Monday, March 10, 2008

Barriers to entry? Few.

Though the costs associated with starting and operating a medical practice have escalated rapidly over the years, in many ways the times and present environment have actually made it easier to start-up on your own. Why is this? The answer is that there are now fewer barriers to entrance into the market place.

Any industry has businesses that have been first to market, even Google within the search engine industry. Remember Netscape? In any marketplace, the established businesses will resist the newer ones from entering and competing. Medicine is no different. Since there is no longer a frontier, the possibility of being first in a community is essentially zero. Fortunately, in today's market, this is no longer as important as it once was. While far from being easy, a solo urologist or ENT or PMD can open a new office in an established, mature community and still survive and even thrive.

Patients come to doctors today by 4 ways: referrals from other providers, word of mouth referrals, insurance rosters, and external marketing efforts, such as advertising, yellowbook, etc. In the past, professional referrals were critical to a specialist's survival. Referring doctors had all the power and could make or break a new doctor. This is no longer the case. Insurance companies, whether intentionally or not, have made this happen.

Here is how it works today. Many patients may feel, for example, that if they need to see an ENT specialist, and they can turn to their insurance company list first. Even those who do turn to their primary initially will then turn to the insurance list. It is the rare patient that will go with a professional recommendation without first verifying that the specialist is "in-network." In addition, patients feel that the insurance company has done the ground work in verifying the doctor's credentials and that if he is "on the list" he must be OK. And for the most part this is true.

What this means is that essentially, a new entrant into the marketplace can have the same standing in the eyes of patients as an established doctor or group simply by being on the same insurance panel. The implications of this for the medical market place are nothing short of incredible—in both the good and bad sense of the word.

To a new doctor in a community, it means they can make a living--not a great one but a good one—simply by contracting with insurance plans.

To an established doctor or group, it means that there is little they can do to prevent competition and an erosion of their own advantages.

To an insurance company, this means that few doctors can ever become so powerful that they can increase their fees unilaterally.

Perhaps this is another paradigm shift in the business of medicine.

Again, just my observation.

The IU.