hospital industry - July 12th, 2009

HOSPITAL SECTOR

Major inputs of health care industry

The major inputs of health care industries are as listed below:
I. Hospitals
II Medical insurance
III. Medical software
IV. Health equipments

Overview of health care sector in India:

India’s healthcare sector has made impressive strides in recent years. It has transformed to a US$
17 billion industry and is surging ahead with an annual growth rate of 13% a year. The
healthcare industry in India expected to grow in size to Rs 270,000 core by 2012. The healthcare
industry employs over four million people, which makes it one of the largest service sectors in
the economy of our country.

Healthcare is dependent on the people served; India’s huge population of a billion people
represents a big opportunity. People are spending more on healthcare.

PEST ANALYSIS

Political factors
Most of the healthy nations are also wealthy nations. In India even after 53 years of
independence we all have to accept that government has failed to provide basic healthcare.
Healthcare is the neglected field, only meant for slogans by our politicians.
To improve healthcare facilities we have to provide special assistance to private healthcare
sector. The reality in private healthcare sector is that as an industry it has long gestation period
and so most of the bigger projects fail.
Government has to give certain concessions to private health sector. It can be in the form of free
land for small hospitals at district levels or concession in power tariff. Government later on gets
back revenue in the form of tax when these institutions start making profits. Concessions can be
limited to first five years or so.Maharashtra government is playing an important role in the
development of the hospital sector.
Economic factors
The Indian healthcare is the next boom in the country after the IT euphoria. Setting up hospitals
is not an easy task.
The amount of hospitals in India is very less when compared to the other developed countries.
Even the urban areas do not have enough medical facilities. In the rural areas one village has
only one doctor, who may not be very well qualified.

The other governments of other states should take up a cue from the Maharashtra government, in
setting up similar Joint ventures all over the state with the assistance of World Bank. The World
Bank can make available funds of around Rs 700 crore for state health systems and development
projects.
The people in India do not avail of the hospital facilities very soon. This is because of the high
cost related to it. However this may all change because of the increasing deployment of third
party payment either in the form of Medical and Allied Insurance, or in the form of
reimbursements from the State. This in turn will increase the employment opportunities to many
people.

Social Factors
1. Certain percentages of beds have to be kept for poor people. E.g. in Bombay 20% of beds has
to be kept reserved for poor people.
2. Look after the needs of local poor people.
3. Open counseling and relief centers.
4. Teach hygiene, sanitation among the poor masses.
5. Safe disposal of hospitals wastes like used injection needles, waste blood etc. and taking due
care of environment.
6. Spreading awareness about various diseases through campaigns and free medical check ups.
7. In brief the social aspect of hospitals industry is to see that latest treatment and medicines are
available to people at large at concessional rates or free of cost and that its activities are not only
restricted to rich people.

Technological Factors
We are witnessing Information technologies transforming the way health care shall be delivered.
Innovations such as computer based hospital information systems, medical records; decision
support systems, health information networks, telemedicine, real time image transfers and newer
ways of distributing health information to consumers are beginning to affect the cost, quality,
and accessibility of health care.The technologies today can support vast databases, network
communications, quick distribution and reliable image transfers.
CLASSIFICATION OF HOSPITALS

The classification of Hospitals on the basis of objective, ownership, path and size.

1. On the basis of the OBJECTIVE there are three types:

Teaching cum research for developing medicines and promoting research to improve the quality
of medical aid.
General hospital for treating general ailments.
Special hospitals for specialized services in one or few selected areas.

2. On the basis of the OWNERSHIP, there are four types:

Government hospital, which is owned, managed and controlled by government
Semi-government hospital, which is partially shared by the government.
Voluntary organisations also run hospitals.
Charitable trusts also runs hospitals.

3. On the basis of PATH OF TREATMENT, there are:

Allopath which is the system promoted under the English system.
Ayurved, which is based on the Indian system where herbals are used for preparing medicines.
Unani
Homeopath
Others

4. On the basis of the SIZE, there are:

Teaching hospitals – generally have 500 beds, which can be adjusted in tune with number of
students.
District hospital – generally have 200 beds, which can be raised to 300 in contingencies.
Taluka hospital – generally have 50 beds that can be raised to 100 depending on the requirement.
Primary health centres – generally have 6 beds, which can be raised to 10.

