Many healthcare systems are using economies of scale to standardize operations across chain of hospitals while introducing an innovative model of care. In the Greater Memphis Area both the Baptist Healthcare System and the Methodist Healthcare System have added multiple hospitals and dozens of physician practices in the recent past.
In the areas that they currently serve, one can reach either of the facility or one of the participative practitioner with in minutes.
The changes in health care today is driven primarily by three factors:
System that allows more patient care to move out of hospitals and into ambulatory settings
Increased regulation making the hospitals expensive to build and maintain
Cost shifting to patients, prompting them to empower lower-cost options for health care
To address these changes, both the hospitals are building a future delivery system that will meet the outpatient-centric needs of patients in this economies of scale systems.
Disclaimer: Opinions expressed are solely personal and do not express the views or opinions of any other person or entity.
Is the organization Valuable? Is it Rare? Is it Costly to Imitate? And this
firm Organized to Exploit? Capabilities that meet all four requirements can
bring sustained competitive advantage for a company.
In order to recognize the competitive
advantage, firms are using many tools to analyze their external (Porter’s 5
Forces) and internal (Value Chain analysis) competitive strength. One of such tools that analyze internal assets
is VRIO analysis. This tool was designed by J.B Barney in 1991. In order to
sustain competitive advantage; VRIO is often used across the organizations.
In the Memphis area, Methodist
healthcare plays an important role and has been one of the leaders in this
region. In 1924, Methodist healthcare
started with the lone hospital in the Memphis downtown. Currently with 6 hospitals and more than
12,000 employees, Methodist healthcare system treats more than 63,000 patients
in the hospital and more than 343,000 outpatients (2013 data).
Valuable: Having a strong regional
presence is an important asset for the company trying to increase their size, patients,
and market share. Currently with 6 hospitals and new lines of service, it is a
great way to gain more customers and keep the insurance companies in their
network.
Rare: Their top of the line organ
transplant unit and the pediatric hospital is uncommon in this area but as a
hospital system, there are two other major hospital systems besides Methodist healthcare.
Imitable: In
the recent time, no competitors of Methodist healthcare have gained such a
patient volume but with the opening of the new ER system by Baptist healthcare,
healthcare in Greater Memphis is far from non-imitable.
Organized to Exploit: By treating a
variety of disease process and continually changing their service lines,
Methodist healthcare is taking advantage of this capability. With the new
hospice center and collaborations with West Cancer center they are pushing
themselves to the new service lines and reaching new patient populations.
The VRIO analysis of Methodist healthcare:
VALUE?
RARE?
IMITABLE?
ORGANIZED
TO EXPLOIT?
COMPETITIVE
IMPLICATION
YES
YES
NO
YES
Temporary competitive advantage
Disclaimer: Opinions expressed are
solely personal and do not express the views or opinions of any other person or
entity.
Although the five forces model 1. Entry 2. Rivalry 3. Substitutes 4. Suppliers 5. Buyers, describe some important threats firms face, it also describes some possible opportunities. Each threat is also an opportunity. By choosing the right strategies one can neutralize these threats. With the ever-changing healthcare environment in USA, where the major hospitals are struggling to stay profitable making right strategies are extremely important.
In a city like Memphis where the population is close to 700,000 and more than 5 hospital systems, competition is substantial. The two major players Baptist Healthcare and Methodist Healthcare has been successful regarding keeping the rivalry between the two. Between theses two systems, they service more than 70% of the Memphis patients.
1. Entry: They have been successful in restricting new entrants to this market by mostly aligning with the major medical groups of the city, a deterrent for the new entities. By increasing their presence in this area (Methodist has 6 hospitals and Baptist has 3 hospitals), they have exploited the economies of scale in their favor.
2. Rivalry: They have been able to keep the rivalry between the two only and are able focus product differentiation. e.g. Methodist is known for their pediatric specialties and Baptist with their heart transplant program.
3. Substitutes: To compete with substitutes , entities can reduce the cost (cost leadership), can improve the perceived quality of its products (product differentiation), can align with substitute manufacturers and by aligning to the smaller clinics / systems Baptist and Methodist systems have converted their threats in to opportunities.
4.Suppliers: Uniqueness of a supplier can be a threat but by aligning with their suppliers and dealing with many can neutralize the threat.
5. Buyers: Same way as Suppliers, a few buyers can be threat but increasing that number or becoming your own buyer can be beneficial. Most hospital system also provide different outpatient care, home health services and DME supply in a way becoming their own buyers and serving the patients with in the system.
Disclaimer: Opinions expressed are solely personal and do not express the views or opinions of any other person or entity.
