See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/228280455

Healthcare Marketing: What is Salient?

Article  in  International Journal of Pharmaceutical and Healthcare Marketing · September 2007

DOI: 10.1108/17506120710818256

CITATIONS READS
18 824

1 author:

Mark J. Kay
Montclair State University
18 PUBLICATIONS   260 CITATIONS   

SEE PROFILE

All content following this page was uploaded by Mark J. Kay on 17 December 2013.

The user has requested enhancement of the downloaded file.

 The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1750-6123.htm

Healthcare
Healthcare marketing: marketing
what is salient?
Mark J. Kay
School of Business, Montclair State University, Montclair, New Jersey, USA 247
Abstract
Purpose – The purpose of this paper is to develop a perspective on what is “salient” or critical to
the discipline of healthcare marketing by analyzing and contrasting the consumer (or patient)
perspective with the institutional (or organizational) perspective. This “salience issue” is complicated
by the structural problems in healthcare such as societal service systems, advances in medical
technology, and the escalating costs of care. Reviewing selected studies, the paper examines how
consumers face increasingly difficult health choices.
Design/methodology/approach – The paper examines the different priorities and goals for
marketing that are implied by both patient and organizational perspectives in healthcare, focusing
primarily on the excesses of the more “market-based” US healthcare system.
Findings – Healthcare organizations need to better utilize marketing tools to inform consumers and
assist their healthcare decisions. This effort needs to be balanced by healthcare organizations that can
support the demand to improve quality and increase accessibility of care.
Originality/value – The perspective on the consumer (or patient) often becomes clouded amid the
operation of increasingly complex and convoluted healthcare systems. A new perspective on
healthcare marketing needs to be considered. Greater consumer access to healthcare information could
improve patient decision making. To accomplish this, greater institutional diffusion of evidence-based
healthcare practices is needed to improve organizational performance.
Keywords Health services, Marketing, Decision making, Patients, United States of America
Paper type Viewpoint

Introduction
Armstrong (1998) argues that journals should focus on publishing “useful” findings.
To accomplish this goal, he suggests that authors for journals (such as this one) should
generate a list of research problems or issues and have them rated for their potential
importance. This is an appealing idea, but one that is extraordinarily difficult to
accomplish. Considering the many players in healthcare – the medical profession,
medical researchers, government regulators, the insurance industry, the
pharmaceutical industry, and the hospital industry – each of these hold widely
differing views on healthcare and its marketing priorities.
Healthcare marketing exists in a complex institutional environment that is
complicated by differing viewpoints. Healthcare, as an institution, is a service “system”
(Entoven and Tollen, 2005) – the organizational and business structures of different
healthcare systems significantly affect many of its priorities. Evaluating the
importance and effects of marketing on the healthcare system is not a well-structured
problem since each of the organizational “players” functions to optimize or protect its International Journal of
own position. This is particularly the case in the USA healthcare system which Pharmaceutical and Healthcare
Marketing
Vol. 1 No. 3, 2007
Disclosure. The author has no conflicts of interest (direct or indirect) in writing this paper and pp. 247-263
q Emerald Group Publishing Limited
received no funding for the research or preparation of this manuscript. The author thanks the 1750-6123
reviewers for their comments. DOI 10.1108/17506120710818256

Electronic copy available at: http://ssrn.com/abstract=1807315

IJPHM operates with much less-government intervention. The problem is “what is salient to
1,3 the patient” may sometimes conflict to what is “salient” (or a priority) to the different
organizations that compose healthcare systems. If the consumer (or patient)
perspective, which the “system” is supposed to serve, gets overlooked, the system
functions less effectively.
The tools of marketing are important to consider in this regard. Marketing
248 significantly affects the working of healthcare as a system. For example, branding a
hospital as a specialized service provider communicates a shift in focus for consumers,
but also affects its executives, physicians, and employees that make it function, and
changes its role within the community. Promotional efforts also affect healthcare
systems by influencing the public perception of healthcare problems and priorities.
Marketing can play a significant role in the healthcare system by providing an
essential link between consumers and healthcare services, aiding the diffusion of
health information.
Healthcare marketing has palpable effects on behavior that significantly affect the
operation of the healthcare system. For example, the growth of direct to consumer
(DTC) pharmaceutical advertising in the US has amplified interest in new treatments
and stimulated patients to talk to doctors. Successful promotions have significantly
affected drug development priorities in the pharmaceutical market. Moreover, the
diffusion of information on disease conditions and treatment regimes, greatly
enhanced by internet sites, has enabled consumers to become better much informed.
Consumers are sharing information on treatments and medications on web site, and
weblogs, and this has substantially altered many patient-doctor relationships,
especially among patients with chronic diseases.
Healthcare organizations continually face new and different types of marketing
problems as organizations, technologies, and health problems change. Yet there are
serious issues as to the role of marketing to consider. This paper attempts to discern
the salient issues currently facing healthcare marketing practitioners by contrasting the
consumer (or patient) perspective to the institutional (or organizational) perspective.
The structural issues of healthcare systems that affect its institutional priorities are
reviewed, and market mechanisms affecting health decisions in this context are
considered. The paper concludes with a discussion of the implications of this analysis;
the marketing prospects and opportunities for improving healthcare are reappraised.

The consumer viewpoint

Healthcare issues are clearly highly important consumer concerns – “health is wealth”
as the saying goes. Healthcare is closely tied to well-being, happiness, and quality of
life issues. While maximizing health outcomes would seem to be a clear imperative for
healthcare organizations, the perspective on the consumer (or patient) often becomes
clouded amid the operation of increasingly complex and convoluted healthcare
systems and procedures.
As in other areas of business, the salient issues have been framed in terms of cost
and quality. In this context, marketers frame health services as “credence goods” –
consumers rely upon “trusted experts” to evaluate the quality of the service.
Consumers are particularly vulnerable since they do not have the knowledge base to
judge quality for themselves. As their close relationships to the family physician are
replaced with a health service organization, however, important new issues arise.

