Bus 119B

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Bus 119B

• Fall 08
• November 3, 2008

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Agenda

• First 2 hours
• Section 2 Overview -- Review outline, diagram
  example, writing example
• Section 3 Analysis -- Value Chain
• Tech Report Feedback -- Due on Fri, Nov 7
• Last Hour
• Lands End

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Industry Hospital Industry in Roanoke VA
Threat of substitute products and services Local
imaging center, independent clinics
Power of suppliers contractors
Power of buyersconsumersbusinesses Insurance
cos Independent clinics
Rivalry AmongExisting Competitors Carillon, HC1
Barriers to Entry Control of distributiongeograph
ic location USDoJ lossinfrastructure
costsalmost monopolystrong community ties
(large employer, market clout)
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Rivalry Among Existing Competitors

• Detailed Diagram -- Answer 2 Porter Questions
• Are there many competitors of equivalent size and
  power in the industry?
• No, Carillon has almost monopoly power in the
  area
• Does the industry's product or service lack
  differentiation and have low switching costs?
• No, the industrys products are highly
  differentiated (long term personal relationship
  with a doctor) and has high switching costs (once
  a relationship is established, records, personal
  comfort prevents switching, plus customers in the
  area have to contend with longer commutes to get
  to the competitor hospital offered by HCA)

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Rivalry Among Existing Competitors -- Writeup S
2.2.2

• Rivalry among competitors in the Roanoke VA
  hospital industry is low. There is a near
  monopoly by the leading provider, Carillon Health
  System. With multiple hospitals employing over
  10,000 local residents and 1 billion in assets,
  Carillon dominates not just the hospital industry
  but practically the entire local economy. It
  cites Lewis-Gale Medical center in a nearby town
  as a competitor but this single hospital is no
  match in size or power for Carillons system in
  Roanoke Virginia. Carillons clout has resulted
  in enormous upward pressure on medical and
  insurance costs in the area. Roanokes health
  insurance rates have gone from the lowest in the
  state to the highest, since Carillon set up shop
  in the area (Carreyrou, 2008).
• Challenges to Carillons dominance are also
  mitigated by the highly differentiated services
  it provides and the high switching costs for
  customers. Patients form strong relationships
  with the individuals and organizations that
  provide their medical care -- essential for
  building and maintaining the trust that is
  inherent in these relationships. These strong
  relationships make it difficult for patients to
  switch to other providers, thus resulting in high
  switching costs. Lastly, the alternative
  provider of full-service medical care is
  geographically inconvenient for residents of
  Roanoke -- adding to the high cost of switching
  to another provider.
• Carreyrou, J. (2008, August 28). Nonprofit
  hospitals flex pricing power in Roanoke, VA.
  Carillons fees exceed those of competitors the
  4727 Colonoscopy. Wall Street Journal, A1.

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Rivalry Among Existing Competitors -- Effect of
Technology S 2.3

• The introduction of Business Intelligence (BI)
  software and practices by Carillon will further
  solidify its almost monopoly position in Roanoke
  VA by increasing switching costs for its
  customers. With BI, Carillon will be able to
  mine patient data -- within limits of the law --
  to ensure that it is providing the best value to
  its patients, customized according to patient
  preferences and past behavior. For example,
  patients that tend to miss follow up appointments
  may be flagged and given incentives to come in
  for followups -- e.g. a discount on co-pays. In
  the long run, this will reduce costs for
  Carillon, since patients who come in for
  follow-up care are less likely to need high cost
  acute care in the future. More importantly, a
  customer that is provided with customized care
  will be less likely to switch to other providers.
  Once a customer has a well matched profile at
  Carillon, it will be very difficult for another
  hospital to offer this level of personalization
  without requiring the customer to exert much
  effort in providing the necessary data to the
  rival hospital. Hence, BI lowers even further
  the level of rivalry in the Roanoke VA hospitla
  industry.