Source:
Gaining and Sustaining Competitive Advantage, Fourth Edition by Jay Barney
With 21 hospitals in Shelby County,Tennessee, one may wonder about the huge Healthcare market in the Memphis area and the market must be a near perfect competitive one. As we know a perfectly competitive market is a market where competition is at its highest level with multiple competitors and Knowledge is freely available to all participants, which means that risk-taking is minimal and the role of the entrepreneur is limited. Neo-classical economists argued that perfect competition would produce the best possible outcomes for consumers, and society. On a quick glance to this hospitals reveal that there are actually 8 different entities who owns them. Of these, Baptist healthcare has 5 of them (not counting the ones they own in the neighboring counties in TN, MS and AR) and Methodist healthcare owns 6 of them (not counting their Olive Branch hospital in MS). Further, we can see that Methodist Healthcare defines 41% market share, Baptist Health continues to hold the next leading market share at approximately with 33%, with for-profit Tenet a distant third with 14% and Regional One Health at under 10% (2013 data). With 74% market shared by the top two giants, it is fair to say that Memphis market is definitely not a competitive market but more of an Oligopoly one. An oligopoly is a market structure in which only a few firms dominate at a time and market share is uneven. To compare the present Memphis market one can compare this with the present Airline industry in the US or the Telecom industry with a few giants covering most of the consumer base. This type of market gives more power and freedom to the major players but “with great power comes great responsibility". Methodist and Baptist healthcare will have to continue the legacy of high quality service at a competitive price otherwise the consumers will suffer. The listed hospitals in Shelby County, TN: Baptist Mem. Restorative Care Hospital Baptist Memorial Hospital for Women Baptist Memorial Hospital-Collierville Baptist Memorial Hospital-Memphis Baptist Rehabilitation-Germantown Delta Medical Center Department of Veterans Affairs Medical Center HealthSouth Rehabilitation Hospital Memphis HealthSouth Rehabilitation Hospital North Methodist Le Bonheur Children's Hospital Methodist Extended Care Hospital Methodist Le Bonheur Germantown Hospital Methodist North Hospital Methodist South Hospital Methodist University Hospital Regional One Health Regional One Health Extended Care Hospital Saint Francis Hospital Saint Francis Hospital-Bartlett Select Specialty Hospital-Memphis St. Jude Children's Research Hospital
Methodist Healthcare's flagship hospital in downtown Memphis
Disclaimer: Opinions expressed are solely personal and do not express the views or opinions of any other person or entity.
(Shot of an outside of a warehouse - day time. Very quiet neighborhood, no one around.)
CUT TO:
SCENE 2
INT.
A large semi dark place, with a table at one end. There is a light hanging on the top of the table.
There is a middle aged man - sitting - slightly heavy set - he has a chessboard in front of him. He has a drink and a cigar. He is playing the game by himself. (He is the Boss).
CUT TO:
SCENE 3
EXT.
The warehouse - a car pulls up. Two men get out of the
car.
MAN 1
Looks around, scans the area , nods at man-2.
MAN 2
Opens the trunk of the car and brings out a man (Victim),
blindfolded, hands`are tied in front , with a rope.The two
men escort the victim (blindfolded man) in the warehouse.
CUT TO:
SCENE 4
INT.
The two men escorts the victim to the boss. The boss is unmoved. Still playing chess.
THE BOSS
While looking at the chess board, gestures his men to leave.
Man-1 opens the blindfold of the victim and then leaves with man-2.
VICTIM
Tries to say something (clears his throat)..
THE BOSS
Gestures him to be quiet, still looking at his game
(showing the chess )do you play ? ( gestures ).
VICTIM
Shakes his head (to say no).
THE BOSS
Takes a deep breath - moves aside his chess board - tells
him to sit and extends his arm across the table.
VICTIM
Extends his arm - still tied with the rope.
THE BOSS
Pulls out a knife and cuts the rope - from the middle,
then ties one end of the rope to the leg of the table.
He pulls out a cork board and puts it on the table - and
stabs the knife on top of it.
THE BOSS (CONT'D)
Holds the knife at the shoulder height and brings it down
slowly to the victims hand.
VICTIM
Manages to move his hand.
(The victims face is -
pale - surprised.)
THE BOSS
(the boss's face emotionless)
Picks up the knife and brings it back to the table - the
hand moves again - knife comes down again - this time
scrapes the hand - blood comes out -
VICTIM
Loud scream from the victim.
THE BOSS
Stops, pulls out a blindfold from his pocket - puts it
around his eyes (own) and starts stabbing - at a slow
speed .
shot of the hand on the table - escapes every time.
The speed increases - shot of the knife coming down - at
a rhythmic pace (almost as if the boss is playing a
musical instrument).
VICTIM
The victim screams.
THE BOSS
Unmoved, keeps on with his stabbing, the speed increases
again - quite fast - shot of the boss's face - his teeth
are clenched.
VICTIM
Screams again ….stabbing continues... screams - quiet -
you can hear the knife striking the board at a very fast
pace.
(After a few moments)
THE BOSS
Breathing a little heavily , stops the stabbing - and
takes the blind fold off.
