Emergency Medicine plays a vital role in the health care continuum in the United States. Michael Porters' five forces model of industry analysis provides an insight into the economics of emergency care by showing how the forces of supplier power, buyer power, threat of substitution, barriers to entry, and internal rivalry affect Emergency Medicine. Illustrating these relationships provides a view into the complexities of the emergency care industry and offers opportunities for Emergency Departments, groups of physicians, and the individual emergency physician to maximize the relationship with other market players.

INTRODUCTION Emergency Departments (ED) play a unique role in the health care system. Unlike any other health care resource, EDs provide continuous access to the health care system for both emergent and urgent medical needs. In addition, the Federal Emergency Medical Treatment and Active Labor Act (EMTALA) requires EDs to provide a medical screening examination to all patients who seek care. A medical screening examination may include expensive diagnostic tests, treatment, and specialty consultation. EMTALA was passed to prevent hospitals from discriminating against indigent or uninsured patients by transferring, discharging, or refusing care . Because ED care is the only care that is required by law, it provides an important health safety net for the uninsured and underinsured. Although the ED plays a critical role in the health care system, it finds itself increasingly challenged in the face of rapid change. For many reasons, EDs have experienced a remarkable rise in patient volume over the last 50 years, with about 108 million visits in the United States in the year 2000, up 14% from 1997. At the same time, health care market forces have forced many EDs to close their doors to patients. Over the period of 1997-2000, the number of EDs in the United States decreased from 4005 to 3934 (2). The uninsured rate in the United States in 2001 was 16.7%, and it is well known that the uninsured, under-insured, and socioeconomically disadvantaged groups are more likely to seek care in EDs (3-5). Staffing in EDs has shifted considerably, from a single room staffed by interns with no attending coverage, to departments staffed by trained emergency practitioners with access to the state-of-the-art in diagnostics and medical treatments [(6), p. 237]. The expanded role for Emergency Departments (EDs) in the health care system created the need for specialists in Emergency Medicine. The first EM training program was instituted at the University of Cincinnati in 1970 and today there are 132 accredited allopathic training programs and 30 osteopathic programs in the United States

At the same time, the economics of medicine and of emergency care have also changed. What was once a cottage industry now claims an ever-increasing portion of the US gross domestic product (GDP). As of 2002, US health care expenditures topped 14% of GDP (7). Due to the prominent role of the health care system in the economy and cost increases, government and market reforms have shifted to reduce provider payments and reorganize the way that care is delivered and reimbursed. Whereas the promise of managed health care has not met expectations, other entities such as physician practice management companies (contract management companies) have emerged in an attempt to centralize the administrative aspects of the health care business. Now, there are many players in the Emergency Medicine (EM) marketplace, from emergency physicians, nurses and contract management groups (CMG), to pharmaceutical companies, device manufacturers and insurance companies. Comprehending the role of EM in the health care marketplace is difficult due to the complex interactions among many forces. In this respect, using a model can provide insight into the emergency care industry and shed light on the myriad forces affecting Emergency Medicine. In 1980, Michael Porter introduced a model of competitive strategy to explain an industry's position in a complex strategic environment (8). Porter's five forces model provides one way to present the current position of EM or what will be called the industry for "emergency care" in a macroeconomic context. The five forces presented in this model are the degree of rivalry, the supplier power, the buyer power, barriers to entry, and the threat of substitution. Placing the industry of "emergency care" in a framework such as this offers unique insight into the bargaining position that we as emergency physicians have when negotiating with the different market players.

