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By Corey Scurlock, MD, MBA, Jayashree Raikhelkar, MD, and David M. Nierman, MD, MMM

Targeting Value in Health Care: How Intensivists Can Use Business Principles to Make Strategic Decisions

Hospitals

In this article…

Examine the business threats that intensivits face and consider ways to establish a competitive edge.

In 1979 Michael E. Porter, PhD, published a seminal paper on how five competitive forces shape strategy within an indus-try (Figure 1).1 Grasp of these forces is a cornerstone of any business strategy course, and executives frequently perform a five forces analysis when determining if a strategic decision is correct or if an industry is worth future investment.

The forces that govern competition in business in gen-eral apply to medicine overall and to critical care as a spe-cialty. Since intensivists work in high-cost areas of hospitals taking care of critically ill patients who use disproportion-ate hospital resources, they are uniquely positioned to add value in our current health care system.

To better position themselves in the coming economic environment, intensivists must increasingly assume hospi-tal leadership positions and apply sound business principles. It is imperative that they understand the structure of the industry and forces that govern it to properly formulate suc-cessful business strategies.

We present an argument for understanding and using a Porter’s Five Forces analysis of critical care. We argue that intensivist groups that target value in their analysis will have a tactical advantage relative to intensivist groups that do not.

Value is a difficult term to define, particularly in health care. Porter defines value as health outcome per dollar spent.2 This differs from past attempts at health reform that focused on simple cost reduction. Improving outcomes per unit of cost is inherently cheaper in the long run as bet-ter health is less expensive than poor health.3

Porter’s Five ForcesThe five forces governing competition listed by Porter are:

1. The threat of new entrants

2. The bargaining power of customers

3. The bargaining power of suppliers

4. The threat of substitute products or services

5. Jockeying for position among current competitors

Threat of new entrantsAs a market becomes more profitable it inevitably

draws new entrants, e.g., opposing intensivist groups, into the marketplace. Therefore, hospitals that are successful and growing become appealing to outside intensivist groups seeking new business opportunities.

From the perspective of hospital leadership, intensiv-ists do not refer patients to a hospital, and are at risk of being viewed as interchangeable commodities with low switching costs. This makes an established intensivist group vulnerable to new entrants.

The best defense that an established group has against new entrants is to provide “high-value care.” By targeting value, an established group creates barriers against competition.

In his analysis, Porter described four major barriers to entry:

1. Economies of scale

Economies of scale are cost advantages that are second-ary to size, usually in the form of increased purchasing and bargaining power when dealing with contracts or benefits for employees.

For physician groups, a benefit of larger groups is an enhanced reputation of stability. In critical care, this means that larger intensivist groups may have an advantage in negotiating contracts with managed care organizations, leading to increased collections as well as increased pur-chasing power when obtaining benefits for their employees and reduced overhead costs.

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them more efficient and lower-cost providers.

Finally, they may be able to men-tor junior members of the group and accelerate their professional growth. At the same time, groups should not solely rely on senior physicians, but should also regularly bring in younger physicians who are trained in the newest ICU techniques and technologies.

Clinical examples of this include expertise in new technologies such as ultrasound and echocardiography.

4. Access to distribution channels

This is related to name recogni-tion and familiarity of the group with customers and suppliers. An example of this is insurance company contracts. Having in-network status makes the group more desirable to an in-network facility and in-network patients.

i.e., neuro and cardiothoracic critical care as well as the more common medical and surgical ICU coverage.

3. Advantages that are independent of scale

In addition to economies of scale there may be significant advantages that an established group has devel-oped over time that comes from experience.

A well-established group that has accomplished senior providers has an advantage over a newer and less experienced group that is attempting to displace them. These experienced clinicians bring with them greater emotional intelligence, which can lead to better customer relations.

Moreover, their years of practice may lead to enhanced clinical abili-ties and the ability to recognize dis-ease patterns and syndromes, making

This favors the merger and acquisition of smaller groups to form larger intensivist groups that cover multiple hospitals. In order to displace a large group, a competing group would need to possess similar economies of scale or accept some form of cost disadvantage when engaging in financial competition.

2. Product differentiation

The concept of product differen-tiation requires an understanding of the core foundations of marketing. Intensivist groups must develop some form of brand loyalty from their customers.