Electronic copy available at: http://ssrn.com/abstract=1807315

 Consumers may be willing to make a tradeoff on the cost of a pair of jeans for ones Healthcare
of lower quality, yet they are reluctant to apply the same reasoning to their health marketing
decisions. Healthcare is different in that quality is obdurately viewed by healthcare
consumers as a necessary primary consideration. Quality is especially important
in cases in which decisions are highly serious or mortal ones. Critical or life-sustaining
care should never be perceived to have been compromised by healthcare
organizations – to do so would put an organization’s reputation at risk. Even in less 249
serious health circumstances, however, consumers tend to be reluctant to accept lower
quality of treatment for cost savings. Accompanied by discomfort, illness creates a
sense of immediacy that powerfully affects patient decisions – patients desire the most
rapid, immediate, and effective treatments.
National health systems (and health insurance in the USA) thankfully detach
the individual from disquieting considerations of trading off cost for quality. Yet, the
pitfalls have become especially apparent as costs continually grow and medical services
are less available. Insurance coverage has notably become peculiarly arcane in the
so-called “market-oriented” US medical system. Consumers risk losing their life savings
due to either lack of health insurance coverage, or the gaps in coverage to which they are
unaware. Even businesses that are smart and savvy when it comes to purchasing
business services face difficulties in making decisions on employee health programs.
In short, healthcare is peculiarly unlike other products or services when we consider
the difficulties and pressures that consumers face in making health decisions. For many
critical treatment choices, patients confront a lack of accessible and medically sound
information that would enable them to rationally weigh the benefits and drawback of
medical procedures. The problems are acute when patients face a short decision
window. Moreover, advancing technology has made new choices in testing and in
treatment available, contributing to further decision quandaries. The assessment of
health diagnosis and treatment information grows increasingly challenging, especially
for those possessing little medical knowledge.
Moreover, while economists instruct that consumers favor choice, choice is
increasingly constrained by increasingly regimented health insurance plans or
national health programs. Health plans and healthcare systems vary, yet the tendency
is that access to doctors has become much more constrained; hence the “trusted”
relationships that consumers desire in a physician are more difficult to form. In the
USA, medical service provider organizations act as intermediaries, yet these “faceless”
organizations can be daunting to the individual. They control access to medical
information as well as medical records, and this can develop into a point of conflict.
The older paternalistic model of physician-dominated decision making has eroded,
particularly as consumers are finding it increasingly necessary to become much better
informed. Yet there is still little agreement on what decision prerogatives patients
should have. The educated embrace the idea that they should take an active role in
their healthcare. Yet even for the “clued-in” or medically educated segments, their
situation often changes as they move into their elder years. Decision making is then
shifted to trusted family members who become responsible for assessing care.
Consumers often find healthcare decision-making particularly disquieting and
anxiety ridden, both for themselves and their loved ones. Clearly, consumers need
assistance to understanding the critical components of medical care, and changing
health needs over the lifespan. Various healthcare intermediaries may provide valuable
IJPHM assistance, yet this seems a poor substitute to a relationship with a trusted family
1,3 physician.
Finally, the pricing of healthcare services is particularly irrational and frustrating
from the consumer perspective, particularly in the “market-based” system in the USA.
Reinhardt (2005) compares the US healthcare market to one in which a blindfolded
consumer enters a department store and put clothes in the cart, and months later is sent
250 a bill for what he/she is told is “appropriate” attire, given the circumstances. Reinhardt
(2005) notes that it is difficult to be a “responsible” consumer of healthcare in this
context. High billings are especially troubling to the uninsured patients, who are
vulnerable to the vagaries of the system.
In short, healthcare markets are profoundly different from other types of markets,
especially from the consumer perspective. Health evokes a strong personally-felt
involvement with consumers. Critical health decisions are sometimes pressing.
Decisions require a level of medical knowledge that many simply do not have, making
choice particularly distressing. The quality of healthcare services, the treatments they
receive, and (in the USA) even the insurance coverage that consumers purchase are
difficult to evaluate.
Without a doubt, the quality, cost, and effectiveness of healthcare systems are
complex interrelated matters that are difficult to understand. Critically important
aspects of healthcare services, though important to consumer welfare, are inadequately
comprehended. These difficulties certainly affect health policies. Determining “what is
salient” is important – it is critical to determining national and international healthcare
priorities, and deciding the course needed to improve.

The healthcare organization viewpoint

The quality imperative
Healthcare organizations, doctors, and staff are under pressure both to provide quality
service and continually stay current with medical knowledge and changing medical
procedures. “Quality of care” is certainly an organizational priority, but this priority
can become manifest in many different ways in healthcare organizations. Maintaining
high-performance standards in the complex organizations that compose the medical
system is a particularly difficult challenge.
Fulfilling the demand for quality is a peculiarly unrelenting yet compelling problem.
It has been noted that thousands of US patients die or are harmed each year because
the care they get transgresses from medical standards (National Committee for Quality
Assurance, 2003). Even the cost of non-fatal medical errors is expensive – it is
estimated to be $17-19 billion (Khatri et al., 2006). The consequences of malpractice,
however, are not necessarily devastating to doctors or health organizations since the
evidence indicates that few patients sue. Baker (2005, p. 69) examined studies over the
past two decades of those who had conclusively suffered serious injury due to medical
malpractice and found that the rate of those who sued was merely 2-3 percent.
He concluded that the problem is too much medical malpractice, not too much
litigation – and that medical malpractice does not inordinately raise doctors’ insurance
premiums.
Some doctors are more likely to be guided by the strongest scientific findings,
a practice called “evidence-based medicine” that proponents argue is a key to
improving healthcare quality. While the idea has considerable support, implementing
evidence-based medicine is a problem due to the complexity of medical knowledge. Healthcare
There are difficulties in assessing research findings – which vary by sampling marketing
populations, interventions, length of time patients are followed, and many other
factors. There are time pressures in making diagnoses and ambiguities or “grey areas”
in appropriate medical practice in treatment regimes. These factors oblige doctors to
exercise their best medical judgment.
The primary issue is to objectively and scientifically weigh the efficacy of differing 251
treatment regimes to systematically improve the quality of care. Moreover, this
information has to be readily available. The potential efficiency contribution of the
rise of health maintenance organizations (HMOs) in the USA is to oblige doctors to
utilize scientific databases that provide accurate and reliable information as to which
treatments work and which do not. Yet this system has not always proven optimal.
HMOs have been criticized as arbitrarily restricting treatment due to cost, or even to
failing to promote sound health practices. Consumers change health plans, hence
HMOs are often focused on the short-term. As a consequence, for example, a HMO
physician may see a diabetic patient episodically instead of encouraging the more
effective continuous treatment regime.
There needs to be oversight and supervision since the system lacks transparency.
Doctors fear the potential harm to their careers of admitting even minor mistakes.
Consumers are often prevented from finding out what happened when there are
medical failures. Legal claims are sometimes filed in the USA so that patients (or their
loved ones) can simply gain access to information, yet claimants in the vast majority of
these cases drop their suits when they are found to lack merit.
These lawsuits fuel the myth that the US medical system regularly suffers from
huge tort awards and an excessive number of frivolous claims that raise the cost of
medical practice (Baker, 2005). However, as Mahar (2006, p. xvii) effectively argues,
“the best available evidence” indicates that fully one-third of US healthcare spending is
wasted on unnecessary diagnostic tests and unproven treatments. She notes that the
legal cost of defending US malpractice claims (including settlement awards) equalled
merely 0.46 percent of total health spending in 2001. This is not to deny that there exist
no cost problems; medical liability insurance costs are substantially rising in certain
types of medical practice, in spite of efforts to contain these costs.

