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In Phase One of the global economy, international marketing of goods was paramount. In Phase Two, the marketing of services is becoming an increasingly important force. And one of the industries best positioned to profit from the globalization of services is U.S. health care. For years, a small number of providers with international reputations has catered to foreign patients. But the competition for this potentially lucrative market is on the verge of exploding. It's been estimated that the number of foreign patients visiting the U.S. for health care will quadruple in the next few years. How is this new global phenomenon unfolding, who are the potential players in the market, and what obstacles and opportunities exist? Is it so preposterous to imagine Egyptians undergoing heart bypasses in Boston? The fact is, it's already starting to happen.

Academic health center (AHC) hospitals and other major teaching hospitals have funded a portion of their academic missions through patient care revenues. Using all-payer state discharge data, this DataWatch presents information on how these institutions are being affected by market changes. Although AHCs are not as successful as other hospitals are in attracting managed care patients, competitive pressures had not eroded AHCs' financial status as of 1994. However, increasing enrollment in managed care and potential changes in both Medicare and Medicaid suggest that pressure on the financing of these institutions' social missions will continue to grow over time.

With advancing technology and the quest for delineating the true cost of a procedure or diagnostic test, cost accounting techniques are being re-explored in the health care setting. Activity-based costing (ABC), adopted from other businesses, is one such example that has applications in the health industry. The purpose of this paper is to enhance the understanding of health care costs among physician providers, emphasizing a new approach--activity-based costing.

Hospitals across the country are busy adding services and making investments in new facilities and renovations to serve the exploding senior-services market, which has estimated annual revenues of more than $124 billion when the assisted-living, skilled-nursing and home-care industries are combined. MODERN HEALTHCARE looks at what providers in three diverse major markets are doing to stay competitive.

Who would have guessed that managed care would dominate the health care industry in the final two decades of the millennium? That physicians would be joining labor unions? Or that they would be going back to school to become Fellows of the American College of Physician Executives? To find out what may be in store for health care in America five to 10 years hence, The Physician Executive asked nine health care experts to participate in a two-part panel discussion. Here's what they see ahead in managed care, information technology, and biotechnology. Part 2 will appear in the July/August Issue of The Physician Executive.

What are the five stages of managed care? From "Can't Spell HMO" to Managed Cooperation, each stage has predictable market events and strategic responses. At every stage, a new set of relationships evolves among the major players, including physicians and hospitals, HMOs and insurers, and employers and government. At each higher level of managed care penetration, the players restructure their relationships as they seek to control their market and their destiny.

Other than hold on tight, how does a health care system successfully weather the turbulent conditions facing the industry? This article focuses on key drivers in the three main segments of the health care market: employer-based, commercial/ERISA, and Medicare and Medicaid. Effectively managing the dynamics within these markets will be vital to a delivery system's success and its ability to withstand the forces of change. Given the market changes that are occurring, how does an academic medical center, emerging hospital-sponsored IDS, or a large physician clinic trying to develop a system determine the necessary components and structure? What kind of system will work best? The considerations are numerous and explored in this article.

Following the demise of comprehensive health care reform in 1994, some reformers are seeking comfort in the successful "incremental" strategy for enacting Medicare that emerged out of President Harry Truman's failed campaign for national health insurance in 1948-50. But despite similarities between the Truman and Clinton health security efforts, overall contexts of government and politics are much less hospitable to governmentally funded reforms today than they were after Truman's defeat. Back then, market transformations and political dynamics were both pushing toward expanded access to health services and insurance coverage. Today, by contrast, both push in the opposite direction. The private insurance market is fragmenting, federal budgetary constraints stymie new programs, and the deficit dominates debate over existing programs. Equally important, a stable pro-reform coalition like that of Truman's day has yet to emerge, while a new and fiercely conservative corps of Republicans is championing coherent programmatic alternatives based on antigovernment premises. Although passage of the Kassebaum-Kennedy health insurance reform bill in 1996 unleashed a wave of enthusiasm about incremental health care reform, formidable political, fiscal, and technical obstacles continue to stand in the way of even relatively modest incremental solutions.

Deloitte & Touche LLP, in conjunction with VHA, Inc., conducts an annual environmental assessment of trends affecting the health care industry. The annual study assesses the impact of these trends on both providers and purchasers. This article focuses on specific trends from our current study that suggest the need for significant change in the way ambulatory care is delivered. The article examines 10 key trends in overview, takes a closer look at four critical areas with special impact on ambulatory care, and concludes with a discussion of how the industry is responding.