To accomplish this, a group needs to be unique or to offer a high-ly differentiated service. This could mean having an outstanding record on patient safety, 24-hour in-house ICU coverage, providing an efficient patient and doctor-friendly ICU envi-ronment or mastering the utilization of high-cost hospital resources.

An intensivist group may also dif-ferentiate itself by employing intensiv-ists with a variety of skill backgrounds, which would provide them with a broad degree of critical care services,

In critical care, this means that larger intensivist groups may have an advantage in negotiating contracts with managed care organizations leading to increased collections as well as increased purchasing power when obtaining benefits for their employees and reduced overhead costs.

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Hospitals can vertically integrate by absorbing hospital-based but self-employed physicians and demand they become hospital employees. With ever decreasing margins rela-tive to general inflation, hospitals will become even more price sensitive in the future.

Providers who control ICUs may be expected to accept lower reimbursement from a disproportion-ate Medicaid/Medicare population and to participate with lower reim-bursement MCOs, in exchange for a “monopoly” on a hospitals critical care environment.

A group that targets value will manipulate the power of custom-ers to its advantage. Bringing value throughout the care cycle differenti-ates the group and makes it an impor-tant and essential provider to their customers, enhancing brand loyalty. In the future, hospitals will also be searching for value as reimbursement becomes bundled or reduced.

Power of suppliersIn his analysis Porter describes

a powerful supplier as one who has a unique product that the industry is dependent upon or that has little threat of vertical integration.

In critical care, the suppliers are the training programs that train new intensivists. This will become more important as residents increas-ingly move away from critical care as a career choice, with lack of leisure time and stress being the most com-monly cited reasons.4

As demand for critical care physicians increases and supply con-tinues to dwindle, the power of the training programs to steer trainees will become more important. This will necessitate affiliations of critical care groups with training programs to have greater access for future staffing.

Intensivists must be cognizant of and enhance the barriers in their local environment to defend their position.

Power of customersWho are the customers for a

critical care group? Is it the patients? The referring physicians? The hospi-tal within which they work?

For this discussion, we will con-sider the hospital to be the customer. In Porter’s analysis customers are powerful if they purchase in large volumes, they are price sensitive or if there is threat of vertical integration toward the providers. Hospitals fit all three of these criteria and are there-fore powerful customers.

A group with firmly established contracts and a strong reputation can more easily extend its critical care services into a newly acquired hospi-tal. Finally an established group will benefit from its members having a diverse social network with hospital administration, referring physicians and other groups.

Taken together an established group has a comparative advantage in overall access compared to a newer group.

In the end, the threat of entry is a considerable force for critical care physician groups to counter. Low brand loyalty and lack of econo-mies of scale lower barriers to entry.

Jockeying for position

among current competitors

Figure 1

Porter's Five Forces

Bargaining Power of Customers

Bargaining Power of Suppliers

Threat of New Entrants

Threat of Substitute Services

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• Some form of glycemic control15,

16, 17 As an example, glycemic con-trol when applied properly has been found to result in improved outcomes and a cost savings of 2638 euros, largely as a result of fewer ICU days and less mechani-cal ventilation.18

To contain costs Porter argues that we must switch away from our current volume-based system and instead focus on maximizing value throughout the health care cycle of a patient.

This will result in outcomes being widely measured and dissemi-nated to the public for all health care providers and for all medical condi-tions in the hope that a reimburse-ment system will align around the central theme of maximizing value for patients.

In addition to this the Affordable Care Act (ACA), signed into law on March 23, 2010, is designed to improve quality and reduce unneces-sary cost in the health care system. Specific to critical care, the ACA will create incentives for hospitals to reduce rates of hospital-acquired infections and complications that lead to higher costs.

To understand the magnitude of these costs, Fuller and others recently found that post-operative infections and deep wound disruptions added $14,446 of incremental cost per patient in Maryland.19 In addition patients who experienced hospital-acquired complications (HAC) were found to have higher total costs and critical care costs as compared to those who did not experience a HAC.20

Moreover, intensivists’ decisions have been found to play a large role in discretionary costs in the care cycle of a patient following only severity of illness in magnitude.21

The ACA will place an emphasis on bundling of payments to bring focus on the coordination of care for chronic illness. This will mean that the

what more protection as they benefit from longstanding relationships and traditions.