Shifting priorities
The priorities of healthcare organizations now continually shift due to advancing
technology. Tools to better diagnose susceptibility to disease due to genetic predispositions
are now entering healthcare, making preventative care and proactive treatment
increasingly important services to deliver effectively. Preventing disease is a better
course of action for the consumer than treating it after it develops. It is also cost effective
and can be profitable. For example, one of the most profitable drugs on the market, Lipitor,
is prescribed to help prevent coronary problems before they happen. (Note, however, that
five other statins have entered the market from competing firms – Mevacor, Zocor,
Pravachol, Lescol, and the newest, Crestor – yet these “new” drugs are simply chemical
variants with similar levels of efficacy.)
Healthcare organizations are aware that perceptions of quality are enhanced by
media attention. For example, doctor-owned hospitals may specialize in transplants or
gene therapy to garner the perception that they employ cutting-edge technologies and
IJPHM capture patients for the most profitable procedures. Organizations that concentrate on
1,3 developing new life saving cures and procedures are portrayed by the media as heroic.
For example, Merck’s drug development and distribution programs to cure river
blindness in Africa have provided the firm with customer goodwill and have inspired
employee loyalty.
With advancing technology, moreover, health priorities change, particularly as the
252 root causes of health problems and new health threats come to light. Diseases are now
more frequently tied to dietary issues, smoking, and other behaviors, or even connected
to the food or the local water supply. New health threats include problems such as
AIDS, potential problems such as avian flu, and terrorist threats such as the anthrax
powder scare. These threats affect public perceptions, greatly complicating decisions
by executives in public and private health organizations who are responsible to react to
each of these disparate problems.
The organizational choices for evaluating and assessing health risks, health
procedures, and health spending are continuing problems, subject to shifting priorities.
Yet maximizing health outcomes grows increasingly difficult as the costs of new
testing and other procedures have caused healthcare spending to grow at double digit
rates. There remain notable international, regional and organizational differences in
cost and quality (Reinhardt, 2005; Wennberg et al., 2005) that suggest that there is
considerable leeway for health organizations to significantly improve their
performance. Healthcare management has clear and rather formidable cost and
technology challenges.

Quality in perspective
The medical and organizational issues that define quality healthcare management are
not simple ones. Unlike other businesses, marketing for healthcare organizations is not
simply a matter of managing the perception of quality by responding to customer
satisfaction concerns. Organizations need to optimize real health outcomes, not mere
public perceptions. Consumers need to be educated in health issues that are consistent
with performance priorities and international standards.
Healthcare organizations face marketing and organization challenges that are
unlike those of other businesses. For example, the goal of hospitals is not simply to
maximize the production of services or to increase demand. In fact, the goal is often the
opposite. Hospitals shifted their emphasis to less profitable outpatient treatment
services between 1980 and 2000, enabling the number of hospital beds in the USA
to decrease from 6,985,000 to 5,810,000. Nevertheless, cost savings did not result.
Hospital spending increased from $246 to 1,300 million during that time (Folland et al.,
2004).
The quality of healthcare organizations needs to be understood in the context of
rising costs and changing treatment regimes. The issues are acute in the hospital
service sector. For example, quality often suffers, less due to the caliber of the medical
staff in the USA than due to limited capacities to handle the treatment burden.
The quality of healthcare services is, in effect, bounded by the capacities of healthcare
systems that are in place to serve the public, thus rationing or constraining the
consumption of healthcare. Outcome measures are apt to decline more due to the strain
placed on health service organizations – these, in fact, have limited the public
availability of healthcare services in the USA.
The medical industrial complex Healthcare
The editor of the prestigious New England Journal of Medicine coined the term “medical marketing
industrial complex” to describe the medical system (Relman, 1980). Healthcare systems
have grown in size and complexity due to both developing technology and the complex
organizational structures that have developed in healthcare systems. Organizational
systems need to be considered to assess healthcare’s marketing priorities.
In the USA in the late 1970s and early 1980s, nursing homes as well as large 253
hospitals consolidated into much larger organizations. Large corporate entities
emerged, such as Humana and Hospital Corporation of America. Similarly, the
pharmaceutical and medical device companies have merged into larger entities since
the 1990s. Boston Scientific bought out eight companies in 1995 to early 1996, rapidly
becoming a sizable player in the international medical device market. Pfizer merged
with Warner-Lambert in 2000 and bought Pharmacia (which had acquired Monsanto)
in 2002. Two British drug makers merged to form GlaxoSmithKline and Novartis was
created in 1996 from the merger of the Swiss companies, Ciba-Geigy and Sandoz.
Large international corporate entities do not necessarily create greater healthcare
value. For example, the pharmaceutical companies tinkered with controlling the
pharmaceutical benefit management organizations (Kay, 1999a), but this produced
little practical improvement for healthcare systems. Large organizations have greater
resources and can apply them with greater impact, however. This gives them
substantial power to lobby regulators and local governments, and influence legislation.
The effects and pitfalls of this are highly apparent in the USA. In 2005, it was
reported that the drug companies had spent $800 million on lobbying over the previous
seven years; lobbyists included 26 former members of congress and two former
chairmen of the Republican National Committee (Mahar, 2006).
This power fostered support for the Medicare Bill (Part D), the prescription drug
program, passed by the Republican-led Congress and endorsed by the Bush
administration. Medicare Part D is a program in which private insurance companies
receive subsidies to offer insurance. By fragmenting the purchase of drugs among many
private plans, the law denies Medicare the ability to bargain for lower prices from the
drug companies. The CBS news program, 60 minutes, documented many who received
lucrative jobs afterwards – for example, Republican Congressman Billy Tauzin, who
forced passage of the bill in a 3 AM vote, soon left Congress and took a $2 million a year
job as president of Pharmaceutical Research and Manufacturers of America.