SUPPLIER POWER The definition of a "supplier" in Emergency Medicine is quite broad: basically, everyone outside the department who supplies products or resources to make an ED function effectively. The power of suppliers is as diverse as the entities themselves, and depending on the organization, suppliers can have substantial power over the ED. Suppliers to the ED include pharmaceutical companies, medical device and medical software companies, consulting physicians, nurses, pre-hospital providers, radiology services and laboratory services. Pharmaceutical companies have a tremendous amount of influence over organized medicine in general. Pharmaceutical companies often have less interaction with the ED than with other specialties because the medicines prescribed by emergency physicians represent a smaller portion of their total sales than for physicians who prescribe large market-share chronic medicines for conditions like diabetes and heart disease. In turn, they tend to spend considerably less effort marketing to emergency physicians than other specialties. Due to the relatively mall market of medicines that are prescribed in EDs in comparison to primary care practices, pharmaceutical companies do not give as much consideration to EDs in determining drug pricing and marketing. Emergency physicians do, however, prescribe some expensive medicines, particularly i.v. antibiotics and cardiovascular medicines. The specific choice of i.v. antibiotic therapy by an emergency physician may not be changed by the hospitalist or inpatient team managing the patient. Despite this, pharmaceutical companies are in a position of power over EDs because, in general, they decide what medicines to develop and distribute and what they want to charge for them. Pharmaceutical companies may also alter the practice of Emergency Medicine by changing the formulary available to the emergency physician. An example of this is the recent country-wide absence of Compazine (prochlorperazine). In addition, because a good portion of emergency care is not reimbursed and pharmaceuticals are expensive, pricing can play a significant role in the bottom line for the ED and the hospital. However, when a drug has an equivalent generic alternative or a less expensive therapy is equally effective, thecost of switching may be minimal. Medical device and medical software companies have a similar relationship with the ED. However, EDs represent a significant market for companies that produce intubation equipment, monitoring devices, defibrillation equipment, central line kits, and some computer software packages. At large meetings, product salespeople are more than happy to offer demonstrations and in some cases discounts to EDs for purchasing cutting edge devices. Because this is a highly competitive market, in many instances, EDs can influence the innovation and production at device companies. EDs retain the ability to choose among different suppliers for the most cost effective products. Specialty physicians serving as ED consultants and physicians who manage/accept care for hospital admissions can also be described as suppliers to the ED. More than any other hospital department, the ED relies on healthy relationships with consultants and admitting physicians to run smoothly and provide appropriate patient care. Access to specialty services may be a scarce commodity in rural and inner-city communities. As a result, many communities have carved out specialty care that has reduced availability to the uninsured. The power balance in the relationship between the ED and consultant and admitting physicians is highly variable depending upon the internal politics of the hospital. In general, however, the ED may be relegated to a less powerful position in hospitals because individual services may generate more revenue. Services such as cardiology, cardiac surgery, and orthopedics in particular may generate higher profits for the hospital than the ED. The ED may even be seen by hospital administration as a "loss leader." A "loss leader" is defined as a service or product that is sold below cost or at a loss to entice customers to buy other goods. In this way, administration officials may see the ED as a way to serve the local population to maintain community public relations and provide emergency services for patients who are treated by non-ED medical staff physicians. Hospital management may try to appease services that generate greater revenue in the case of a conflict with the ED. Specialists are often required to take ED call as part of their medical staff responsibility. Because this may be a requirement, consultant physicians may be in a position where they need to come in from home to provide patient care services in the ED. This requirement to respond to ED call does give emergency physicians a power edge over consultants. However, recent legislation has reduced that burden on consultants and, because specialists may have more power in the hospital politics, the actual requirements for availability of specialty services is highly variable depending upon the institution. In addition, many consultants have more in-depth knowledge of specific diseases or will be able to perform procedures outside of the scope of EM. However, because emergency physicians sometimes retain the ability to refer patients to specific consultants and primary care physicians, the relationship can be somewhat reciprocal. Other hospital services that serve as suppliers to the ED are radiology services and laboratory services. The power relationship with these services can be variable and dependent on institutional politics. Power relationships are often elucidated during a conflict situation. With radiology services, ED bedside ultrasound is an example of potential disagreement with regard to performance, interpretation, and billing for services rendered. This still remains a controversial issue at many institutions and depending on the internal politics of that institution, the ability of emergency physicians to perform bedside ultrasound may be either compromised or endorsed by radiologists. The relationship with laboratory services is also institution specific. When a controversial issue arises such as turnaround times or availability of assays (for example, D-dimer, B-natriuretic peptide), problems are often handled with internal hospital committees, the power structure of which can vary widely based on institutional politics. Administrative services and ancillary services such as housekeeping are also suppliers to the ED and power relationships often are dependent on institutional politics. The nursing shortage in the United States is felt by the ED as well as many other hospital departments. Nurses and nursing staffing companies tend to have the upper hand in negotiations due to the scarcity of services and government-mandated ratios for nursing services. In July 2002, 30 states were reported to have shortages of registered nurses (RN), and a recent report has predicted that 44 states plus the District of Columbia will have a shortage of RNs by the year 2020 (9). The high demand for competent nursing and the workforce shortage make it difficult for EDs to retain the best nurses. Often, academic centers spend significant resources training ED nurses who may end up working for another center. Due to the shortage and the low cost of switching, experienced nurses can have significant negotiating power with the ED and the hospital. Pre-hospital providers also can be described as suppliers to the ED. Relationships with pre-hospital providers are highly variable, depending on the heath system. However, because the medical director of pre-hospital services is often an emergency physician, the ED can hold significant power over the protocols and ability of pre-hospital providers to administer services such as rapid sequence intubation and delivery of narcotic analgesics. In addition, the ED may often retain control over utilization of expensive services such as critical care andhelicopter transport.

