Hospital Management from Service Sector Perspective Ashvini Arun Vora
Chapter Notes

Save Clear

Introduction to Healthcare SectorChapter 1

“If a man is called to be a
Street Sweeper,
He should sweep streets
even as Michelangelo painted
or Beethoven composed music
or Shakespeare wrote poetry.
He should sweep streets so well
that all hosts of heaven and earth
will pause to say, here lived
a great street sweeper who did
job well”
— Martin Luther King
The service sector is going through almost revolutionary change. New services are continually being launched to satisfy our existing needs. Size of service sector is increasing in almost all economies around the world. It has fuelled worldwide economic growth. In India, the service industry which was contributing to just 35% of the Indian economy in the 1980s, has grown substantially in the last two decades. Out of all service sectors healthcare sector shows phenomenal growth.
Healthcare is regarded as the most important and fast growing sector. It has reached Rs. 4.9 trillion in 2012. Health is wealth. Health of people has social value. Every citizen should get the best health services at affordable price. Healthcare services were in past regarded as the philanthropic activity. There was a time when healthcare meant only hospitals. In developing countries like India, it was provided mainly by the government. Considering healthcare a commercial industry was beyond imagination. But now that industry 2has become profit making activity. It is running like a corporate house. It encompasses of much broader meaning. It is the people centric or labor intensive industry. People view hospital as a place where sick and injured receives medical help. But, it is only the primary mission of that industry. Other important secondary missions are education of physicians, paramedical personnel and prevention of diseases and promotion of health standards, awareness and clinical research. It embraces many other allied services diagnostic services, pathological labs, physiotherapy centers, ambulance services, fitness centers, health pain clinics, etc. So it is also called corporate entity. Initially, there was resistance to corporatization of healthcare as medical services traditionally were considered sacred and a doctor was next to God. So many people believe that commercialization would lower the dignity of such sacred profession.
Health is clearly not the mere absence of disease. Good health confers on a person or groups freedom from illness. The health of population is a distinct key issue in public policy discourse in every mature society. Healthcare covers not merely medical care but also aspects of preventive care, curative care too. Health is better defined as indispensable basis for a person's sense of well-being. Health status of any population is not only the record of mortality and its mobility profile but also based on attitude towards self-care. Perception of the people changed due to Cultural Revolution.
Three criteria can be suggested:
  • First, universal access, access to an adequate level and access without excessive burden
  • Second, fair distribution of financial costs for access and fair distribution of burden in rendering care and
  • Third, special attention to vulnerable groups such as children, women, disabled and the aged.
Indian commitment to healthcare is guided by two principles and three consequences. The first principle decided after independence was the state responsibility for population's health. Second was to provide free medical care to all.
After independence, first consequence was inadequate priority to public health, safe drinking water, sanitation and negligence of personal hygiene. Second consequence was funding difficulties. 3The rural health infrastructure was not strengthened and efficiently managed. Third consequence was the inability to integrate and develop public-private partnership. So people had to switch between weak public and efficient private health services. The heavy cost involved in obtaining sophisticated infrastructure and need to maintain quality prompted the government to welcome participation of private sector in an area which was considered essentially a state responsibility.
The services offered by hospitals or healthcare institutions have all characteristics of service sector. Its ultimate aim is to satisfy its customers, i.e. patients and their relatives through the superior service delivered through highly skilled and knowledgeable people. It has to communicate its excellence or core competence in the market. From selling concept, it has shifted to marketing concept, i.e. from make and sell philosophy to sense and response philosophy. In selling concept, the seller wants to get rid of the product/service but in marketing concept, the provider focuses on customer satisfaction and loyalty.
Healthcare institution or hospital as service sector exhibits following characteristics.
  • Intangibility: The services offered cannot be seen but you can feel or experience them. Thus, they are intangible. They are performances or actions (not objects). Healthcare services include actions such as diagnosis, treatment, examination, surgery and are directed towards patients. Patients and their relatives are able to touch and see some components like equipment, hospital room, sign age, dress codes, stationery, etc. Healthcare services even after they are completed very difficult to comprehend. Intangibility presents several marketing challenges. They cannot be patented so new service concepts can easily be copied by competitors.
  • Simultaneous production and consumption: Production and consumption of service is simultaneous. Doctors diagnose and advise patients and patients carefully imbibe the suggestions and advises. Both the actions are simultaneous. So, customer's involvement in delivery of service is apparent. Patients take part in the production process to simultaneous production and consumption. 4Mass production is difficult. Patient participates and helps in coming to the conclusion that is diagnosis.
  • Heterogeneity: Since services are offered by people, there is lot of variations in the delivery. Same provider is influenced by season, time of the day, weather, and personality. So, zero error delivery is not possible. Healthcare or any service is consumed by different consumers/patients. They are precisely not alike. Each will have unique demands or experience the service in a unique way. That is why ensuring consistent quality service is challenging. Because of so many complicating factors in healthcare services, the provider cannot always know for sure that the service is being delivered in a consistent manner as it was originally planned.