Issue positioning and resistance to change

There is no better illustration of the power of marketing on the healthcare system
than the downfall of health insurance reform that was orchestrated by the Health
Insurance Association of America during the Clinton era. Spending a relatively modest
US $2 million on what became known as the “Harry and Louise” television ads, the
organization was able to suggest to the public that the proposed reforms were radical.
As various interest groups quickly registered their concerns to legislators and
lobbyists besieged the US Congress, resistance to reform snowballed. Legislators
became reluctant to endorse either the Clinton plan or any other alternative, effectively
destroying efforts to make needed and necessary changes in the US healthcare system.
As the size of the players in the medical system has increased, the US system has
become arguably more difficult to change. Structural changes in the US healthcare
IJPHM system clearly need to be communicated to the public. Reforms in healthcare have
1,3 become highly politically charged matters, subject to numerous lobbying efforts and
public relations campaigns.
“Affordable care” is now the marketing buzzword used to justify any new initiative
in healthcare. This was evidenced in the speech that President Bush made in January
2005 in Collinsville, Illinois to promote a Republican effort for tort reform. Appearing in
254 front of a large “Affordable Healthcare” banner and cheered by doctors in white coats,
the President attempted to present a case that changing medical liability rules would
improve healthcare. Yet the proposed plan would have little effect on healthcare costs,
given that research indicates that the total cost of medical liability insurance coverage
is estimated to consist merely 1-2 percent of healthcare spending (Baker, 2005). Even
US malpractice payments are lower, on average, than those in Canada and the UK
(Anderson et al., 2005).
The importance of strategies to develop a political consensus among the fragmented
players in the healthcare system is apparent. The situation has been described as one
of “a tight political noose around the neck of Americans” that prevents reform of the
health care system (Hayes, 2006). As institutional processes and bureaucratic
procedures become entrenched, healthcare systems are even more difficult to change.
As a consequence, healthcare marketing, especially the type that would usefully
improve health outcomes, has become complicated by systemic problems due to the
structure of the healthcare system.

Systemic problems
The systemic problems with healthcare are apparent simply by examining healthcare
spending figures. Healthcare in the USA is much less efficient that healthcare in OECD
countries (Anderson et al., 2003). National health expenditures per capita have
increased about 500 percent since 1960 in real terms. In 2002, the US spent $5,267 per
person in the population, and of this, $2,364, or 45 percent, was government spending,
mainly Medicare and Medicaid. Canada spent $2,931 per person, of which $2,048 came
from the government, while France spent $2,736 per person, of which $2,080 was
government spending (Krugman, 2005a).
The US Government spends considerably more on healthcare than other advanced
countries. Additionally, the private sector in the US supports a large part of the
healthcare burden. Yet the US performs poorly on health outcome measures such as
life-expectancy and infant-mortality rates, compared to other advanced countries. The
USA may have a technologically capable healthcare system and technologically
advanced practitioners, but Americans pay substantially more on healthcare and
get less.
This poor performance is not entirely the result of a defective healthcare system.
The segment of Americans (particularly children) that live in poverty distorts some of
the comparative national performance indicators. America’s relatively higher infant
mortality rate does not necessarily imply that its pediatric care services are inferior.
For example, social or behavioral factors, such as diet and lack of exercise, can play a
role in increasing the incidence of many health problems. Obesity rates among children
have doubled, and this has been correlated to diabetes and other problems. This
increase in disease incidence is not necessarily due to the performance of the hospitals
or other healthcare service providers.
 Healthcare costs are higher, in part, due to the wage requirements that prevail in the Healthcare
US market that raise costs (Anderson et al., 2003). For a variety of reasons, US doctors marketing
are paid much more than their counterparts in other countries. Medical tests and
procedures are employed more frequently in the USA. New costs engendered by
diagnostic testing have consistently escalated healthcare spending requirements.
And the USA is the major profit center for pharmaceutical companies, who are able to
price their products higher due to any lack of price controls – the US market comprises 255
half of sales in the $400 billion global pharmaceutical business (Smith, 2004).
Cost containment in the USA appears to be a necessity, but little effort has been
made to integrate efficiency goals into those of increasing the quality of practice.
Responsible doctors, often working 60 hours a week and attempting to stay current
with medical advances, may lack the means or have the impetus to structure medical
procedures around efficiencies. Moses et al. (2005) found that while the USA spends
about six cents of every health care dollar on medical research, the nation spends only
one-tenth of a cent of every dollar on longer-term evaluation of which drugs and
treatments work best at the lowest cost.
Health technologies, such as vaccines, have historically significantly reduced
healthcare costs and improved outcomes. More commonly today, scientific discoveries
yield healthcare solutions that result in complex and costly treatment regimes. For
example, Medicare now pays for implanted cardiac devices in many patients with heart
trouble since research has proven their effectiveness. Survival rates and health
outcomes from heart disease is a prominent success story in that new emergency
services, methods, and treatments have extended lives for decades. Diseases that were
once virtual death sentences, including AIDS and cancer, are now often treatable.
Yet survival of patients with these chronic conditions has had the consequence of
substantially raising health costs.
Healthcare cost problems in the USA are aggravated by the lack of health insurance
coverage among an estimated 46 million Americans. Lack of insurance results in costs
imposed on public healthcare systems through the increased use of hospital emergency
services, and through the problems of non-payment of medical expenses that result
from this. As medical costs are shifted to hospitals, the effect is to raise costs to other
services as the burden is shifted to paying customers. There are other important social
costs of the uninsured segment as well, including lower worker productivity and
increased disability problems (Hadley, 2003). Untreated health needs and problems do
not simply go away. The costs of the lack of healthcare insurance are simply shifted.
Society pays for ill health in other ways.