BARRIERS TO ENTRY The theory behind barriers to entry is that EDs not only compete with other EDs for patients, but they run the risk of new entrants into the "emergency care" marketplace. In the traditional model of pure competition, additional players will enter the market until the profits are nominal, unless there are specific barriers to entry. Barriers to entry may be costs, education, competition, and risk. From the perspective of the individual citizen, the barrier to entry is high. In particular, college, medical school and residency training is a long process that eliminates all but the most dedicated and talented. Although this is no higher than many other fields in medicine, the cost of becoming an ED physician is very high to the average citizen due to years spent in school, training, and the opportunity cost of lost wages over that period. From the perspective of a new entrant attempting to enter the local market for "emergency care," there are significant costs associated with starting an ED. Because EDs are a hospital-based service, only a hospital may offer comprehensive emergency services. The costs of building an ED and staffing it are considerable. However, the costs are not high enough to discourage all new entrants. Urgent care centers have emerged to fill a need for patients wanting an efficiently run, walk-in clinic that can provide many of the services of the local ED, including laboratory services and X-rays. Companies like these can eliminate much of the uncertainty in the costs of emergency care by requiring up-front payment for treatment. The practice of "money before care" is prohibited by EDs due to EMTALA rules. This puts the ED and the hospital in a weaker position to mitigate the financial risk of patients who are unable to pay, allowing urgent care centers to reap profits from patients who would have been seen in a full service-ED. An additional barrier to entry can be the prospect of poor patient flow management and ED overcrowding currently experienced by many US EDs. ED overcrowding itself is a "barrier to entry" to the hospital, and the prospect of dealing with overcrowded waiting rooms may be an unwelcome prospect to new entrants in the industry of emergency care. In addition, managed care organizations (MCO) have attempted to control costs by opening their own emergent care centers for enrollees meeting triage criteria. Through forward integration, they have found a reasonable way to control a portion of the cost of emergency services. Although these services compete directly with ED care, it is illustrative that the barriers to entry in the "emergency care" market, while high, are not insurmountable in the market, particularly in the case where an entity has substantial resources. Alternatively, MCOs may decide to contract care to private groups or contract management companies to control costs. In the case of a democratic group, the costs and risks of entry in the marketplace can be high. The group of physicians has to assume the risk of taking a loan, obtaining independent malpractice insurance, and must convince the bank or lending agency to gamble on agroup that may or may not have a proven track record of success. Local health care market factors can make entering the market for emergency care particularly costly. Where a market is saturated with EDs, particularly those with relationships with the local community or those with brand identities associated with a particular university or health system, the barriers to entry can be high enough to make it unappealing for new market entrants. For example in Baltimore, Maryland, a city of 700,000 people, there are 14 EDs, whereas in San Diego, California there are only eight EDs serving a population of 1.2 million [(6), p. 218]. However, hospitals start EDs for different purposes (e.g., to serve the community, but also to be a front door for the hospital, where emergency patients can be admitted and provide healthy profits for the hospital.) In one private community hospital in Washington, DC, approximately 75% of inpatient stays originate in the ED, whereas in large academic referral centers, the number approaches 30 - 40%. The choice of a hospital or a health system to open and maintain a new ED can be compromised by both administrative and financial additional barriers. Depending upon the area, the mix of uninsured and insured patients can make the prospect of opening an ED attractive or unattractive financially. Particularly in areas where there are high rates of self-pay and poor access to primary care and specialty care services (where only insured patients are accepted), the ED can cause financial losses in the health system. In addition, depending upon the financial arrangements with local insurers, even negotiated rates on insured patients may be too low to financially justify opening an ED. The prospect of opening and staffing an ED is also affected by local nursing shortages and provision of appropriate nursing/staff ratios for the delivery of safe emergency care. However, as was previously discussed, despite a poor patient mix (high proportion of uninsured), health systems may view the ED as a "loss leader" to retain the ability for patients to have 24-h access to physician care.

