Healthcare Intermediaries in Electronic Markets: Performance and Choice of Market Entry Mode

By Klein, Richard; Wareham, Jonathan | Journal of Electronic Commerce Research, November 1, 2008 | Go to article overview

Healthcare Intermediaries in Electronic Markets: Performance and Choice of Market Entry Mode


Klein, Richard, Wareham, Jonathan, Journal of Electronic Commerce Research


ABSTRACT

Operational inefficiencies as well as disparate standards and administrative processes plague the U.S. healthcare industry despite its size and significance. In response, a novel breed of electronic healthcare intermediaries has evolved aiding providers, patients, and other market participants in negotiating more consistent and efficient operations. Intermediation theory posits that intermediaries engage in four distinct functional roles, specifically: (1) information management, (2) logistics management, (3) transaction securitization, and (4) insurance/market making and liquidity management. Employing data from 58 U.S. electronic healthcare intermediaries this research examines how the provision of these functions relates to firm performance and choice of electronic market entry mode. We find the provision of logistics management and, to a greater extent, insurance/market making and liquidity management to be associated with greater firm performance. In addition, we see firms engaged in insurance/market making and liquidity management activities demonstrate a propensity for direct entry and acquisitions in the pursuit of electronic market initiatives. By contrast, healthcare intermediaries offering transaction securitization services employ direct entry and joint ventures. We conclude by reflecting on the significance of these findings for the management of intermediaries within and outside of the healthcare industry.

Keywords: entry-mode, healthcare, intermediaries, performance

1. Introduction

The healthcare industry is one of the most significant sectors of the U.S. economy. The Department of Health and Human Services [2008] reports healthcare comprised some 16% of gross national product for 2006, with a total expenditure of some $1.9 trillion up by 7.9% over 2005 at over three times the rate of inflation. These growing costs have focused attention on expense reduction and improved efficiency within the overall industry [Porter and Teisberg 2004]. Since the mid 1990s, healthcare has seen ever increasing numbers of caps on reimbursements from plans, decreases in fees for service plans, declines in staff models, reductions in provider reimbursements, and growing emphasis on reducing overall delivery costs [Allen and Sullivan 2006; Fitzpatrick 2006]. More recently, managed care organizations have faced consumer dissatisfaction and demands for greater access to provider networks, driven in part by growing Internet usage and the subsequent availability of medical content through Web-based portals. As a result, providers are being pushed to increase the quality of service afforded to consumers and improve operating efficiencies to achieve cost reductions.

As organizations struggle to meet marketplace demands and ever growing legislative requirements, such as the Healthcare Insurance Portability and Accountability Act (HIPAA) mandates [1996], Internet-based electronic commerce initiatives provide for novel opportunities to address inefficiencies and facilitate the reduction of overhead costs. One key area of potential savings lies within administration [Porter and Teisberg 2004]. The healthcare industry is information intensive, completing an estimated 30 billion transactions each year utilizing paper, phone, and/or facsimile [Shortliffe 2005]. This industry has traditionally embraced administrative technological innovations slowly [Raghupathi and Tan 2002] lagging as many as 10 to 15 years behind others in information technology (IT) adoption [Goldschmidt 2005]. In response, Internet-based healthcare intermediaries, borrowing business-level strategies from other sectors [Fruhling and Digm 2000], have emerged to leverage advances in information and communications technologies (ICT) to help disparate healthcare organizations of all sizes connect and realize efficiencies in their management of information, finances, and physical logistics.

Consider Global Health Exchange (www. …

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