  • Perishability: Services of healthcare providers cannot be saved, stored, resold or returned. It is the inability to inventory. So demand forecasting and creative planning for capacity utilization are important and challenging decision areas. Cost consciousness of healthcare purchasers has led to managed care systems. When things go wrong services cannot be returned as they cannot be stored. So recovery strategies are difficult when things go wrong. If the doctor takes out a wrong eye instead of cancerous eye, you cannot recover the damage. There is no warranty or guarantee.
Meaning of hospital originally is ‘place of hospitality’. The word hospital comes from Latin ‘hospes’ means host. It is world's largest industry having long history and a short past. Hospitals are central figure in civic, economic and healthcare environments. They are highly prestigious institutions. They have to maintain community status and focus the goal of acute care. In the past, patient treatment was offered by volunteers.
The earliest documented institutions for cure were Egyptian temples. As early as 4000 BC religions identified certain deities who were worshiped for healing. The temples of Saturn and Asclepius in Asia Minor were recognized as healing centers. As early as in 431 BC, Brahmanic hospitals were established. King Ashoka established a chain of hospitals in Hindustan about 230 BC. Modern concept of hospitals dates back to AD 331. Growth of hospitals accelerated during crusades which began at the end of 11th century. In 12th century, number of hospitals grew in Europe. Arabs established hospitals in Baghdad, Damascus and Cordoba in Spain.
zoom view
Flowchart 1.1: Chronological order of evolution of hospitals
The hospital of Holy Ghost founded in 1145 AD at Montpellier in France. It established high reputation and later became one of the most important centers for training to doctors. In 1524 AD, the first hospital in America was built in Mexico City. Then French at Quebec city in Canada in 1639 AD (Flowchart 1.1).
Hospitals established between 1700 AD to 1850 AD were social need. Quality care improved. Specialization emerged and there was shift from care to cure. Between 1850 AD and late 19th century first 6bacteriological and chemical laboratory opened. In 1896 AD, first X-ray laboratory opened. Nursing schools were introduced. Unani Ayurveda and Siddha were in practice. Charak of India described how the clinic should be equipped. So India was the first part of the world to have evolved as an organized institutionally-based medical provision.
In 20th century, private hospitals were established. Social institution changed to medical institution. Health insurance was generated. Technology contributed to the growth and modernization of hospitals. High-tech tertiary care hospitals came up.
The global medical industry is one of the world's fastest growing industries, absorbing over 10% GDP of most developed nation. It constitutes broad services offered by hospitals, physicians, nursing homes, diagnostic laboratory and pharmacies and ably supported by drugs, chemicals, equipment, manufacturers, suppliers. This industry gives enormous employment opportunities.
USA is the largest market for healthcare with 40% share in the world and the total revenue being US $ 1.44 trillion in 2004. Other major markets were Asia Pacific (33.5%) and Europe (21%). The world healthcare market was estimated to grow at CAGR of 7.8% to reach value of US $ 5.25 trillion by 2009. Now it has crossed that limit. In US, it is almost 20% GDP (highest in the world). In last five years, only industry to add jobs in US is the healthcare industry.
In USA, healthcare delivery moves away from horizontal care (Hospital based) toward more vertical care (ambulatory facilities). The patient there has become predominant focus. In developed countries, the internal role of marketing is becoming more important. Through focus and training, the patient care staff understands the importance of providing quality service. But not all staff members understand patients’ expectations. Technology has played a phenomenal role in the field of medicare. By 2020, people will probably store their personal health records on electronic swipe cards or subcutaneous chips. Monitoring will also become electronic. Developed countries are moving towards more standardized treatment procedures. So by 2020, the doctor will have less excuse to veer from standard procedure. If there is doubt, then ‘Physician’ decision support software will tell him what to do. Quality of life and 7longevity has increased. A day will come when it will be a right to live to 120 with constantly rejuvenated organs, muscles, bones and brain. Globalization of Indian healthcare has made India visible for treatment.
This industry also utilizes the expert services of public policy workers, medical writers, clinical research lab workers, IT professionals, sales/marketing professionals and health insurance providers.
The United States of America has one of the largest medical and healthcare industries in the word, followed by Switzerland and Germany. The USA's medical industry comprises of more than 750,000 physicians and 5,200 hospitals. USA witnesses approximately 3.8 million inpatient visits and 20 million outpatients visit on a daily basis. Furthermore, the United States of America has the largest workforce, i.e. one in every 11 US residents employed in the healthcare business.
The Global prescription drug market was $550 billion in the year 2006. The Global medical industry is highly fragmented, comprising of various ancillary sectors namely, medical equipment and supplies, pharmaceutical, healthcare services, biotechnology and alternative medicines sectors.
It includes various establishments dealing in different type of services like testing, outsourcing, transcription, quality assurance, validation, compliance, chemical analysis and other types of services. The global market share of biotechnology services industry is worth US $ 50 billion, which is soon expected to witness a hike in coming years. Pharmaceutical testing service industry valued to US $ 5.9 billion in 2008, which reached US $ 9.5 billion by the end of 2009. Microbiological testing service industry accounts for US $ 2.4 billion. Globally, the medical outsourcing services industry accounts for approximately US $ 200 billion.
  1. What are the characteristics of a service sector? How they differentiate from those of physical goods?
  2. Explain the history of the hospital. Also narrate the present global scenario.
  3. How the hospital as an organization in developed country differs from the one in developing country?8
  1. Goel SL. Healthcare System and Management. Deep and Deep Publications. 
  1. Grove J, Fisk RP, Bitner MJ. Dramatizing the service experience: A managerial approach. In: Swartz TA, Bowen DE, Brown SW (Eds). Advances in Servies Marketing and Management–Vol 1, (Greenwich, CT: Jai Press; 1992).
  1. Philip Kotler and Keller. Marketing Management. Prentice Hall International, 1991.