BUYER POWER Buyer power is the impact that purchasers have on the industry. Where there is only one purchaser in the industry, the buyer has the greatest power. In this case, the buyer can set the price for services. The following paragraphs will illustrate why buyer power in ED care and in medical care in general resembles a monopoly because there are so few actual purchasers of emergency care. The following discussion not only involves emergency physicians but also, in general, all health care providers. It is important to define exactly who buys health care in the United States. One could argue that the individual patient is the buyer of care; however, this is true in only limited cases. In reality, large third-party intermediaries, whether it is an insurance company, MCO, corporation, or federal or state government, are the true consumers for the majority of the health care in the United States. In general, these large organizations have a great deal of power over medical care in general and in turn, EDs. The following discussion focuses on EDs in general, but the discussion could be generalized to all specialties that provide physician services. In the case of the federal government, Congress sets reimbursement rates for Medicare for both the physician and hospital fee with E & M codes and CPT-4 codes for procedures. The increase in reimbursement every year is based upon on a multiple of the consumer price index. What is clear is that the rise in health care costs has far outpaced the yearly increases in government reimbursement for care. The trend is toward reducing reimbursement, not increasing it, and the individual ED and even lobbying groups are in a weak position to stop this trend. With regards to MCOs and insurance companies, due to their large size and resources, they have the bargaining power to negotiate contracts with hospitals to pay a fraction of the charge for ED and other hospital services. Patients also have significant buying power in deciding where to obtain ED services (outside of pre-hospital directed ED service), yet they have much less clout than the government or MCOs. However, when it comes to bargaining power over the actual payment, patients, if not represented by a larger entity, are stuck with a hospital charge that is sometimes many times what insurance companies pay for the same service. Hospitals are also becoming more aggressive in going after patients who do not pay, so this practice places them in a position where they are asked to pay bills out of pocket. Some patients come to EDs for care and have no intention of paying. Due to EMTALA rules, EDs cannot refuse a medical screening examination for patients who seek care, and at times they serve as the health care safety net for the uninsured and indigent. As the number of uninsured swells in the United States, more and more patients seek care in EDs because they provide competent care at what is for some a reasonable cost of "zero." This places the hospital and the ED in further financial jeopardy, requiring them to absorb the societal cost of caring for these patients. The best way to understand the buyer power for ED services is to look at the actual collection rates of EDs. One academic suburban ED reports a collection rate of about 38%, whereas an inner-city academic ED reports a collection rate of about 22%. What is clear is that the buyers of ED services have significant power over theED if less than 1/2 to 1/5 of ED services are reimbursed. EDs and providers in general also have power over the buyers because providers direct health care expenditures. The intrinsic power that providers have over health care purchasers relates to the "agency principle" in health care financing. Providers serve as an "agent" on behalf of patients to decide on needed health care services such as diagnostics and therapy. In this relationship, providers in general (barring capitation arrangements) have no financial stake in therapies or diagnostic test ordering. Therefore, providers can often direct healthcare expenditures in general without regard for healthcare cost. In the case of Emergency Medicine, physicians may be concerned about cost-effectiveness, but in practice, this rarely plays a significant role in decision making over diagnostic test ordering or choice of inpatient pharmacotherapy.

