Changing Market The Business of Healthcare

Is Cheap the New Loyal?

August 18, 2011

Until recently, hospitals granting exclusivity to a group demanded exclusivity, or a close approximation, from the group in return. Their position was based on the fact that they perceived the group to be of such high value that they did not want to share it with another facility.

So, for example, it was rather common for a hospital to argue during the negotiation of an exclusive contract for, say, radiology services, that the group should not provide services at any other facility. As hinted at above (and as many readers know from their own affairs), the exclusivity demanded by the hospital was often negotiated down by way of a geographic restriction or by conditioning the provision of outside services on the fact that it does materially interfere with the delivery of services to the contracting hospital.

Fast forward just a few years to the present, and many of those same hospitals are more than happy to contract with so-called national groups, many simply being staffing services masquerading as true groups, which have as a central element of their group “DNA” the fact that they are not in any means exclusive.

While national groups are not loyal, they are cheap.

So is cheap the new loyal?  Or is it that no one cares if a low value group is or isn’t loyal?

The opportunity, of course, for entrepreneurial physicians is to take advantage of the market segmentation that “cheap” is leading to:  One class of hospitals (consisting of the great majority of hospitals) that deliver cheap but competent services, and a second, smaller class delivering high quality service at, perhaps, a higher price.

On the one hand, this means seeking arrangements with facilities that value quality, not simply pay lip service to it. On the other hand, it signals that there may be an even greater demand for physician-owned specialty hospitals (yes, excluding Medicare patients) that provide better care.

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