Any group must differentiate itself by tracking its performance using metrics such as central line associated blood stream infections (CLABs), ven-tilator associated pneumonias (VAPs), etc, which leads to decreased hospital costs. This will increase brand loyalty to the group, increase its power over its customers and protect it from the threat of substitute products.

Strategy and positioningModern medicine has made

extraordinary advances in technology and science, with one result being the specialty of critical care medicine and the modern intensive care unit. While these advances have led to out-standing clinical outcomes for many patients, they come at a price. At this point in time in the United States, approximately one percent of the gross domestic product (GDP) is spent on providing critical care services.8

Given the resources devoted to critical care, it is essential that we get value. Without first achieving value, any plan of universal coverage will end in financial catastrophe, as debits will quickly outweigh credits.

In almost in any business model this would be unsuccessful and health care is no exception.

How do intensivists add value? Potential ways include:

• Avoidance of VAP9

• Lung protective modes of ventilation10

• Adherence to CLABs Protocols11

• Timely resuscitation and atten-tion to hemodynamics in septic patients12

• Identification of the chronically critically ill and addressing goals of care13

• Interruption of daily sedation14

Threat of substitute servicesThe threat of a substitute service

can severely impair profitability and lower the power of a group regardless of economic climate. These substi-tutes often come rapidly into play and are difficult to prepare for. The ones that demand the most attention are those that affect price sensitivity.

In critical care the most common threat is the use of hospitalists or other non-critical-trained physicians to fill the growing supply-demand mismatch between the need for intensivist care and the number of board certified intensivists.5, 6, 7

To protect against substitutes, critical care providers must focus on delivering and highlighting the value they provide so their customers real-ize the distinction between their care and that of others.

In addition, as changes in the health care system cause custom-ers to become more price sensitive, it will be imperative to demonstrate this to justify the higher salaries that intensivists command. A group that is attuned to this dynamic will be that much more difficult to dislodge

Jockeying for positionThis last force of competition

refers to rivalries within the field. In critical care this refers to turf battles between different groups over control of certain hospitals in a geographic area or ICUs within a single hospital.

According to Porter, rivalry is greatest when there are numerous competitors that are relatively equal in size and power, low switching costs, and poor differentiation between com-peting services. All of these currently apply to the specialty of critical care and make competition between exist-ing groups particularly fierce.

For community hospitals the switching costs for private practice groups are relatively low. In academic hospitals, however, groups are more entrenched, which gives them some-

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11. Provonost P, Needham D, Berenholtz S, Sinopoli D, Chu H, Cosgrove S, Sexton B, Hyzy R, Welsh R, Roth G, Bander J, Kepros J, Goeschel C. An intervention to decrease catheter-related bloodstream infections in the ICU. N Eng J Med Dec. 18, 2006; 355(26):2725-32.

12. Rivers E, Nguyen B, Havstad S, , Ressler J, Muzzin A, Knoblich B, Peterson E, Tomlanovich M; Early Goal-Directed Therapy Collaborative Group. Early goal-directed therapy in the treatment of severe sepsis and septic shock. N Engl J Med. Nov. 8, 2001; 345(19):1368-77.

13. Nelson JE, Angus DC, Weissfeld LA, Puntillo KA, Danis M, Deal D, Levy MM, Cook DJ; Critical Care Peer Workgroup of the Promoting Excellence in End-of-Life Care Project. End-of-life care for the critically ill: A national intensive care unit survey. Crit Care Med. Oct. 2006;34(10):2547-53.

14. Kress JP, Pohlman AS, O'Connor MF, Hall JB. Daily interruption of sedative infusions in critically ill patients undergoing mechanical ventilation. N Engl J Med. May 18, 2000;342(20):1471-7.

15. Schetz M, Vanhorebeek I, Wouters PJ, Wilmer A, Van den Berghe G. Tight blood glucose control is renoprotective in critically ill patients. J Am Soc Nephrol. Mar. 2008;19(3):571-8.

16. Van den Berghe G, Wouters P, Weekers F, Verwaest C, Bruyninckx F, Schetz M, Vlasselaers D, Ferdinande P, Lauwers P, Bouillon R. Intensive insulin therapy in the critically ill patients. N Engl J Med. Nov. 8, 2001; 345(19):1359-67.

