Robots and Reform in the Health Market

Max Scallon, marketing director of the Robotic Research Corporation of America, settled into his airline seat, pulling out the papers he needed to read on his flight from New York to London. He was on his way to a series of meetings to test the viability of launching their latest product, 'Georgie', in the UK and the rest of Europe. Following it's launch two years earlier, 'Georgie' had become an instant hit in America where each product had produced savings of up to $100,000 a year in hospitals. 'Georgie' was a robot capable of delivering up to 3501bs of materials to pm-determined destinations, or cleaning and polishing floors. In American hospitals, Georgie was loaded in a central materials management department with goods from X-rays to toilet rolls and programmed for delivery destinations. Using its memory map, it calculated the route and set off around the long corridors typical of large hospitals. Sensors guided it round any obstacles whilst it calculated the deviation to ensure it returned to its route. A centralized controller watched progress and in the event of problems, Georgie could use pre-recorded messages such as 'I am lost. Please report my position to the operator.' to ask for help from passers-by. Georgie could also clean the floors it travelled over as the flick of a switch changed it from 'carry' to 'clean' mode and activated its brushes and polishers. Georgie was a very efficient worker, available 7 days a week, and 23 hours a day (the other our was for recharging its batteries and undergoing any necessary maintenance). It could do the work of 3 human workers, allowing more resources to be devoted to patient care.

Max had decided the time was right to launch Georgie into the UK as springboard into European markets when he had heard of the changes to the provision of health care. On the plane, he looked first through his briefing notes on the changes to the Health Care market in the UK.

Market

90% of UK healthcare public se re is provided by the public sector through the National Health Service. Expenditure on the NHS since its inception in 1948 has quadrupled after taking account of in inflation , Actual expenditure has risen from 400 Europe million in 1949, to 9 billion in 1979 and to 34 billion in 1992. The private sector currently has a small share of healthcare expenditure at 800 million but is becoming increasingly important, especially in the care of the elderly.

Demand for healthcare is growing at the same time as the costs of its provision are escalating. The UK population is ageing: life expectancy increased between 1950 and 1990 from 66 to 71 years for males, 71 to 78 years for females. Growth in the elderly population has already caused short term funding Problems(1981-1989, the numbers of 75-84 year olds increased by 16%, and the numbers of 85 years 33 million out-patients. plus by 39%). In 1992 the NHS treated over 7 million in-patients and saw A 33

shrinking of young age groups and increases in older age bands has longer-term funding impli-cations (e.g. 16-24 year olds will decrease from 9.3 million in 1985, to 7.4 million in 2000. Conversely, 45.59 year old will increase from 6.2 million in 1985 to 7.5 million in 2000), Technological advances in surgery techniques and drug treatments have increased the costs of some healthcare.and mean more illnesses con be treated. Cost cutting measures include an increase in day surgery for minor operations.

Industry structure

In the 1980s and early 1990s, the NHS was reformed by successive governments in line with changes in other public services. The separation of the role of purchaser from the role of provider -a split of management responsibility between those who specify the quality of a service and those who provide it created markets or 'quasi-markets'.

Purchasers' are the district health authorities, responsible for deciding what services are required in their area, arranging and paying for contracts with providers of the services, and setting and monitoring quality standards. Some doctor's practices (referred to as 'fund-holding GP's') also now control budgets to purchase healthcare for their patients. Providers' include hospitals which may be directly managed units within a health authority, or 'self-governing trusts' which have opted out of the structure. Hospitals have more autonomy in how they provide contracted services but can have their contracts withdrawn if they do not provide the level of service required. In theory, health authorities can purchase the health care they need from both the public and private sectors. In practice, the contracts issued so far have gone to the traditional NHS hospitals but competition now exists not only with private providers but also between hospitals within the NHS, Hospitals have to win contracts based on the quality and costs of services provided.

The medical profession has been broadly opposed to the reforms. The British Medical Association is opposed to o competitive market within the NHS. Hospital managers feel that the changes overlook the fundamental problem of underfunding of healthcare, which is under 6% of GDP in the UK compared to an average over 8% in other western countries

. Although staffing levels in the NHS have fallen because some services such as laundry, catering and cleaning are now provided by private sub-contracters, it remains the largest employer in Europe with 1 million employees.

The 'Patients Charter' of 1991 laid down what the UK public can expect from its health service, specifying standards in such areas as waiting lists, complaints and information. The future of health-care was a major debating point during the 1992 and 1997 general elections.

The private sector is still very dependent on medical insurance for its income. However it believes it can play an increasing, complimentary role alongside the NHS. Some NHS patient's arc now treated in private hospitals and some NHS hospitals provide private healthcare facilities.

Max considered how his corporation would cope with, supplying this fast changing market, Their objectives were clear: to he the most recommended international supplier of robotic products, But so far their customers had been confined largely to private sector organizations in North America. His company was young, as were most of the managers. The Robotic Research Corporation had grown very rapidly to reach sales of $40 million in 1993, driven on by the innovative ideas and enthusiasm of its youthful directors, including Max who had just celebrated his twenty ninth birthday. Their inter-national strategy was to use 'Georgie' as the spearhead for penetrating the European market. Max's visit was to evaluate not only the potential market for the product, the level of competition and other likely barriers to its acceptance, but also the logistical issues of selling, supplying and servicing a complex technological product at a distance. To help him with this evaluation, Max had arranged to meet a number of healthcare managers. His first appointment was with Ruth Davies, who was the newly appointed director of marketing at Queens Hospital Trust. Ruth had informed Max that she needed to introduce innovations which not only produced efficiencies but also produced good publicity for the hospital, which needed to market itself to patients and to healthcare purchasers alike. As Max looked forward to their meeting, he recalled her words on the telephone: 'The aims of marketing here are the same as any other organization more satisfied customers. But the environment is very different to, say, marketing consumer goods. Healthcare is an emotive subject as it is so often a matter of life and death'

Activities

1. What are some of the categories of internal influences on marketing decisions which face Max Scallon. What illustrations of these does this case provide?

See sections 2 and 3. 2.

2. What are the main categories of influences in the external environment which face Max and the Robotic Research Corporation in marketing their products in the UK healthcare market? What illustrations of these does this case provide?

See sections 4 and 5

3. Consider the environmental factors that are particularly important for Ruth Davies to consider in marketing Queens Hospital.

i) What are the significant internal factors?

See section 3.

ii) What are the significant external factors? See sections 4 and 5. iii) How would you advise her to manage them?

See section 6.

iv) Which particular markets would you advise her to focus on, other than patients?

See section 7.