(POV of the Boss)
- the rope on the table is cut and the chair in front is
empty.
THE BOSS (CONT'D)
The boss is by himself - a little smile on his face
- looks at the cork board -- it is smeared with blood.
The boss lifts the board close to his face and takes a
deep breath - then moves the board aside and pulls his
Ability to exceed the average for the industry is the
differentiation advantage for the Methodist LeBonheur Healthcare in the
mid-south region.
Competitive advantage enables Methodist LeBonheur Healthcare
to create superior value for its customer. MLHC (Methodist LeBonheur Healthcare)
operates as the only stand-alone children's hospital in western Tennessee with
the nearest competition in Nashville, TN and Little Rock, AR, and holds
regional referral status in the state, providing contracting leverage with the
payers. Children's hospital volume shows continuous growth and the overall $1.58
billion multi-facility (currently 7 hospitals) system largely in greater
metro-Memphis and a single facility in the neighboring Mississippi area, leading
with 41% market share (2013 data) in the primary service area, providing
certain unique services like transplants, pediatric emergency and intensive care
unit (e.g. transplants, pediatric intensive care unit); In addition, US news
has recognized MLHC as the top regional hospital in cardiology and heart surgery,
neonatology, neurology and neurosurgery, orthopedics, pulmonology and urology
shows the leadership and speaks volume about the quality of care and acceptance
by the local community. Rightly, Moody's Investors Service has confirmed the A2
and A2/VMIG1 ratings to MLHC. MLHC
(Methodist LeBonheur Healthcare) a not for profit organization’s partnership
with University of Tennessee Health Science Center has enabled focus on
research and continuous quality improvement further enhancing the advantage.
Disclaimer: Opinions
expressed are solely personal and do not express the views or opinions of any
other person or entity.
Healthcare in the US is one of the most dynamic and volatile industry. There are ever-changing regulations and reimbursements. The entries and exits of the different Insurance companies, the government regulations like Affordable Health Care, the stipulations and requirements by the bodies like Joint Commission, the ever changing expectation from the patients and the different providers makes it so dynamic. The emergent strategy provides an adaptive approach to these complex issues – one that goes beyond the intended or the initial strategies.
While a hospital delivers solution to disease and illness, providing access to a population in need is extremely critical. The strategy will have to differ considering the geographic, political, cultural and socioeconomic situations. Any changes to above mentioned situations will also affect the hospital operations and their strategies.
Though the changes are often unclear and political but the impact it creates are substantial and the industry needs to be flexible enough to take advantage of new opportunities. Emergent strategy is therefore an undeniably perilous component in the current turbulent healthcare business environment. It cannot be ignored, and establishments must create strategies for emergence to occur. Organizations cannot sustain any form of competitive advantage without considering the emergent strategy.
Though Memphis population is roughly around 650,000 but the greater Memphis metropolitan area, including adjacent counties in Mississippi and Arkansas, had a 2010 population of 1.3 million. This makes Memphis the second-largest metropolitan area in Tennessee after Nashville.
In the healthcare industry, it is dominated by a few big players like the Baptist Healthcare, Methodist Healthcare, St. Francis (Tenet Healthcare) and The Med. Memphis has 17 community hospitals, 30 nursing homes and is accounted for over $2 billion in revenues per year and approximately one of every nine jobs in the area (Tuckman and Chang 1984). There is a healthy rivalry between the Methodist Healthcare and the Baptist Healthcare system each trying to expand their market reach.
To reach the local market, Methodist Healthcare focused on: Horizontal integration by buying large number of small practices like the West clinic, LeBonhuer Children’s hospital and hundreds of other practices; Product diversification includes organ transplants, stroke care programs etc. ; Product specialization includes their pediatric hospital, cancer treatment center, organ transplant center; Resource-based quality improvement: Methodist healthcare, a JCHAO certified for stroke care has adopted several in house and external programs for continuous quality improvement; Institutional differentiation: Besides joining with UT Health Science Center, Methodist healthcare has aligned with various renowned physicians, constructed modern buildings, advertising to attract the local market. Public relations and physician-centered marketing is achieved by closely working with the physicians and empowering them has helped to regain top regional hospital by the U.S News.
Disclaimer: Opinions expressed are solely my personal and do not express the views or opinions of any other entity.
Well, one has to start somewhere and I feel it is time to officially start a blog. I have written now and then and here and there without a system or a structured plan. A few even got published but mostly got lost. Yes, I have written on napkins and sometimes on back of receipts ; well what else can you do? You got to write when you got to write, right? So, here I am, officially pronouncing myself a blogger and promising to keep blogging until I break my promise. One thing I have learned that if you are going to bore people don’t make it long and painful, unless of course you make it long enough that you have bored people to numbness and they don’t feel the pain anymore. In either case, I would like to keep you mostly pain free. And by the way, opinions expressed here are solely my own and do not express the views or opinions of any other person or entity. So until next time, NAMASTE.