The effects of escalating costs

Healthcare costs in the USA have escalated for decades. An increasing share of the
GNP is being devoted to healthcare services and this affects the workings of the
economy and the competitiveness of business. Firms such as General Motors now
struggle to meet the obligations of providing health insurance to its current and retired
works – the company spends about $1,500 on health care for every car it produces.
By contrast, Toyota spent only $201 per vehicle in North America, and $97 in Japan
(Krugman, 2005b). Lobbyists argue that privately-financed US health system
places firms at a competitive disadvantage relative to countries with state-run
healthcare.
IJPHM Health economists have indicated that healthcare financing problems are getting
1,3 worse. America’s private health insurance system, in which workers get coverage
through their employers, increasingly has had a harder time in meeting costs. In a 2001
Health Affairs article, Maxwell et al. (2001) conclude that the largest employers in the
USA have already extracted all the savings that it could possibly manage in healthcare
insurance through aggressive purchasing and through shifting workers into managed
256 care.
Private health insurers and health management groups do not necessarily improve
the overall national efficiency of the healthcare system. In national health systems that
are common in Europe, healthy enrollees subsidize the care of the rest. In private
systems, however, group insurers concentrate on attracting healthy policyholders.
Insurance groups try to shift costs and the burden of care onto other plans, so they are
not organized to improving healthcare services. Since, the majority of healthcare dollars
is spent on the chronically ill, this means attempting to avoid insuring these groups.
Serious gaps in the US health system have therefore emerged. A Kaiser Family
Foundation study estimated that in 2004 there were at least five million fewer jobs
providing health insurance than in 2001. The long-standing tax subsidy that favors
employment-based group insurance means that freelance workers and small
businesses are left in a lurch. Sensible policy changes are necessary that would
enable individual coverage to expand efficiently and provide a viable alternative to
group coverage for 46 million-plus uninsured Americans.

The health reform dilemma

“Market solutions” are often lauded by economists as superior to institutional
(or government) solutions. This is not apparent when it comes to healthcare. Market
solutions are not clearly favorable, in terms of cost efficiency, to government mandated
ones. For example, the publicly funded US Medicare system is much more
administratively efficient than private services (in 2003, Medicare spent less than
2 percent of its resources on administration). Another example is the hospital system at
Veteran’s Affairs (VA) that provides excellent care at modest cost.
Administrative expenses of private healthcare plans significantly inflate costs.
A 2003 study in The New England Journal of Medicine estimated that administrative
costs consumed 31 percent of healthcare spending in the USA, compared with only
17 percent in Canada (cited in Krugman, 2005a). The argument for national health
programs or services is based in part on the profound efficiencies that accrue from
avoiding the administrative costs that plague private market systems.
Publicly funded systems such as Medicare and the VA Hospitals avoid certain
competitively-driven costs, such as advertising. They also avoid the administrative
costs of shifting patients to among competing programs and plans. Many doctors,
policy advisors, and economists are now backing a single-payer system in which the
government directly provides insurance, arguing that it would be both cheaper and
more effective. The problem is that this reform would mean taking on the drug and
insurance companies.
In truth, US healthcare systems are only partially, at best, functioning as
“free market” systems. The vital mechanism for regulating production in markets,
namely prices, fails to operate in many or most health service situations. Prices
for health services are only partially determined by the purchase decisions or
“aggregate demand” of individuals seeking healthcare services. There are wide Healthcare
variances in the prices charged to patients for hospital procedures. Astonishingly, marketing
these vary by up to 17-fold. This evidence was marshaled by Reinhardt (2006), who
concluded that few individuals understand the highly opaque pricing and payment
systems used in hospitals. Prices that are billed to patients depend upon complex
factors including the patient’s health plan, certain local treatment costs, and their
status as insured or uninsured. Complex pricing makes proposed “consumer-directed” 257
approaches to healthcare reform largely unworkable.
Price transparency is the apparent answer, yet doing this would either reduce or
totally remove many of the most socially desirable and ethical aspects of the healthcare
system. Community hospitals in the US treat Medicare and Medicaid patients at less
than cost, run AIDS clinics that lose money, and often provide free treatment for the
uninsured. Hospitals are an essential part of a healthcare system. Cost shifting is a key
mechanism that sustains the social equity of the US healthcare system.

Prospects for healthcare marketing

Rapidly rising and unsustainable medical expenses are once again forcing healthcare
issues into political prominence in the USA. The rising cost of employer-based
health insurance has resulted in competitive problems for businesses competing globally.
The financial plight of Medicaid worsens the long-term problems within the US healthcare
system; and the current budget problems of the US Government strain its ability to sustain
any realistic health program (Krugman and Wells, 2006). Responsibility for the growing
crisis is increasingly being attributed to a profit-driven healthcare system that favors
corporate interests and raises costs for consumers (Mahar, 2006).
In spite of the quasi-market conditions that prevail in healthcare systems
globally, marketing has certain important contributions to make. Two broad
healthcare marketing problems are relevant to providing the “useful” findings desired
by Armstrong (1998) that would stand a chance of improving healthcare. The first is
the important problem of consumer access to information that would improve patient
healthcare decision-making. While consumers desperately seek trusted sources of
information to aid decisions, health systems continually neglect this consideration in
serving patients. Health decisions are deeply felt and highly important – the area is
particularly salient to marketing. Satisfying the patient requires considering both
perceptual factors and real health performance measures.
The second is the problem of the organizational diffusion of information –
providing better access to “evidence-based medicine” to improving healthcare practice.
While this could better align healthcare priorities to providing cost effective treatments
and optimal outcomes, transparency and information sharing are radically needed to
achieve this. Health systems do not efficiently disseminate information on the most
effective treatments or cost efficient practices, either to consumers or among doctors.
Better publicizing treatment information and setting standards could improve
healthcare, particularly in the USA creating an information system to accomplish this
would provide the groundwork to advance healthcare globally.