The current trend toward the invasion of commerce into medical care, an arena formerly under the exclusive purview of physicians, is seen by the authors as an epic clash of cultures between commercial and professional traditions in the United States. Both have contributed to US society for centuries; both have much to offer in strengthening medical care and reducing costs. At the same time, this invasion by commercialism of an arena formerly governed by professionalism poses severe hazards to the care of the sick and the welfare of communities: the health of the public and the public health. Some of these hazards are briefly listed and reviewed, together with a brief outline of standards that might be established nationally to abate these hazards. A national agency in the private sector is proposed, the National Council on Medical Care, to set standards and provide an approval mechanism that would then be the basis for state enforcement through licensing. Two models for such an initiative are outlined, one based on the National Academy of Sciences as the initiating force, and the other on an initiative provided by a consortium of national charitable foundations interested in health policy. In both cases, wide support from the national foundations would be essential. In the case of the academy model, some government funds might also be available without loss of the freedom of a private-sector initiative. Some operational options for such a national council, its membership, and the conduct of its affairs are briefly outlined as a basis for further discussion.

This study examines buyers and nonbuyers of long-term care insurance. The findings show that consumers purchased more comprehensive products in 1994-95 than they did in 1990, and that they appeared to get better value for the premium dollar. While annual sales are increasing at a rate of 25%, the market for long-term care insurance remains small, and many of the market barriers that existed four to five years ago persist today. These include confusion about public coverage, concerns about the adequacy of products and how to choose them, policy cost, and inadequate information about potential risk for needing long-term care. As states target limited public funds toward the indigent, older middle-class people will have to deal with exposure to risk for long-term care, and insurance may be one way to minimize this exposure.

Provision of hospital uncompensated care is generally assumed to be adversely affected as increased healthcare competition decreases demand for compensated hospital services. Economic theory, however, suggests the question is more complex. Non-profit hospitals are assumed in this paper to maximize utility as a function of uncompensated care, subject to the constraint that revenues cover costs. For-profit hospitals, in contrast, are assumed to maximize profit while recognizing that failure to meet community expectations regarding provision of uncompensated care could negatively impact profits. Therefore, for-profit hospital supply of uncompensated care focuses on balancing the hospital's marginal costs and marginal benefits. These models predict that non-profit hospitals will respond to increased competition by reducing the supply of uncompensated care. In contrast, for-profit hospitals will increase the supply of uncompensated care when market demand decreases since the concurrent decrease in compensated care reduces the marginal cost of producing uncompensated care. The models also predict that for-profit hospitals will respond to changes in community expectations regarding the provision of uncompensated care.

Managed care organizations often cannot be easily differentiated on the basis of organizational characteristics. Even the provider networks that competing health plans use may be virtually identical in response to employee pressure for broad provider choice. In markets with many undifferentiated networks, current approaches to quality improvement may be more intrusive than helpful. Health plans should delegate quality improvement activities to constituent provider groups and need to explore collaborative approaches to quality improvement. Although many are uncomfortable with using financial incentives to influence professional behavior, the use of capitation to restrain costs is inevitable. Instead of arbitrarily limiting financial incentives, consumers should be protected in market-compatible ways. In particular, expansive disclosure requirements and risk adjustment of both premiums and capitation payments are recommended as approaches that will reward high-quality care.

In recent years, the health care industry has experienced considerable growth in organizations that are national in focus-organizations that operate in multiple markets not all clustered in one geographic region. This study summarizes information on trends in ownership of various types of health care organizations (i.e., HMOs, PPOs, hospitals, physician practices) for purposes of assessing the growth rate of national companies and the overall significance of this phenomenon. This is followed by a synthesis of factors that encourage or impede the growth of national managed care companies, the sector that has exhibited the most pronounced growth of national companies. We discuss likely future directions and the degree to which national companies may enjoy long-term competitive advantages.

The development of managed care is described as an unexpected product of competition between public and private purchasers of health care. Managed care is a series of purchasing techniques that employers have applied to reduce the cost of their employees' health benefits. Its most significant use has been as a device for bargaining with individual health care providers by encouraging or requiring employees to purchase health care services from a select set of providers. Selective contracting has broken a 40-year-old barrier to price competition among health care providers, who have responded to this negotiating tactic by forming or joining larger organizational units to strengthen their bargaining power. Although the so-called managed care revolution has reduced the rate of increase in health care costs by creating a more competitive price environment, it is simply a start toward a more effective health care market. It is very much a work in progress that will affect and be affected by both political and market changes occurring over the remainder of this century.

Since current public officials lack the courage and political will to significantly raise payroll taxes or constrain Social Security, Medicare, and Medicaid benefits, it can be expected that long-term deficit spending will continue, effecting a predictable series of events that have strong, negative ramifications for the American health care system. The author suggests modifications to how our nation's health system should be organized and financed in order to avert these dire predictions.

Although several studies have examined the trend toward the decreasing differentiation of non-profit from for-profit general hospitals, few have focused on freestanding psychiatric hospitals. This study updates previous research that used psychiatric hospital data from calendar year 1986 with data from 1990. In addition, a preliminary examination of the influence of market competition on the behavior of non-profit psychiatric facilities was conducted. Results confirm a converging trend between for-profit and non-profit facilities that is related, in part, to competition.

