Power Structure of Healthcare Organizations

The most prevalent difference of healthcare organizations from others is that in healthcare, head administrators and such DO not make most of the decisions that affect patients (customers), but physicians do. There is a unique dynamic in healthcare organizations in the relationship between its business and administrative leaders and the providers of medical services.

Payment of Services

Unlike most businesses in other industries, healthcare organizations do not get paid until after services have been rendered because, as also different in other industries, the consumer receiving services is NOT who is fully responsible for paying for them.

Healthcare organizations receive most of their reimbursements through third party payers (insurance companies, Medicare), which can take up to a month or longer to process.

The End User

Unlike many industries, like retail for example where goods are marketed directly to potential customers, most marketing efforts of healthcare organizations do NOT target end users (patients, customers).

Healthcare organizations, especially those that provide specialty care, rely on the referrals of other physicians (primary care physicians) to build their patient base. Thus, specialty practices will focus their marketing efforts towards building relationships with other providers.

Seller Discretion

In most industries, potential customers that cannot afford a service or product can be denied service.

However, in healthcare, organizations (especially non-profit organizations) have obligations to accept patients regardless of their ability to pay. In emergency rooms, patients with emergency care MUST be seen at least until they are stabilized. Physician practices may require payment to be made before the visit, however, the practice must consider ethical and liability concerns before they decide to turn away a symptomatic patient based on their lack of means to pay.

Profitable Services

In most industries, business will generally not provide unprofitable services.

Healthcare organizations, like any other business, must turn a profit in order to keep its doors open. However, unlike other industries, healthcare organizations often provide services that are not profitable. As in situations explained above regarding emergency rooms, healthcare organizations have ethical and legal considerations that do not affect businesses within other industries.

Healthcare services are provided within a course of patients care. If a service is necessary to progress a patient's course of care, it should still be provided even if it is not profitable.

Example:

A patient's chemotherapy regimen may include a drug that is not profitable to give, but is necessary to complete the regimen.

Supply and Demand

Typical laws of supply and demand generally do not apply within healthcare, as an increase in supply does not necessarily lead to a decrease in prices, and an increase in demand does not necessarily lead to an increase in prices.

Although healthcare organizations set the prices for the services they provide, their reimbursement is usually dictated by their managed care contracts, and an organization will be reimbursed a set fee regardless of what the price they charged. Prices for services mostly apply to self pay patients.

Demand for healthcare services is usually not dictated by the consumer, as they do not choose what services would be necessary to continue their care. Such decisions are made by physicians.

Although demand in any industry is unpredictable, it is considerably more so in healthcare as consumers do not choose when they need service and the need is realized unexpectedly.

Products and Services

Healthcare mostly markets services rather than tangible goods. Therefore, in most cases, marketers are not marketing a specific product but a service and who is providing the service and how it is performed to attract consumers. A consumer of a tangible product will base their level of satisfaction on the product on its use and performance. The consumer of a service will base their opinions on factors such as customer services, wait times, condition of the facility, the demeanor of those providing the service, and the processes used to provide the service amongst many other factors.

Healthcare products and services can be so complex that they are rarely understood by the end user. Unlike the retail industry for example, where a consumer identifies a need for a product and will fulfill that need by purchasing the product, healthcare consumers rarely choose the services they will receive. Consumers of healthcare services seek the services of physician who will then choose what further services are necessary to treat the their condition.

Even in cases where services are marketed directly to a patient, for example robotic surgery for a particular condition, the service can be so complex that it must be marketed in a way that are understandable to patients.

Undesirable Consumers

Most businesses would welcome any consumer to purchase their products or services as the CONSUMER would be responsible for paying for such products and services when they receive them. Because consumers of healthcare services are usually not responsible for the payment of services at the time they are provided, as this responsibility is of third party payers, healthcare organizations must attract consumers that are not potential financial liabilities.

Although physicians are obligated to treat patients regardless of if they have insurance or means to pay, marketers must attract consumers with insurance policies whose reimbursement rates will cover the costs of the services provided.