17. Van den Berghe G, Wilmer A, Milants I, Wouters PJ, Bouckaert B, Bruyninckx F, Bouillon R, Schetz M. Intensive insulin therapy in mixed medical/surgical intensive care units: benefit versus harm. Diabetes. Nove. 2006; 55(11):3151-9.

18. Van den Berghe G, Wouters PJ, Kesteloot K, Hilleman DE. Analysis of health care resource utilization with intensive insulin therapy in critically ill patients. Crit Care Med. Mar. 2006; 34(3)612-6.

19. Fuller RL, McCullough EC, Bao MZ, Averill RF. Estimating the costs of potentially preventable hospital acquired complications. Health Care Finance Rev. Summer 2009; 30(4):17-32.

20. Saleh SS, Callan M, Therriault M, Landor N. The cost impact of hospital-acquired conditions among critical care patients. Med Care. June 2010 Jun;48(6):518-26.

21. Garland A, Shaman Z, Baron J, Connors AF. Physician-attributable Differences in Intensive Care Unit Costs A Single-Center Study. Am J Respir Crit Care Med. Dec. 1, 2006; 174 (11) 1206–1210.

David M. Nierman, MD, MMM, is associate profes-sor of medicine and sur-gery at Mount Sinai School of Medicine in New York.

References

1. Porter ME. How competitive forces shape strategy. Harvard Business Review, March/April 1979.

2. Porter ME. A strategy for health care reform-toward a value-based system. NEJM July 9, 2009; 361(2) 109-112

3. Porter ME. Value based health care delivery. Annals of Surgery. Oct. 2008 248(4) 503-509.

4. Lorin S, Heffner J, Carson S. Attitudes and perceptions of internal medicine residents regarding pulmonary and critical care subspecialty training. Chest. 2005; 127(2) 630-6.

5. Committee on Manpower for Pulmonary and Critical Care Societies (COMPACCS). Caring for the critically ill patient. Current and projected workforce requirements for care of the critically ill and patients with pulmonary disease: can we meet the requirements of an aging population? JAMA. Dec. 6, 2000; 284(21):2762-70.

6. Hyzy RC, Flanders SA Pronovost PJ, Berenholtz SM, Watson S, George C, Goeschel CA, Maselli J, Auerbach AD. Characteristics of intensive care units in Michigan: not an open and closed case. J Hosp Med. Jan. 2010; 5(1):4-9.

7. Tenner PA, Dibrell H, Taylor RP. Improved survival with hospitalists in a pediatric intensive care unit. Crit Care Med. Mar. 2003; 31(3):847-52.

8. Jacobs P, Noseworthy TW. National estimates of intensive care utilization and costs: Canada and the United States. Crit Care Med Nov. 1990; 18: 1282-1286.

9. Muscedere J, Dodek P, and others. Comprehensive evidence-based clinical practice guidelines for ventilator-associated pneumonia: prevention. J Crit Care Mar. 2008; 23(1):138-47.

10. The Acute Respiratory Distress Syndrome Network.Ventilation with lower tidal volumes as compared with traditional tidal volumes for acute lung injury and the acute respiratory distress syndrome. N Engl J Med. 2000; 342(18):1301-8.

acute care hospital, critical care physi-cians and the post-discharge skilled nursing facilities will be sharing a sin-gle payment for care for both the acute and chronic periods of illness. This will force hospitals to search for value as a means to sustained profitability and survivability.

Once the group has assessed the forces affecting competition within their industry they can then identify strengths and weaknesses. It is then a choice of how best to position the group to defend against these weak-nesses to enable them to maximize their competitive position.

Intensivist groups are well-positioned to enhance value by their proximity to high-cost resources, i.e., the ICU, end of life care. In this time of change in our current health care system, we recommend looking for adding value in the health care cycle as a target to harness the five forces for the industry of critical care to one's advantage.

The Porter Five Forces system is easy to use and easily adapted to allow critical care leaders to strategi-cally position themselves.

Corey Scurlock, MD, MBA, is assistant profes-sor of anesthesiology & cardiothoracic surgery and director of the Cardiothoracic Intensive Care Unit at Mount Sinai

School of Medicine in New York. corey.scurlock@mountsinai.org

Jayashree Raikhelkar, MD, is assistant professor of anesthesiology & cardiothoracic surgery at Mount Sinai School of Medicine in New York.

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