THREAT OF SUBSTITUTION In Porter's model, the threat of substitutes refers to the substitution of services by other industries. The threat of substitution for the individual emergency physician is high for many reasons. Contract management groups (CMG) are entities in the business of providing staffing services to hospitals. CMGs practice corporate medicine and are often multi-hospital corporations that are sometimes run by emergency physicians. Similar to the model of managed care, these physician practice management (PPM) companies attempt to use economies of scale to run the management enterprise of medicine, in turn taking a healthy profit from the work of physicians. However, financial constraints and difficulties have recently made the PPM industry less attractive, and it has become increasingly competitive to turn a profit (10). Thus, PPMs often may sacrifice quality for profits. CMGs may use non-board-certified physicians(family practitioners with ED experience, internal medicine physicians, and pediatricians) to staff EDs. In addition, every year new EM graduates come into the market, with the ability to bill at the same level as the experienced ED physician who has been working for 20 years. Although the new graduate may not offer his patients the same level of experience or expertise, from the hiring perspective, substituting the older physician with a new graduate is a less expensive and economically sound decision. The new EM graduate may also show greater flexibility in the number and timing of shifts. The threat of substitution is also particularly high from the perspective of a democratic group. A democratic group is a group of physicians who are equal partners and the group is the holder of the contract. In this arrangement, the group is responsible for both the clinical and administrative aspects of delivering emergency care. However, because there is so much competition for contracts, there is an inherent conflict between the profit motive of the CMG and the individual physician or democratic groups' desire to deliver quality care and maximize patient satisfaction. The fact that these are at odds is detrimental to the practice of Emergency Medicine. Although the late 1990s have shown medicine to be a business, having motives at odds can threaten the quality of patient care in Emergency Departments. CMGs often may rely on business models that place less emphasis on actual quality of care by hiring non-board-certified emergency physicians to staff their EDs. Although care in EDs where CMGs hold the contracts has not been compared to that of democratic groups, similar models of for-profit health care (managed care) have proven to have real effects on patient care and outcomes (11,12). However, given the expansion in ED residencies over the last 10 years, the use of non-board-certified emergency physicians may become less important as more board-certified physicians enter the marketplace. Another threat of substitution in the market for emergency care is the use of physician extenders such as nurse practitioners (NPs) and physician assistants (PAs). Because these providers have less training, they command lower salaries than board-certified emergency physicians. However, allied health professionals can be seen as an asset to emergency physicians if they are employed by democratic groups. From the perspective of the MCO, because EDs have the reputation of being particularly costly places to get care, patients are often advised to see their primary care physician for emergent concerns. In a capitated reimbursement model, the MCO pays primary care physicians a per-patient-per-month fixed rate to take care of a population, making any visit to the ED, no matter how expensive, an extra cost. Another substitute for emergency care that must be considered is the use of non-physicians such as chiropractors, homeopathic providers, and others. Although these providers sometimes serve the same patient population as the ED, often patients seek a different service from these practitioners. More generally, however, patients use herbal remedies before and after seeking ED care, which does not provide direct competition to the ED, but is something that ED physicians need to be aware of.

