Apparently, the structure of the hospital services industry is assorted subsequent to the fact that there exist different hospital institutions offering identical services but of different quality. Considering that different hospitals particularly in the United States seek to attract as many customers as possible, competition is eminent. Currently, the nature of competition in the hospital services industry in the United States is stiff, because the number and size distribution of the existing hospitals is quite intense (Santerre & Neun, 2010). The degree of product differentiation in the market is currently high. The customers, on the other hand, have adequate information regarding the types of services offered by different firms. Therefore, this makes the competition even stiffer because customers choose the kind of hospitals to go depending on their preferences and the quality of service they offer (Santerre & Neun, 2010).
Currently, it is hard for the new investors to enter into the hospital service industry due to some barriers of entry into this market. Prior to joining the hospital services industry, the newcomers will have to deal with a number of challenges or rather barriers that stem owing the current structure of the hospital services industries. They will have to deal with the excessive capacity of firms present in the industry. They will also face the strict requirements of State certificate of need (CON) laws that technically favor the entrenched firms. Experience problems with economies of scale, learning curve effects, sunk cost and system affiliation. Considering that quite a considerable number of investors have ventured into the hospital services industry, the current capacity is so unfavorable to newcomers, apparently the entrenched firms have capitalized on all the available opportunities.
There exist federal and nonfederal hospitals, in the hospital service industry. The federal hospitals are the ones run under the management of the federal government. Furthermore, hospitals in the service industry can be categorized based on the services they offer. Based on the above, there exist community hospitals, hospitals that offer long-term and general and special services, tuberculosis hospitals and psychiatric hospitals. The community hospitals are the majority; they make up 86% of all, the hospitals, and they also offer services that include general and surgical services, specialty services and predominately short-term stays for patients. The community hospitals are further divided depending on whether they are profit oriented or not. The profit-oriented hospitals comprise 59% of all the community hospitals (Santerre & Neun, 2010). Additionally, the nonprofit hospitals comprise 18% of the community hospitals. (Santerre & Neun, 2010)
Similar to other market structures, the hospital services industry conduct their activities explicitly depending on the situation surrounding the firms involved. In the case of hospital services industry, the not-for-profit hospitals incorporate utility maximization at the expense of profits (Morris & Parkin, 2007). Additionally, these hospitals have the motive of maximizing quantity by essentially expanding sales at the cost of acquiring profits. Graphically, the quantity maximization model establishes hospitals aspiration to generate more output, expand at a higher rate compared to their counterparts. And generate a considerable amount of profit just enough to expand its activities (Morris & Parkin, 2007). In the profit-oriented hospitals, the management works to maximize profit by establishing prices based on the factors affecting the same in the market.
For the hospital services industry firms to cope up with the competitions, they engage more in product differentiation in a way to set the bar above other competitor firms. Additionally, they offer explicit services to their customers to entice them and win their loyalty. Considering that regulations particularly those of State certificate of need (CON) laws create a barrier to entry into the market. The entrenched firms in particular take advantage of these regulations by essentially adhering to the regulations and ordinances (Santerre, 2010). They also influence the formulations of the same to uphold their position in the market.
Apparently, the overall performance of the hospital services industry is typically commendable. In the recent past, an increase in the quality of service delivery has been noted. This can be attributed to the implementations of electronic health records and the increased specialization of hospitals in United States. Additionally, the overall positive performance can be attributed the development in Medicare & Medicaid organizations particularly those offering insurance covers. The general formulation of laws that essentially work to reduce prices of medical services is another crucial factor that fostered the positive development of the hospital services industry.
Morris, S., Devlin, N., & Parkin, D. (2007). Economic analysis in health care. Chichester [u.a.:
Santerre, R. E., & Neun, S. P. (2010). Health economics: Theories, insights, and industry
studies. Mason, Ohio: South-Western, Cengage Learning.