I’S OF HOSPITAL INDUSTRY

Intangibility
Intangibility indicates that the service has no physical attributes and as a result, impossible for
customer to taste, hears, feel or smell before they actually use it. Hospital industry is where the
customers (patients) get treated for physical problems they have. The customers can’t really
realize the service provided until they get well. For this they have to provide good supplementary
services.The only way they can provide tangible clues to make the service provided a success.
For e.g. the hospitals provide extra facilities like television, or then friendly personnel’s can
make a difference.

Inconsistency
It’s also referred to as heterogeneity or variability. The inconsistency occurs largely because of
• Different service providers perform differently on different occasions.
• Interaction between customer and provider may vary from customer to customer.
Standardization is hard to maintain. Every doctor is not the same and may not give the same
diagnosis. Also a patient may not each diagnosis in a different way. Also since the quality of
work done can be determined only after the service is performed the providers have to be well
trained in case of performing the service process.

Inseparability
Inseparability means that the service can not be separated from the creator-seller of the service.
Infact there are many services which are created, delivered and consumed simultaneously
through interaction between customer and service producers.
Here too the customer, i.e. the patient has to come upto the hospital to get the treatment. The
customer has to be present when the service is performed. Infact in case of hospitals the service
is created and delivered simultaneously. The type of service to be provided depends on the
customer.
Inventory
Services can not be easily saved, stored or inventoried. This is all due to the perishable nature of
the services. Also there’s cost also associated with the carrying of inventory. Here the costs are
more subjective and are related to capacity utilisation for e.g. if a doctor is available but there’s
no patient during that period, the fixed cost of the idle physicians salary is a high inventory
carrying cost.
Also due to demand fluctuations the services can not be stored. E.g. there’s a lot of rush at the
dentists clinic in December and January as that’s the time when there are lots of tourist visiting
India.

7.1 - PRODUCT

The service product is an offering of a commercial intent having features of both tangible and
intangible seeking to satisfy new wants and demands of the consumer, hospital industry is action
oriented and there is a lot of interaction with the customers. The service products of the hospitals
have the following features:

• Quality level
Supporting services play an important role having the quality of Medicare. These services, which
include laboratory, blood banks, catering, radiology and laundry, in a true sense determine the
quality of services made available by medical and paramedical personnel.
• Accessories
This is a very good way of segmenting customers. Many hospitals provide additional services
such as catering, laundry, yoga sessions, cafeterias, etc. for the customers who are willing to pay
extra. Hospitals have different wards-General and special. Certain hospitals provide services for
the family members of the patients –when they are not the same-city for accommodating and
catering.
• Packaging
It is the bundling of many services into the core service. E.g. Apollo hospital offers a full
healthcare checkup to the patients.
• Product Line
Hospitals through their services offer many choices to the patient and cover a wide range of
customer needs. For example: Apollo has a dental department, cardiology department etc. and
within the dental department it has dental surgery, root canal, etc.
• Brand name
Hospitals, to differentiate themselves and their services from others use a brand name. The
intangibility factor of the service makes it all-important for the hospitals to do so.

Government Hospitals:
This as a product is fairly good. In some hospitals like J.J. hospital, Mumbai they provide quality
services at cheaper rates and also is technically well equipped. But most of the government
hospitals in spite of government grants do not provide quality service. Hence it is perceived as of
low quality.
Private hospitals:
Private hospitals like Bombay Hospital, Apollo are well equipped and the services provided are
of good quality but they charge huge price for it. Hence the middle-income group perceives them
as elite class hospitals.
7.2 - PLACE
Incase of hospitals the location plays a very important role. The kind of services a hospital is
rendering is also very important for determining the location of the hospital.
Example: Tata memorial hospital specializes in cancer treatment and is located at a center place
unlike other normal hospitals, which you can find all over other places.
In a country like India which is geographically vast and where majority of the population lives in
the rural areas place factor for a hospital plays a very important role. A typical small village or
town may be having small dispensaries but hey will not have super specialty hospitals. For that
they will have to be independent on the hospitals in the urban areas.

