Service Area Competitor Analysis

Business organizations have long engaged in competitor analysis, viewing it as an essential part of environmental analysis. However, health care organizations were not concerned with service area competitor moves and countermoves, because most organizations cooperated rather than competed. Hospitals, long-term care facilities, and physicians focused on trying to meet the demand for their services rather than on competing. This history of noncompetition changed when legislation led to an increased number of hospital beds, an increased number of physicians (particularly within certain specialties), and a prospective- (rather than cost-) based system. Every segment of the health care industry has become more competitive because of the oversupply of beds and physicians as well as fundamental changes within the industry brought about by the influences of managed care, efforts to reduce costs, emphasis on increasing efficiency, and the increasing presence of for-profit health care organizations.

In the past, a regional area contained few competitors. More recently, alliances have brought in additional competitors. As competition escalated, some formerly friendly competitors have become far more aggressive in their efforts to attract and keep consumers, sensing that survival is at stake. In some markets, mergers among previously independent hospitals to form competing systems intensified competition. Academic medical centers, with their focus on research, have traditionally viewed only other academic medical centers as competitors. However, with the impact of managed care and lowered reimbursements, new competitors exist.

“Managed care” was supposed to control costs by restricting consumer choice. Economies of scale were to be achieved by limiting patients' choices for hospitals and physicians. Primary care physicians became “gatekeepers” directing patients to only one hospital to obtain the best possible rates. Strong competition emerged among health care providers for the managed care organization's insured group.

Despite the lack of experience in performing competitor analysis and the difficulty in identifying specific competitors for the many services offered, health care organizations need to understand their immediate competitive environment to develop successful strategies. A significant contribution of competitor analysis is the development of a clear definition of the service category (industry or industry segment).