Healthcare PESTEL Analysis, Term Paper Example

One of the major public issues to gain lot of attention over the last few years has been Obamacare which has deeply divided the nation’s two political parties. Republicans are strongly opposed to Obamacare while Democrats consider it one of the crowning achievements of President Obama’s Administration. Whatever one’s view may be, there is no denying that Obamacare is going to significantly redefine the U.S. healthcare sector. One of the tools that may help us better understand the course of the healthcare sector over the next few years is PESTEL which stands for political, economical, social, technological, environmental, and legal.

Political

The U.S. healthcare system has mostly been private historically and may continue to retain significant independence even though Obamacare is law of the land now. But Obamacare will continue to increase government involvement in the healthcare system and the effects are already visible. Historically, insurance companies could denial coverage on the basis of pre-existing condition but Obamacare now forbids denial of insurance coverage due to pre-existing conditions. The private sector will be protected under Obamacare from government’s negotiating power for volume discount purchases(Maiken, 2014) but this doesn’t discount the possibility of government using its muscle in some other way to bring down drugs costs.The U.S. Government has also achieved legitimacy for greater involvement in the nation’s healthcare system due to the U.S. Supreme Court’s decision that ruled Obamacare as constitutional (Sorrell, 2012).

While the concerns that Obamacare is government takeover of the healthcare sector are exaggerated, Obamacare will increase government expenditure from 43-46 percent to approximately 49.2 percent or about half of the total healthcare expenditure in America. Government funded healthcare services such as Medicaid and Medicare are unpopular among doctors due to less attractive profit margins(McClanahan, 2012), thus, it is clear why some healthcare providers are concerned by Obamacare and term it as socialism.

Economical

Legendary management guru Michael E. Porter co-authored an article in Harvard Business Review in which he stated that the economics of the healthcare sector is heavily favored towards healthcare providers such as insurance companies and physicians. There are several reasons such as lack of competition among insurance companies who usually have protected territories, lack of accountability for both insurance companies and healthcare providers such as physicians, and high pricing power of drug companies(Porter & Teisberg, 2004). Obamacare will increase government oversight of the practices in the healthcare sector which should result in lower pricing power and greater competition. For healthcare industry players such as insurance companies and healthcare facilities, this means greater focus on volume and operating efficiency to protect or even enhance profitability.But not all is bad news for healthcare industry participants because Obamacare will help add millions of new Americans into the insurance pool (McClanahan, 2012). This means insurance companies will have larger pool to spread across its risk and healthcare facilities will have improved economies of scale.

While the drug companies have long been known for innovation, the greater accountability and competition level may also influence healthcare facilities to focus more on innovation in order to lower costs and strengthen customer loyalty. In other words, the economics of healthcare may slightly tilt more favorable towards consumers.

Social

As far as social factors are concerned, a wide range of social factors will shape the healthcare industry. First of all, the demand for products such as drugs and healthcare services will grow due to aging population. Income levels are growing and in addition, U.S. population is increasingly becoming more diverse, thus, healthcare industry players will have to focus more on cross-cultural marketing and provision of services. Another social factor that may affect the healthcare sector is growing emphasis on preventive healthcare which is a good news because it may help bring down costs (Galewitz, 2009).

Since the U.S. population is aging and senior citizens tend to have higher income levels on the average, they may increasingly demand higher quality services including home healthcare (Marcy, 2011). This means healthcare will increasingly be provided in private settings and demand for nurses will further grow. This presents a great opportunity to certain healthcare companies or potential future entrants to differentiate themselves through personalized healthcare services. Providers who target customers demanding personalized services may also benefit from higher profit margins which makes sense since their average costs will also be higher.

Technological

Since the healthcare sector expects greater government participation as well as greater competition within the industry, it will increasingly seek out ways to reduce costs and achieve differentiation through better services. One key may be heavy investments in the latest technology. Technology has not only been affecting other industries but also the healthcare sector such as movement from paper records to online records. Information technology (IT) will be especially a big beneficiary of greater demand from the healthcare sector. It is estimated that North American healthcare IT market will grow from $21.9 billion in 2012 to $31.3 billion by 2017 or at a compounding annual growth rate of 7.4 percent during the period (Monegain, 2013). Thus, healthcare sector may continue to be the domain of big companies who would have the resources to afford intensive capital investments in IT among other things.

Environmental

Corporate Social Responsibility (CSR) is also gaining attention in the healthcare sector just as it is in almost every other industry. Companies realize that customers care about the ethical aspects of the companies’ operations. One of the ways healthcare organizations will become more responsible social citizen will be through reducing waste such as replacing paper records with online records. Healthcare companies, especially drug manufacturers may continue to makesignificant donations to social causes, both within their own communities as well as in the third world countries.But not all ethical trends may be voluntary. Some may be forced such as covering even those patients with pre-existing conditions as Obamacare requires. Over time, public pressure may force healthcare companies to adopt more ethical practices in order to improve their public perceptions. We already know how public pressure forced companies to adopt more ethical approach towards health epidemics in the third world countries (Green, 2013).

Legal

The growing role of government in the healthcare sector only means greater body of regulations and Obamacare has already been increasing compliance requirements and costs for both big and small companies. Since the passage of the law, federal agencies have published over 100 regulations regarding the implementation of the law (Clabough, 2013). Universal healthcare system tends to put more power in the hands of the government and also enhances citizens’ rights, thus, the healthcare companies may see their legal expenses rising due to potential increase in litigation. This may increase the demand for legal experts on healthcare and healthcare companies will see their legal departments grow in size in order to comply with growing body of regulations.

References

Clabough, R. (2013, October 22). ObamaCare Brings About Massive Increase in Regulations. Retrieved May 31, 2014. Web.

Galewitz, P. (2009, August 4). Will Emphasis on Prevention Bring Health Costs Down? Retrieved May 31, 2014. Web.

Green, A. R. (2013, April 29). Drug donations are great, but should Big Pharma be setting the agenda? Retrieved May 31, 2014. Web.

Maiken, S. (2014, February 6). Obamacare is not true universal health care while under corporate control. Daily Sundial. Print.

Marcy, J. (2011, August 15). Senior Boom Creates A Demand For Home Health Workers. Retrieved May 31, 2014. Web.

McClanahan, C. (2012, August 28). Is Obamacare a Government Takeover of Medicine? Retrieved May 31, 2014. Web.

Monegain, B. (2013, December 30). Big growth forecast for health IT market. Retrieved May 31, 2014. Web.

Porter, M. E., & Teisberg, E. O. (2004, June). Redefining Competition in Healthcare. Harvard Business Review, pp. 65-76. Print.

Sorrell, J. M. (2012, November 9). Ethics: The Patient Protection and Affordable Care Act: Ethical Perspectives in 21st Century Health Care. Retrieved May 31, 2014. Web.