7.3 - PEOPLE
Under hospital marketing mix people includes all the people involved in the service providing
process which includes doctors, nurses, supporting staff etc. the earliest and best way of having
control on the quality of people will be by approving professionally sound doctors and other
staff.
Hospital is a place where small activity undertaken can be a matter of life and death, so the
people factor is very important.
Under hospital marketing a right person for the right job has to be appointed and they should be
adaptable possess versatility. The patients in the hospitals are already suffering from trauma,
which has to be understood by the doctors and staff. The people of the hospital should be
constantly motivated to give best of their effort.
Government Hospital:
In Indian government hospitals except a few almost all the hospitals and their personnel hardly
find the behavioral dimensions significant. Hence even if the patients get the correct treatment
they are often dissatisfied with the behavioral pattern of the staff.
Private Hospital:
They have pleasing manners and behave softly with the patients. They provide timely care and
are present always in times of need.

7.4 - PROCESS
Process generally forms the different task that are performed by the hospital. The process factor
is mainly dependant on the size of the hospital and the kind of service it is offering.
Government Hospital:
There is lot of paper work involved in the whole process. Hence the whole process from
admission to discharge is tedious.
Private Hospital:
With the advent of information Systems in hospitals all the paper work is reduced and the
process is smooth and fast.

7.5 - PHYSICAL EVIDENCE

It does not play an important role in the health care services, as the core benefit the customer
seeks is proper diagnosis and proper cure of the problem.
Physical evidence can be in the form of smart buildings, logos, mascots etc a smart building
infrastructure indicates that the hospitals can take care of all needs of the patients.

Government Hospital:
Government hospitals have a huge building, but are not properly maintained; hence it creates a
bad impression among its patients that the hospital is unhygienic.
Private Hospital:
Private hospital like Bombay Hospital has got a smart building, which helps, in developing the
minds of the people, the impression that it is the safest option among the different hospitals
available to the people.

7.6 - PROMOTION

Hospitals for promotions use either advertisements or P.R or both after taking in to consideration
the target customers, media type, budget and the sales promotion. The health care field has
become very competitive. Although one fourth of our population stays in urban India, three
fourth of the total doctors have engaged themselves in this part. Word of mouth plays an
important role during information acquisition stage of the customers, as there are no objective
performance measures to judge the various alternatives available to them. Therefore satisfied
past patients of the hospital can bring more number of patients to that hospital than a number of
advertisements.
In a competitive market place the images of the firms will affect their competitive standing. One
factor that is likely to have significant impact of the health care scene is the growing hospital
chains such as Apollo, Birla health centers, etc. artificial heart transplants and other complex
operations although are few in number and generate a small potion of the total revenue, they help
in generating word of mouth which health care providers are actually interested. Many of these
companies are spending a lot in corporate advertising for image building.

Government Hospital:
They do not undertake major promotion programmes and hence are not very popular among the
masses.
Private Hospital:
They undertake extensive promotion. Along with this they undertake massive complex
operations which if successful create a good brand value of the hospitals.

7.7 - PRICE

Pricing in Government / Trust Hospitals

In the Indian setting where a number of persons are below poverty line it is challenging task to
formulate a pricing strategy, which is successful in serving the social interests and generating
profits. Hospitals need to invest a lot in sophisticated equipment and technologies to improve the
quality of medical aid. Even the affluent sections of the societies expect; low cost services form
the social institutions in general and hospitals in particular the task of services innovative in line
with latest developments in field of physical sciences is difficult. It is due to this that the most
government hospitals are in deplorable condition. The ex-checker finds it difficult to finance
hospitals and further, the government regulations also close doors foe generating finance from
internal sources. The ultimate sufferers are the society and specially the poorer sections. Since
the affluent sections have the options to avail the expensive medical services made available by
the hospitals. The societal marketing principles make can advocacy in favor of protecting the
public interests but it not meant that the hospitals have a uniform pricing/fee structure for all the
users. The fee strategy for all the hospitals should be in proportion to the incomes of users, which
would engineer a sound foundation for qualitative or quantitative improvements.
For social institutions like government hospitals a discriminatory fee structure is preferred since
it provides even the weaker sections of society, an opportunity to avail the quality medical
services. This enables hospitals to innovate services to keep pace with the latest developments in
the medical sciences.

