Health Care Market Equilibrium in a Changing Environmentby Brett Huffman, MS | June 8, 2011
Strategic market planning has always been a challenge in the rapidly changing health care industry. Both internal factors of unpredictability and external market threats create waves of instability in the health care market industry. For health care consumers, this often means fluctuating health care costs and unpredictable care availability. For health care providers, this means decreased health care payments, rising costs per patient and a stressed health care workforce.
Some of the factors that drive the health care industry, such as aging and chronic illness, are quite predictable. These predictable factors shape the majority of private health care industry strategic thinking. Health care consumers directly feel the impact of these predictable changes over time. As consumers age, health care becomes more expensive in both terms of premium payments and amount of care required.
The predictable changes within the health care industry aren’t the ones that threaten true market equilibrium- rather; it’s the unpredictable market threats that cost consumers and providers big time. A unique challenge of health care market equilibrium is the rate at which unpredicted market threats emerge. The highly enmeshed relationship between health care providers and payers ensures that small changes within the market create ripple effects across the entire health care industry.
Unpredictable market threats can be as simple as a recalled medicine or unanticipated side effects of a popular drug. Another market threat (which initially may be seen as positive) could be a new piece of technology that redefines treatment for a particular illness or diagnosis methodology. Such market threats sweep instantaneously across an entire industry and stress both financing and market viability.
A recent example of an unpredictable market threat is the FDA’s discovery of toxic side effects of Vioxx, a popular painkiller, after market approval. Admittedly, over 50,000 patients may have died or had complications due to the FDA’s lapse in proper labeling for Vioxx. This discovery stressed the prescription medication market and changed requirements of drug providers that stressed FDA authority and raised costs across the entire health care industry.
Today’s changing health care environment has several primary threats that stress both consumers and providers. The most pressing threats against health care market equilibrium are regional malpractice crises, rapidly changing government regulations, decreasing insurance reimbursement levels and regional provider shortages.
As a result of the turbulent health care industry market threats, many health care insurers have opted to play the defensive line when it comes to insurance. Health care industry professionals match their current understanding market trends to their own goals and business strategy. Changing the rules of competition within the industry also drives disequilibrium that can both help or harm the health care industry consumer. As a result, defensive health care industry players raise premiums for consumers across the board, deny coverage to perceived high-risk consumers and cut reimbursement to providers.
Increasing government regulations further compound today’s changing health care industry market. In the short term, guaranteed care threatens to increase consumer cost if preventative care is not adequately followed by the consumer market. In the long term, guaranteed care will actually stabilize market costs as health care will spread across the continuum of whole life care, rather than just during periods of employment or illness.
Health care consumers are often forced to ride the abrupt changes and threats to the industry with increased costs and less availability to care. Conservative approaches to healthcare, such as ensuring adequate preventative care, can cut costs drastically and safeguard consumers from sudden shifts in costs. Upcoming changes to malpractice legislation and guaranteed care will also help stabilize the health care industry in the long-term strategic market.
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