Information to improve consumer decisions

Consumer concerns with respect to healthcare tend to be dominated by considerations
of receiving sound and effective medical care. Yet there is arguably much less
IJPHM consumer information on healthcare services available than there is on other areas of
1,3 the economy. Patients undergoing treatment are often unclear as to health practices,
and little cost information may be provided when receiving services. With little
organizational transparency, performance records of service providers are not readily
available. Consumers have limited access to relevant information on physician,
procedure, or healthcare organization effectiveness.
258 The internet is now allowing information to be collected that will better diffuse
consumers’ evaluations. Practitioners of healthcare marketing need to further consider
consumer information needs. Market reforms are constrained by the fact that
healthcare is not considered a so-called “fungible” market commodity like pork-bellies,
detergents, or soft drinks that can be readily promoted. Certain medical issues are
sheltered or detached from the market.
Medical ethics precludes certain healthcare decisions from being subject to market
forces. For example, the availability of kidneys and hearts for transplantation is not
determined by a bidding process or other market-oriented actions. The idea of doing so
is indeed truly repugnant. Marketing can nevertheless make important contributions
to healthcare by changing attitudes toward organ and blood donation, and in usefully
increasing awareness on health issues.
Marketing clearly has the potential to substantially contribute to improving health
outcomes. For example, promotional marketing activities have had a key influence
in controlling the AIDS pandemic. Prevention of AIDS is a far better strategy than
treating the disease. Controlling the spread of HIV is predicated on using information
to affect behavior, and promotion strategies have proven to achieve a degree of
effectiveness in doing this (Kay, 1999b). An effective health system is in part, driven by
the diffusion of information that is continually made salient to consumers.
Consumer knowledge of health conditions is clearly important, yet it can sometimes
trigger unjustified fears among consumers. For example, anthrax infected 22 people
through the US mail in the fall of 2001, killing five. Yet 30,000 people began taking the
powerful antibiotic Cipro, many doing so indiscriminately and without a doctor’s
prescription. In the meantime, the rise of pneumonia, which killed 63,000 Americans in
2000, drew little public comment (Siegel, 2005).
The role of marketing to positively affect health outcomes through promoting
awareness of disease prevention measures is highly important. Yet the issue is a
complicated one. The misperception of health risks that health marketing campaigns
may engender also needs to be studied and remedied.

Cost and organizational problems

An effectively functioning healthcare system is an important priority. Yet the
increasing cost of healthcare either makes these services less affordable and less
accessible to a rising proportion of the population, or an increasing cost burden to
national healthcare systems. Since, no single organization is accountable for the cost of
the total system, conflicting interests develop over attempts to manage each
fragmented component. Managing healthcare with cost containment goals would seem
to be a clear and important priority, yet there appears to be little progress.
Healthcare organizations have a clear mandate to deliver quality without
contributing to the growing cost of healthcare. As Reinhardt (2005) argues, the
responsible parties in the USA (Congress, insurers, organized medicine, and hospitals)
have treated the issue with lethargy. Reinhardt asserts that the first focus should Healthcare
be simply on eliminating the substantial gross inefficiencies that exist in healthcare marketing
systems. In fairness, however, it needs to be considered how public and private
healthcare organizations face rather complex marketing problems, and that they do
this, notably, without real price signals to regulate the healthcare system.
This problem is occurring as advances in medical technology increases the scope of
treatable health problems. Gene therapy, facilitated by the genome project, and the 259
prospects offered by nanotechnology portend many new (and expensive) health solutions
for diseases that will extend the lifespan. The challenge to healthcare organizations is not
just to make these work, but to make solutions available and affordable.
It is becoming obvious that “market solutions” are not the likely solution to the
severe cost problems that plague healthcare. Change has become a necessity, yet the
play of market forces on healthcare systems requires careful consideration. Reforms to
affect the systemic problems with healthcare extend beyond the industry to the
agencies and institutions. Large profit-driven players have increasingly co-opted the
central players in the USA, including the FDA, the medical profession, and medical
teaching centers.
Reform could pose structural problems for the healthcare system, however. Altman
et al. (2006) have noted that the system of cost shifting in hospitals will make the
healthcare system vulnerable if greater price transparency is instituted. Though
employers and their health plan agents will likely focus on hospitals when devising
cost containment strategies, forcing hospitals to adopt profit maximizing strategies
will reduce equity, and not necessarily solve cost and quality problems.
Certain reforms have a potential to improve cost, particularly if healthcare systems
are oriented toward prevention and consumers become habituated to developing healthy
lifestyles. Thorpe (2005) notes that nearly two-thirds of the rise in US healthcare
spending has been linked to the rise in certain diseases (such as diabetes) and to
expensive innovations in treatment. Behavior such as over-consumption of food, lack of
exercise, smoking, and stress is related to approximately 40-50 percent of morbidity and
mortality. Public health and preventive interventions are clearly necessary.
Marketing can make substantial contributions to health goals. However, the
millions spent in advertising to promote what are basically unhealthy foods and
snacks dwarfs the amount spent on promoting healthy consumer foods and lifestyles.
There are substantial economic costs of smoking and the other unhealthy products,
and the figures and their implications need to be better publicized by public health
officials. Since, healthcare marketing may be at odds with the marketing of commercial
products that ill affect health, there are substantial public interests at stake. The source
of health problems, particularly as they are related to habituated and unhealthy
behavior, is a critical issue to examine.

