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The Dynamics of Market-Level Change

Health care exhibits a competitive dynamic today that increasingly resembles that in other service industries. Organizations are becoming larger to achieve scale economies and to increase market power. Vertical integration, whether through ownership or complex contracts, is also being pursued both to seek efficiencies and to improve the bargaining position of the organization. External forces that are driving these changes include more aggressive activities on the part of purchasers to contain their costs, developments in information technology, management innovation in other service industries, and advances in medical technology. Within the health care industry, there is a pattern of organizations taking the initiative to respond to these external forces—often in anticipation of them—and other organizations then responding to the pressures in turn placed on them. Although information on strategies is communicated rapidly throughout the country, what is attempted and what succeeds differs a great deal across communities. The nature of current health care institutions in the community, including the presence of large entities with extensive capital and strong management in a particular segment of the health system, and the community’s experience with managed care are important factors in the path that change takes.