DEGREE OF RIVALRY The provision of emergency care, unlike many other specialties, has a very high degree of internal rivalry. CMGs, or groups of ED physicians, bid for staffing contracts in such a way as to allow the hospital to select the lower cost option. This makes a highly competitive market among groups of physicians of all sizes. Because EDs do not have the intrinsic loyalty that a particular primary care physician may, the cost and psychological effect of switching physician groups is low. Factors such as local market concentration and other market forces outside the ED can also affect the degree of internal rivalry. Hospitals may compete with other hospitals for managed care contracts for emergency care and other services. From the perspective of the democratic group, or individual physician, the degree of rivalry and competition is very steep for contracts. Often, larger organizations will be able to compete on cost as opposed to quality through economies of scale. Although quality is important to hospitals, financial considerations sometimes make it more attractive to employ a contract management company than a democratic group. However, due to the rivalry in the market, there is a different emphasis on quality of care than may exist in a democratic group.

CONCLUSION Analyzing the industry of emergency care using Porter's five forces model makes it clear that EDs are in a precarious economic position in the current health care market. The suppliers to EDs, particularly the pharmaceutical companies and nurse staffing companies, exert a significant level of power over the individual ED due to the heavy reliance on drugs for ED treatments and the worsening nursing shortage. The industry does have significant barriers to entry, both in education and cost of starting an emergency care center. However, for-profit companies are effectively competing with EDs in the market and continue to expand. The buyers of ED care also have significant power over the individual ED, particularly due to the size and bargaining power of the buyers of care: MCOs, insurance companies, corporations, and the government. The threat of substitution for the board-certified emergency physician is also very high. Hospitals and CMGs often may hire physicians who are not board-certified and physician extenders such as PAs and NPs to staff EDs. In addition, due to the lack of individual patient relationships that are valuable in other medical specialties, CMGs may see the skills of an emergency physician as economically expendable and replaceable. There is a high amount of rivalry in EM among individuals, groups, and mega-groups for jobs and contracts. This is akin to trading patient care as a commodity, which often gives short shrift to the quality of care. Placing EM into the Porter's five forces model paints a bleak picture for EDs and a bleaker picture for the individual practitioner. What can EM physicians do to improve the market position? Specialty organizations consisting of groups of ED physicians such as the American Academy of Emergency Medicine (AAEM) and the American College of Emergency Physicians (ACEP) can exert significant bargaining power by organizing to shift the power relationship with hospitals and CMGs through collective bargaining to improve contract provisions. Issues such as requirements for due process, eliminating restrictive covenants, and requiring open books are vital to place economic power back in the hands of individual doctors. Physicians can form democratic groups (with equal voting rights) and create longstanding relationships with hospitals to maintain group and career longevity for emergency physicians. In addition, emergency physicians and the public should assure quality by making sure that only EM-trained providers deliver emergency care.

Despite the current market position for emergency care, ED visits continue to rise. Increasing demand for emergency care among patients is a significant opportunity for EDs to reconsider their role in the health care delivery system. Preventive care services have been explored as a potential addition to emergency care and may hold promise. Health care systems often use the ED as a front-loading of medical care and use EDs as 24-h access to specialty services, rapid diagnostic services, expedited workups for inpatient admissions, and as a holding bay for hospital overflow. Although these factors often contribute to ED overcrowding, recognition that the ED is providing these services and that capacity is often inadequate to provide expedient care may guide administrators to expand provider and space capacity for EDs. In addition, a valuable resource that is under-utilized in Emergency Medicine is the fact that we treat so many patients. This is a substantial opportunity for clinical research and for enrollment into clinical trials. Specifically, given the number, complexity, and severity of patients treated in ED, particularly academic EDs, there is an opportunity to tap into the vast research resources of pharmaceutical and medical device companies. EDs also provide the first line of defense in the case of bioterrorism. EDs provide a vital health care safety net, and the availability of emergency care is tremendously important to the citizens of the United States. However, EDs are in a position of weakness in comparison to many of the other competing forces in the market place. A unified stand among emergency physicians is needed to improve the overall position of EM as a specialty and to ensure the delivery of the highest quality emergency care.

 

Please read the article "Applying Porter's Five Forces to Emergency Medicine". Is this a good example of applying the five forces or did the author stretch the concept in this situation?