The Business of Health Care in the United States

The Business of Health Care in the United States was originally published on Harvard Online

The health care sector in the United States is one of the most essential and consequential parts of our economy. All of us rely on the health care system throughout our lives. In the US, we have a complex system comprised of providers, payers (health plan providers, insurance companies, etc.), and patients who receive care. Regardless of whether a provider of care is part of a for-profit or not-for-profit institution, their maintenance of business operations, strategy, leadership, and quality of care are essential. Moreover, these organizations need to innovate to be successful and provide optimal care. Opportunities for innovation and ground-breaking research in health care are made possible by strategic financial decisions. By considering health care as a value-creating business, doctors and researchers can save more lives.

The business of health care in the United States is complicated. Leaders in this space must ensure that patients have access to care while continuing to invest in emergent, life-saving innovations. How can we ensure that patients have access to care while still adopting important, life-saving innovations that have the potential to improve health and health care?

Health care services operate differently from other consumer services. As a society, we often believe that human beings have a right to high quality health care. The expectation of availability and high-caliber services generates value for the health care industry.

Value creation and value capture are concepts that are fundamental to business strategy. Cutting edge technology, innovative treatments, and new life-saving medicines are just a few examples of benefits and value created through business transactions. Improving health care access and quality may at times require us to embrace the benefits of competition and behave strategically.

Furthermore, when considering health care as a competitive industry, it’s important to consider the unique challenges it entails such as:

  •  Balancing ledgers and community expectations – How can health care organizations best organize their services and care to meet the needs of their patients and financial situations?
  •  Negotiating with intermediaries, such as insurers – How can organizations attract patients and consider the objectives of health insurance providers?
  •  Responding to increasing public interest and regulation – How can organizations commit to their missions and goals while meeting the expectations of public funders and patients?

Whatever differences may exist in health care, business strategy still applies–and is perhaps even more important than elsewhere. We have to view the institutions and challenges they face in the right context, a topic discussed in depth in our Health Care Strategy course.

The relationship between health care providers and insurers is one of the most commonly debated categories of business strategy in the United States.

Insurance companies are intermediaries between the providers of services and the consumers of those services. The role of these insurers in health care cannot be overstated. These insurers not only finance a great deal of a patient’s care but also often play a role in deciding which care will be covered. 

Consider this example from our Health Care Economics course: Health care is not like broccoli. For many goods and services (such as broccoli!), the cost of the product doesn’t depend on who buys it. In health care, the cost of the product does depend on who’s purchasing it, on whether or not they have insurance, and on what kind of insurance they have.

We see this frequently in the news with the cost of prescription medicine. One patient may pay thousands of dollars for the same medicine that another patient receives for free. The difference in these payments is because of the coverage, or lack thereof, from insurance providers. Insurers and their intermediaries negotiate with pharmaceutical companies to determine how much the insurer and the patient will pay for drugs, ideally settling on an amount that allows all of the stakeholders to capture value.

Health care in the United States is a complex system of patients, payers, and providers. There are over 6,600 biotech companies in the country working on innovations to solve complicated medical problems and save more lives. Similarly, $44 billion was raised globally in health care innovation, a phenomenon explored in our Digital Health course.

Competition among health care providers increases quality, reduces prices, and can increase a patient’s access to cutting-edge, life-saving care.

Health care leaders face choices every day: How can we put our resources to the best possible use to capture value and stay in business? And, if we are to treat our operations like value-creating businesses, what are the determinants of how much value is captured?

Investing in health care is important and vital. But can innovation in health care truly be equal when it hinges on financial transactions? We can work towards a more equitable future by continuing to employ strategic decisions in life-saving care.

By Feld Center
Feld Center