Chapter 2

The Health Care Marketplace

 Goals of This Chapter
• Define hospital
• Explain the different classifications of
hospitals
• Describe what makes a teaching hospital
unique
• Describe the roles of a business operations
manager in health care
• Understand the health care regulatory and
policy environment
 Hospitals as a Business
• Missions focus on abstract goals, such as
“community health”, or “eliminating & curing
disease”
• Offer intangible product (cannot be “touched”)
• Performance measures are clinical, not financial
– Primarily based on “quality”
– Financial metrics are secondary
• Very little public information about health care
industry
 Hospitals as a Business
• Governed, to a large degree, by those who lack
formal training in management (or the industry)
• 24/7/365 operation
– Cash flow of operation during “off” times not a factor
– Community expectation of round-the-clock service
availability
• Community & stakeholder interests create
ambiguous operating goals
But Health Care is still a “Business”

• Manages resources (Financial, Personnel,

Equipment, Supplies, Technology,
Facilities)
• Employs hundreds or thousands of people
• Multi-million dollar payrolls

Requires professional management skills

 A Hospital
• Historical View: A facility to service those
who require overnight stays or surgeries;
a place to die

• Current View: A entity organized around

the observation, diagnosis, and treatment
of patients
– also focused on education and prevention
Combining Health Care Entities
• Horizontal Integration: Expansion or growth strategy
where mergers, acquisitions, and alliances are used to
consolidate the number of hospitals providing similar
service lines

• Vertical Integration: Acquisition or alliances of parties

involved in other phases of healthcare value chain, such
as payers, clinics, or other providers

• Integrated Delivery Network (IDN): any combination

or integration between a hospital and other providers,
that works together collaboratively across a spectrum of
care to provide more competitive and comprehensive
services
 Classifying Hospitals
• Community – generally acute care
• Federal – Department of Veterans Affairs
• General -providing a broad range of services
• Specialty -focused on a specific condition
• Rehabilitation -restoring health
• Psychiatric - providing behavioral services
• Teaching – usually larger, wider array of more complex
services
 Teaching Hospitals
• Large percentage of resources are devoted to academic
and research missions, apart from patient care.
• Significantly larger that their non-teaching-competitors
in terms of:
– Number of employees;
– Types of services lines;
– Number of beds;
– Number of admissions and discharges;
– Financial budgets;
– Resources invested;
– Technologies for advance treatments.
 Teaching Hospitals
• Bound to the principle of higher
education.
• The medical doctor-practitioners are
primarily teachers and research faculty
members and affiliated with an accredited
medical school with goal to formally train
licensed medical doctors.
 Factors distinguishing teaching hospital
from other community hospitals
1. Large and broad scale, scope and mission (research,
education, patient care -- observation, diagnosis and
treatment).
2. Train physicians and provide research which are not
always well reimbursed and funded.
3. More complex organization – partnered with medical
schools and academic health centers – involve
collaborative agreement.
4. Larger stakeholders due to broader mission that they
serve – having more financially difficult time
balancing the needs.
Healthcare Business Operations
• Finance and accounting
• Logistics and supply chain management
• Physical plant and facilities
• Human resources
• Information technology
• Business planning
• Performance and quality improvement
 Hospital Business Operations
• Major roles and responsibilities:-
– Finance and accounting;
– Logistics and supply chain management;
– Physical plant or facilities;
– Human resources;
– Information technology:
– Business planning and performance
improvement.
 Hospital Business Operations
• Finance and Accounting
– Finance professionals responsible for billings,
collections, financial reporting, payroll,
treasury and cash management.
– Transaction processing such as accounting,
payables and payroll.
– Analysis and reporting such as investments
and budgeting.
 Hospital Business Operations
• Logistics and Supply Chain Management
– Focus on cost savings of key resources and
supplies and better management of goods and
services in the physical supply chain.

• Physical Plant of Facilities

– Hospitals expansions in terms of buildings,
systems or networks with several facilities and
expertise require for design, planning,
construction, maintenance, housekeeping and
security operations.
 Hospital Business Operations
• Human Resources
– There is continued need for business skills focused on
providing general personnel management, as well as
specialized services such as recruitment, compensation
and benefits as well as organizational development
and training.

• Information Technology
– Appropriate and wise investment in technologies such
as telecommunications, data services, information
reporting, systems project management, and
infrastructure support can improve the organization.
 Hospital Business Operations
• Business Planning and Performance
Improvement
– Continuous improvement demand for
professionals to help provide internal analysis
and decision support in areas such as strategic
planning, business process reengineering,
process improvement, competitive
intelligence, performance benchmarking,
accreditation preparation and quality
management.
Hospital Policies and Regulations
• Hospitals operate within strict financial,
legal and regulatory environments.
• Policies provide broad guidelines that are
used to create specific procedures within a
system
• Regulations are authorized instructions
for how something should be carried out.
 Important Healthcare Regulations
• Health Insurance Portability and
Accountability Act of 1996 (HIPAA)
– Protection of patient data
– Uses/sharing of patient data

• Health Information Technology for

Economic and Clinical Health Act of 2009
(HITECH)
– Facilitate implementation of electronic patient
records