Target marketing, specialization, and fragmentation

Does healthcare marketing aid and advance the goal of maximizing health
outcomes? The question is difficult to answer, but one clear outcome of marketing
that has been acknowledged (and sometimes decried) is that of increased specialization.
The discipline of marketing provides tools and techniques for companies to
profitably target consumer segments; hence marketing has been used effectively by
organizations to develop healthcare solutions that target discrete patient populations.
IJPHM Certain healthcare organizations have been able to profitably and effectively maximize
1,3 the quality of outcomes for particular patient groups and in the process, have become
increasingly specialized.
The specialization that results from the application of marketing principles by firms
has altered the business of healthcare. Healthcare providers increasingly position their
companies as specialty service providers par excellence, creating the perception that
260 only medical specialists are able to provide the optimum diagnostic and service
quality. However, as the healthcare system grows fragmented and specialized, issues
of both cost and quality have been raised.
For example, critics have long claimed that specialized “disease management”
providers result in a “carve up” that reduces the efficiency of the healthcare system
overall. When responsibility for healthcare is pulled away from a primary care
provider, it may hinder their ability to deal with complications resulting from
treatment. For example, the vision problems of diabetes patients may not be quickly
diagnosed and treated by the lower level staff that exclusively monitors blood sugar
levels. The narrow focus of specialist providers can negate the “continuum of care”
vital to patients’ physical and psychological sense of well-being (McEachern, 1995).
Specialization has also substantially affected the evolution of healthcare. Even
countries with national healthcare systems now involve a mix of both profit and
nonprofit, private and public institutions, to cover profit-driven services such as
cosmetic surgery. “Medical tourism” has now been established as a means for hospitals
to compete internationally, based on both cost and quality of care.
Specialization is not the same as fragmentation, however. The fragmentation of the
US healthcare system is largely due to its reliance on private insurance. This brings
about administrative complexity, specifically because of differences in coverage
among individuals and to what Krugman and Wells (2006) calls “the zero-sum
struggle” between different players in the system, each trying to “stick others with the
bill.” This fragmentation clearly reduces efficiency and raises costs. Outside of
the Medicare system, there is little coordination among the different components of the
healthcare system.

DTC advertising and new marketing concerns

Some of the recent problems (and contradictions) of healthcare marketing are
illustrated in the bounteous rise of DTC pharmaceutical ads. Since, the FDA relaxed its
rules governing DTC advertising in 1997, pharmaceutical companies began hiring
professionals from the advertising industry. Though controversial since its inception,
proponents argue that DTC ads serve substantial public education goals, namely
informing consumers about new medicines and treatment options. The claim is that the
increased awareness for under-diagnosed conditions yields substantial health
treatment benefits. Detractors find problems in allowing drugs to be marketed to
persons who lack specialized knowledge, criticizing DTC ads that oversimplify
complex issues and interfere with physician-patient relationships.
The educational quality of DTC ads has certainly been variable. As Wilkes et al.
(2000) note, empirical studies need to address how DTC ads can motivate discussions
that enhance visit efficiency, patient/physician trust, patient satisfaction, or health
outcomes. They found that while consumer attitudes are largely neutral, physician are
usually negative, being distrustful of pharmaceutical promotions.
 Pharmaceutical companies claim that advertising drugs speed awareness on a Healthcare
variety of conditions to which there was little awareness in the past. The problem, as marketing
Woloshin et al. (2004) note, is that DTC ads typically describe drug benefits in
qualitative terms. Advertisements rarely provide data on how effectively new drugs
work, and certainly not in comparison with older and possibly safer medications that
are likely to cost less. Shin and Moon (2005) conclude that the evidence on drug
promotion is mixed. Davis (2007) finds that consumers desire greater information, and 261
recommends that policy be driven by consumer research.
The potential for advertising to stimulate inappropriate demand for drugs may
adversely affect healthcare outcomes and raise cost. In contrast, European consumer
groups argue that educational material on drugs should help establish informed choice
for patients instead of simply promoting brand loyalty. The resistance of doctors may
be interpreted in the light of the growing rift in physicians’ influence and authority in
the healthcare system. Physicians regularly have to deal with inappropriate requests
for specific medications. Some may be concerned with appearing poorly informed
about the many new medications or treatments that constantly appear. Medical
professionals, as well as consumers, clearly need better information systems to support
improved decision-making.
While drug makers are well poised to provide educational information about
prescription drugs because of their considerable resources and have a profit incentive
to advertise, the potential and the pitfalls of consumer-targeted prescription drug
promotions need to be better understood. Television advertising, particularly
abundant on erectile dysfunction issues, may have contributed to the declining
public image of pharmaceutical companies.

New challenges in healthcare marketing

Substantial new marketing problems are facing healthcare. Entoven and Tollen (2005)
suggest that significant solutions are possible when healthcare problems are viewed
from both consumer and organizational perspectives as “integrated health delivery
systems.” The effects of marketing on these “systems” need to be reconsidered,
especially as public and private institutions find their economic cost growths
increasingly unsustainable. Healthcare systems involve difficult spending choices in
the use of public and private health resources, and a new outlook is needed to support
better health outcome decisions.
Important healthcare marketing problems cannot be solved simply by altering
the marketing mix of particular health-related products and services. The issues
are more complex than these traditional marketing concerns. Clearly the domain of
marketing can greatly assist with the diffusion of information on treatment
efficacy and quality that are necessary to improve healthcare solutions. The salient
marketing issues to improving the healthcare system need to be framed within the
context of improving the flow of relevant information to consumers and key
service providers.
Public awareness of marketing campaigns can have an important impact. Given the
behavioral aspects of many health problems, however, promotions alone can have
limited effectiveness. Persuading people to change behaviors is a much more difficult
problem than informing them about risks. Moreover, funding for better health
awareness needs to be reconsidered as a public spending priority.
IJPHM Consumers (and their employers or insurers) make healthcare decisions within
1,3 quasi-market system, and better access to salient healthcare information is clearly
needed. Equally important, organizational decisions in healthcare call for a careful
marshaling of the evidence on effective evidence-based treatment. Organizations
clearly need to critically review treatment delivery systems to avoid mistakes and
improve quality. Both consumers and healthcare organizations would benefit from
262 more transparent systems to support healthcare decisions.
The marketing challenge in healthcare is to develop and sustain better healthcare
relationships for consumers. Traditional doctor-patient relationships have been
replaced by intermediary healthcare organizations. Precious few of these have built the
trusted relationships that consumers demand.