Reports that the US health care system has been shifting since the 1960s to a competitive environment with many new and innovative organizational forms. Describes the nature of the competitive environment for health care and some of the basic forms of the new organizational arrangements. Explores some of the implications for managing successful health care organizations by the understanding of interorganizational linkages in the health care industry and a partnership approach to marketing and management.

Can Americans expect the same gridlock and pork between now and the 21st Century? What are the possible directions that the United States can move in regarding health care reform and the long-term financing of health entitlement programs? Here, the author offers a snapshot of current politics and some predictions for the next four years. And explores the question: Are Americans willing to make the necessary sacrifices for future generations to profit by the significant changes needed by entitlement and health reform, or will it be business as usual? America's centrist perspective was recently reinforced by the 1996 election, suggesting that no major innovations in entitlement or in the health system should be anticipated in the next four years.

New Zealand has experienced radical public sector restructuring over the last decade, including the corporatization and subsequent privatization of state trading units and the reform of social services, including health. In 1991 a new government proposed and then implemented more radical health reforms, which included the corporatization of state-owned provider units (23 crown health enterprises) and the creation of an internal market with purchasers (four regional health authorities) separated from providers. Interviews with chief executives of crown health enterprises suggest that provider units are seeking a wider role than envisaged, with an interest in the health needs of their populations and undertaking some purchasing on their behalf. The purchasers see a narrower role for crown health enterprises. Both purchasers and providers report that competition between providers is not particularly helpful (and with only limited opportunities for this to occur), with collaboration being seen as more useful. Providers are critical of purchasers ability to adopt a strategic approach. Unlike other aspects of New Zealand's restructuring, there appears to be a retreat from some of the more radical facets of the reforms, reflecting both the resistance of the health sector and a newly uncertain political climate.

Socially amoral economic forces now drive health system change. The authors, assisted by a panel of experts on employers, health plans, providers, and consumers, discuss current drivers such as (1) employers' price-focused purchasing, without good quality/value measures; (2) health plans' growing successes and market clout; (3) providers declining prospects and fears about their future; and (4) consumers' worries about less choice. Future influences will include Medicare reforms, better information, and pro-consumer regulation of managed care, as well as rising social distress. The health system's future is now open for resolution in an evolving, imperfect market.

Most articles on the future of health care are by professionals involved in the delivery of health care services. This article is unique in that trends are examined from the perspective of the public and purchasers of care. The authors focus on 12 trends that are or will be affecting the industry, and on the sometimes unintended consequences and new conflicts that may develop.

The healthcare industry is buying into the benefits of being big. Merger and acquisition deals hit a pace of 2.4 per day among all types of providers during the first half of the year. But critics believe the time has come to rein in the rampant consolidation.

The author investigated the range of competitive options available for academic faculty practices and their associated academic medical centers located in health care markets with relatively limited development of managed care plans. Using personal and telephone interviews, he studied two such markets in 1994, one in Philadelphia, Pennsylvania, and one in Atlanta, Georgia. Representatives of faculty practices in these cities were asked to assess whether their practices would be attractive or unattractive for contracting with managed care providers; eight attributes of faculty practices (e.g., specialist physicians' availability within the group; prices of services offered by the group) were used as criteria. Similarly, representatives of local managed care plans were asked to use the same criteria to indicate what they would consider attractive or not in their local faculty practices when considering a physician services contract with such a practice. In both markets, the image of the academic medical center was generally considered to be a strong asset to the faculty practices. But all sectors also agreed that the nature of practices' utilization management and what was seen as their excessive use of resources in the academic environment were causes for concern. Also, the difference between the practice patterns of managed care physicians and academic faculty physicians was regarded as a cultural one in which traditional patterns of academic training are considered inimical to fostering the prudent management of patients. The findings strongly suggest that opportunities for faculty practices to negotiate with managed care plans and help shape their areas' future health care environments still exist in developing markets throughout the United States. But even those practices with such opportunities cannot succeed without significant internal restructuring to transform themselves to successfully deal with the new world of managed care.

Developing or joining multispecialty group practices is emerging as a premier competitive strategy for physicians. "Physicians and Group Practice: Balancing Autonomy with Market Reality" explores the driving forces causing the restructure of physician services into multispecialty group practices. The growth and characteristics of group practices are outlined as well as the advantages and trade-offs inherent in a group practice.

This article reviews recent reforms geared to creating internal markets in the Swedish health-care sector. The main purpose is to describe driving forces behind reforms, and to analyse the limitations of reforms oriented towards internal markets within a monopolistic integrated health-care model. The principal part of the article is devoted to a discussion of incentives within Swedish county councils, and of how these incentives have influenced reforms in the direction of more choices for consumers and a separation between purchasers and providers. It is argued that the current incentives, in combination with criticism against county council activities in the early 1990's, account for the present inconsistencies as regards reforms. Furthermore, the article maintains that a weak form of separation between purchasers and providers will lead to distorted incentives, restricting innovative behaviour and structural change. In conclusion, the process of reforming the Swedish monopolistic integrated health-care model in the direction of some form of internal market is said to rest on shaky ground.