1. 2.

3. 4.

Pricing in Private Hospitals

• Cost based pricing: Price = Direct costs + overhead costs + profit margin. In hospital services,
this method is cumbersome because the tracking and identification of costs are difficult. Fee for
services, however can be used by doctors. Notwithstanding, some hospitals in the private sector
follow this method.

• Competition based pricing: using other price as an anchor for the hospitals price, heterogeneity
of service across and within providers makes the approach complicated.

• Demand based pricing: Cost based pricing and competition based pricing do not consider
certain criteria. Demand based pricing involves price setting consistent with customer perception
of value. Prices are based on what will par for the services provided.

Perceived Value
What customer perceive about value Service offered accordingly
Value is low price Could be offered on weekends
Health spas in off season
Differentiated as incentives
Free consultation by dentist/doctors
Value is everything I want in service Prestige pricing-health club
Bombay hospitals of Arabs (value is high quality)
Value is the quality I get for the price I pay Market segmentation pricing based on affordability
to pay, value is affordable quality
Value is all that I get for what I give Value is getting excellent treatment in shortest possible time
e.g. treatment in Bombay hospital, Breach Candy, Jaslok.

Perceived value is the customers overall assessment of the utility of a service based on
perception of what is received and what is given.

Differential pricing in the hospital industry happens

• Externally (between 2 hospitals)
• Internally (within a hospital)
Externally:
Between two hospitals, even to provide the same treatment, the prices differ. Even though the
operation to be done might be the same, pricing differs due to the kind of service provided pre
and post operation. Cost is associated with the kind of service you provide, and so the hospital is
bound to charge the patient for it.
Internally:
There is a price differentiation even between the two wards of the same hospital. There is
difference between the general ward and special ward where the rooms are air-conditioned and
extra services are provided. Thus the pricing would be different. Even the doctors visiting
fees/consultation charges are different. Sometimes if the patient is very poor then the doctor may
halve his fees.

In a hospital the process is divided into the following phases:

 The joining phase,

 The intensive consumption phase, and
 The detachment phase and feedback.

Now we will be considering the process blueprint of an Emergency / Police Case

Price and quality
‘Price is the indicator of service quality’. It is an attraction as well as a repellent variable.
Customers use price as indicator of quality depends on many factors including other information
available to him.
When service cues to quality are readily accessible when brand names provide evidence of
reputation of hospital, customer may use their cues instead of price. Otherwise they think that the
price is the best indicator of quality. It should convey appropriate signal regarding quality.
Pricing too low can lead to inaccurate inferences about the quality, pricing too high can set
expectations that may be too difficult to match in the delivery. Price is used to judged quality
because of the experience and credence properties of services as opposed to goods. Excellent
hospitals like Mayo Clinic, Massachusetts General, TMH, and Sloan Kettering are a mega
brands. They have a great brand reputation and can charge a premium based on sheer perception
of quality because of socio-economic issues, poverty levels, government owned hospitals cannot
think of profit objectives. It is a social marketing process of enhancing the well being of
individuals.
Off late however the government has proposed to state government that those who are above
poverty line should pay the cost for treatment. In private hospitals, where the profit is most
important objective, premium can be charged. The price paid by customers depends on how he
perceives the quality of service. E.g. Bombay hospital, Breach Candy and Jaslok they have a
high reputation for quality services.

THE SERVICE MARKETING TRIANGLE

Company: Here, the hospital is the company that dreams up an idea of service offering
(treatment) which will satisfy the customer’s (patient’s) expectations (of getting cured).
Customer: The patient who seeks to get cured is the customer for the hospital as he is the one
who avails the service and pays for it.
Provider: Doctor, the inseparable part of the hospital is the provider, as he is the one who comes
in direct contact with the patient. The reputation of the hospital is directly in the hands of the
doctor. A satisfied patient is a very important word of mouth promotion for the organization.