Direct competition from urban hospitals is just one factor among many that make up the competitive landscape for provider talent
by Intelliworx
The renowned economist Michael E. Porter first published his “Five Forces” framework for analyzing competitive markets in the Harvard Business Review (HBR) in 1979. Porter’s Five Forces, provides a sound way to analyze the competitive landscape necessary to develop a winning strategy.
The fact that Porter refers to a landscape is telling. Competitors are just one factor in a competitive landscape. Porter realized that competition stems from more than just rival products – but also the actions of customers, partners and even new technology.
Perhaps to emphasize this point, Dr. Porter updated the framework in 2008 and republished it in HBR. He also offered this explanation to go along with it:
“In essence, the job of the strategist is to understand and cope with competition. Often, however, managers define competition too narrowly, as if it occurred only among today’s direct competitors. Yet competition for profits goes beyond established industry rivals to include four other competitive forces as well: customers, suppliers, potential entrants, and substitute products. The extended rivalry that results from all five forces defines an industry’s structure and shapes the nature of competitive interaction within an industry.”
And he later underscores the strategic purpose of such an analysis:
“Understanding the competitive forces, and their underlying causes, reveals the roots of an industry’s current profitability while providing a framework for anticipating and influencing competition (and profitability) over time.”
In short, Porter’s framework is a bit like taking a step back and looking at the bigger picture. In doing so, we can begin to see the influences of additional threats we may not see when our attention is absorbed by the competition.
Context for talent rural healthcare
Rural healthcare facilities have been under pressure for a variety of reasons. One key reason is talent – rural healthcare facilities struggle to attract talent.
The following points provide some at-a-glance context:
- Hospital CFOs say, “Labor challenges are one of the top issues plaguing health systems across the country.” (Becker’s)
- “Advocates for rural hospitals and healthcare facilities say that workforce issues are one of the biggest challenges facing rural healthcare facilities currently.” (Minnesota Post)
- “Many aging rural hospitals aren’t able to finance capital and infrastructure improvement projects…the problem stems from a number of overlapping issues, including low reimbursement from insurers, rising labor and supply costs, and high-interest rates for financing options.” (Becker’s)
- “Since 2005, 104 rural hospitals have closed, with another 89 facilities no longer providing inpatient services, according to data compiled by the University of North Carolina’s Cecil G. Sheps Center for Health Services Research.” (Becker’s)
- “Today, the rate of hospital closures is ticking upward again. Roughly 30 percent of rural U.S. hospitals are at risk of closure due to financial instability…Recruitment and retention of health professionals has long been a persistent challenge for rural providers.” (Healthcare Facilities Today)
- The CEO of an Ohio hospital says the facility has just a 50% chance of surviving after “years of declining births [which shuttered services] and the struggle to recruit staff.” (Becker’s)
- “Nearly 70% of Virginia’s rural hospitals don’t offer maternity care…over 200 rural hospitals have already stopped delivering babies in the past decade.” (Axios)
- “The largest expansion of federally funded medical residency slots in over two decades was supposed to be a major lifeline for rural hospitals struggling with provider shortages. But very few rural hospitals have received the coveted slots so far.” (Axios)
The effect of all this is a shortage of health care services in rural communities – and at a time when it’s needed more than ever. This is because data shows rural America is getting older as the Baby Boom generation ages. An older population tends to have more chronic and more complicated health issues.
Porter’s Five Forces Analysis for Provider Talent in Rural Healthcare
Here’s our take on following Porter’s Five Forces framework to assess the challenge of attracting provider talent in rural communities.
Competitive Rivalry
The traditional rival is the urban healthcare hospital. These facilities are larger and have more opportunities for providers:
- Most academic medical schools are near metropolitan areas;
- Learning and teaching hospitals are usually located near academic institutions;
- New providers tend to take jobs where they were trained – in the city;
- Medicinal research tends to originate with academic institutions; and
- Urban facilities can usually afford to pay providers more.
Bargaining Power of Suppliers
The supply chain impact is more subtle, but it certainly has an economic impact on rural hospitals that affects what they can pay talent. They treat fewer patients, so they don’t have the scale and struggle to pass along costs as they grow.
- Inflation has hit everything including the cost of medical equipment;
- R&D for pharmaceuticals, medicines and other treatments are expensive; and
- Fixed costs for office space and infrastructure have all grown.
Bargaining Power of Buyers
Medicine is hampered by complicated processes for payment. Insurance, benefits managers and all sorts of third parties are involved in the negotiation process and payment. This impacts cash flow and solvency.
- Medicare (the biggest buyer) reimburses just .82 cents for every dollar spent on care;
- Prolonged insurance reimbursement constraints rural hospital cash resources; and
- Rural patients who can’t afford routine health services may delay doctor visits until it’s a crisis – which drives up cost.
Threat of New Entrants
There are a lot of new entrants in medicine. Many of the new entrants are trying to bring new efficiency to the business of medicine.
- Retail chains like CVS and Walgreens are opening clinics for routine care;
- Franchise urgent care clinics have sprouted nationwide;
- Insurance carriers are offering health services and employ thousands of providers; and
- Private equity has made thousands of acquisitions in health care.
Threat of Substitutes
A substitute is anything that might replace the traditional model. One could argue that telehealth is a new entrant. Indeed, Amazon’s push into telehealth is a good example, but we believe these fits better as a substitute that has some potential to replace certain services. This is particularly relevant because telehealth services can reach rural areas from anywhere.
- Telehealth is increasingly accepted post-pandemic;
- Virtual reality (VR) is showing promise, and could augment telehealth; and
- It’s feasible that artificial intelligence (AI) may one day move beyond merely supporting provider decision-making and diagnosis to providing unsupervised care.
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Every healthcare facility will have nuances unique to its location. This influences the weight, emphasis and interpretation of each bullet point.
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