Since the past quarter century all chief hospitals and physician groups have vigorously developed competitive health systems. Their convincing motivation has been fueled by the onslaught of managed care. Successful initiatives have been driven by mutual strategic system planning, effective management, and enhanced quality of care. Key words: market evolution, vertical integration, health system development, consumerism, managed care. For most of the past century, the United States had a history of gradual health care business development in all aspects of delivery. The United States thrived as an open medical market not overly burdened by the principles of supply, demand, and price. Major hospitals had exceptional success in relatively non-competitive markets. The same was true of the physician community that had few incentives for group practice formation and maintained strong controls on fee-for-service operations. (Brennan, Caron Primas, (1995)
This all started to change considerably throughout the past quarter century with the ambush of managed care and the strategic logic of health system development. Market forces rapidly evolved in ways that sought to control health care costs, secure prospective payments, control utilization, enhance quality, and manage overall care delivery.(Brennan, Caron Primas, (1995)) Financial controls and incentives were put into place to alter the service delivery priorities of hospitals, physicians, and other providers. These trends were underscored by organized businesses and regional group associations, which acted as catalysts in reshaping supply and demand in the health care industry. Larger entities gained power and control over consumer choices in local markets. Many had national organizational connections and established priorities for managed care development and service delivery standards. Smaller businesses and government entities joined them in seeking to reduce overall health care costs and simplify managed care delivery. (Brennan, Caron Primas, (1995))
Acting in reply to all of these trends, main hospitals pursued initiatives to form full service health systems and develop their managed care capabilities...................
