in health care is sustainable. Innovations are typically the result of third party investment and therefore become diffused throughout the industry fairly quickly -- nobody monopolizes something in this industry; rather, companies pay for the right to use something that is subject to monopoly protection.

Innovation in health care helps to deliver better care to patients, and can help companies to be more profitable, but ultimately it is management that allows a hospital to be more productive and profitable than its neighbors. It is worth noting as well that because health care service is not portable -- it is confined to a limited geographic area for the most part, there is little opportunity to use technology to grow share. Consider even something like remote medicine.

This is a powerful tool that allows people living in remote areas to have access to health care,.