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Because of rhe current competitive environment. health care providers (hospitals, HMOs, physicians, and others) are constantly searching for better products and better means for delivering them. The health care product is often loosely defined as a service. The authors develop a more precise definition of the health care product, product line, and product mix. A bundle-of-elements concept is presented for the health care product. These conceptualizations help to address how health care providers can segment their market aod position, promote, and price their products. Though the authors focus on hospitals, the concepts and procedures developed are applicable to other health care organizations.
Rising health care costs have led many payors such as government and business to pressure providers to keep costs down. Medicare has adopted the prospective payment system (PPS) whereby the reimbursement and length of stay are predetermined by the diagnosis. Many other third-party payors, such as insurance companies, HMOs, and PPOs, have either adopted the PPS or are in the process of doing so. The direct impact of these changes on hospitals has been twofold: (1) a decreasing census resulting from the length of stay constraints and (2) shrinking revenues due to fixed reimbursement. These effects, in turn, have resulted in considerable competition among hospitals. Additionally, hospitals now face competition from other health care delivery organizations such as urgicenters, surgicenters, and outpatient clinics.
In the face of acute competition, hospitals are now adopting the marketing principles developed for consumer and industrial products. However, because health care providers offer products that are markedly different from consumer and industrial products, the application of marketing principles to health care products requires special consideration. We use the term "health care products" to refer to products offered by health care providers such as hospitals, HMOs, and physicians. Excluded from the definition of the health care product are medical drugs and equipment.
It has been suggested that the health care product is, in essence, a service (Bushman and Cooper 1980); hence, the concepts and principles developed for services marketing ought to be applicable to health care. We argue that the health care product is more complex than other consumer services. As Bowers and Taylor (1990) note, there is confusion about what constitutes a product (Fetter and Freeman 1986;...