References
Altman, S., Shactman, D. and Eilat, E. (2006), “Could US hospitals go the way of US airlines”,
Health Affairs, Vol. 25 No. 1, pp. 11-21.
Anderson, G., Hussey, P., Frogner, B. and Waters, H. (2005), “Health spending in the United
States and the rest of the industrialized world”, Health Affairs, Vol. 24 No. 4, pp. 903-14.
Anderson, G., Reinhardt, U.E., Hussey, P. and Petrosyan, V. (2003), “It’s the prices, stupid: why
the United States is so different from other countries”, Health Affairs, Vol. 22 No. 3,
pp. 89-105.
Armstrong, J.S. (1998), “Management science: what does it have to do with management or
science”, Marketing Bulletin, Vol. 9, pp. 1-15.
Baker, T. (2005), The Medical Malpractice Myth, University of Chicago Press, Chicago, IL.
Davis, J. (2007), “Consumers’ preferences for the communication of risk information in drug
advertising”, Health Affairs, Vol. 26 No. 3, pp. 863-70.
Entoven, A. and Tollen, L. (2005), “Competition in healthcare: it takes systems to pursue quality
and efficiency”, Health Affairs, Vol. 24, pp. 420-33.
Folland, S., Goodman, A. and Stano, M. (2004), The Economics of Health and Health Care, 4th ed.,
Prentice-Hall, Englewood Cliffs, NJ.
Hadley, J. (2003), “Sicker and poorer – the consequences of being uninsured”, Medical Care
Research and Review, Vol. 60, pp. 3S-75S.
Hayes, R. (2006), “Interview on the Leonard Lopate show, radio station WNYC”, available at:
www.wnyc.org/shows/lopate/episodes/2006/07/28 (accessed July 28).
Kay, M. (1999a), Marketing Structural Change in the Health Care Market: Emerging International
Opportunities, Contemporary Developments in Marketing, ESKA, Paris.
Kay, M. (1999b), “The economic impact of the HIV/AIDS problem”, paper presented at Ten Years
with AIDS: the Congress of Eastern/Central Europe, Vilnius, Lithuania, organized by the
Lithuanian AIDS Center, June 3.
Khatri, N., Baveja, A., Boren, S.A. and Mammo, A. (2006), “Medical errors and quality of care:
from control to commitment”, California Management Review, Vol. 48 No. 3, pp. 115-41.
Krugman, P. (2005a), “The medical money pit”, The New York Times, April 11.
Krugman, P. (2005b), “Bad for the country”, The New York Times, November 25.
Krugman, P. and Wells, R. (2006), “The health care crisis and what to do about it”, New York
Review of Books, Vol. 53 No. 5, available at: www.nybooks.com/articles/18802
McEachern, S. (1995), “Disease management: they all ‘say’ they’re doing it”, Health Care Strategic
Management, Vol. 13 No. 6, pp. 19-23.
Mahar, M. (2006), Money Driven Medicine, Harper Collins, New York, NY. Healthcare
Maxwell, J., Temin, P. and Watts, C. (2001), “Corporate health care spending among Fortune 500 marketing
firms”, Health Affairs, Vol. 20 No. 3, pp. 181-8.
Moses, H., Dorsey, E.R., Matheson, D. and Their, S. (2005), “Financial anatomy of biomedical
research”, JAMA, Vol. 294 No. 11, pp. 1333-42.
National Committee for Quality Assurance (2003), The State of Health Care Quality: Trends and
Analysis, National Committee for Quality Assurance, Washington, DC. 263
Reinhardt, U. (2005), “Variations in California hospital regions: another wake-up call for sleeping
policymakers”, Health Affairs, Vol. 24, pp. 549-51.
Reinhardt, U. (2006), “The pricing of US hospital services: chaos behind a veil of secrecy”, Health
Affairs, Vol. 25 No. 1, pp. 57-69.
Relman, A.S. (1980), “The new medical-industrial complex”, New England Journal of Medicine,
Vol. 303 No. 17, pp. 963-70.
Shin, J. and Moon, S. (2005), “Direct-to-consumer prescription drug advertising: concerns and
consumers’ benefit”, The Journal of Consumer Marketing, Vol. 22 No. 7, pp. 397-403.
Siegel, M. (2005), “The irony of fear”, The Washington Post, August 30.
Smith, C. (2004), “Retail prescription drug spending in the national health accounts”, Health
Affairs, Vol. 23 No. 1, pp. 160-7.
Thorpe, K. (2005), “The rise in health care spending and what to do about it”, Health Affairs,
Vol. 24 No. 6, pp. 1436-45.
Wennberg, J., Fischer, E., Baker, L., Sharp, S. and Bronner, K. (2005), “Evaluating the efficiency of
California providers in caring for patients with chronic illnesses”, Health Affairs, Vol. 24
No. 4, pp. 256-64.
Wilkes, M., Bell, R. and Kravitz, R.L. (2000), “Direct-to-consumer prescription drug advertising:
trends, impact, and implications”, Health Affairs, Vol. 20 No. 2, pp. 110-28.
Woloshin, S., Schwartz, L. and Welch, H.G. (2004), “The value of benefit data in
direct-to-consumer drug ads”, Health Affairs, Vol. 24 No. 2, pp. 234-43.

About the author

Mark J. Kay is an Associate Professor of Marketing at Montclair State University, Montclair,
New Jersey, USA. He studied at the University of Chicago and received his PhD in Marketing
from the Zicklin School of Business at Baruch College, City University of New York. His work
in healthcare marketing includes work on AIDS prevention marketing. He is also the author
of numerous case studies and articles on corporate responsibility, branding, and retailing.
Mark J. Kay can be contacted at: kaym@mail.montclair.edu

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints

View publication stats