Hospital Portfolio Strategy and Patient Choice

Abstract

Specialize? Diversify? Do patients care? The authors investigate the demand-side effects of a hospital’s portfolio strategy, which entails decisions about the depth and breadth of its service offerings. Positing that both depth (focus) and breadth (related focus) signal expertise, the authors use both archival and experimental evidence to examine these effects. The archival study is based on Florida’s State Inpatient Databases (SID) between 2006-2015 and spans all major departments in healthcare delivery. The empirical analysis exploits plausible exogenous variation from other healthcare markets and reveals that patient choice is positively influenced by a hospital’s depth (focus) and breadth (related focus) of expertise in a department. Complementing the archival evidence, the authors also conducted online experiments to examine the signaling effects of hospital portfolio strategy on patient choice behavior. The results provide support for the idea that hospital portfolio strategy does influence patient perceptions of hospital expertise in focal and related areas, and subsequently, their choice behavior. The authors also highlight potential synergistic effects between focus and related focus and heterogeneity in the effects across departments, payor types, and hospital profit-status. These findings underscore the need for managers to adopt a targeted approach to portfolio decisions in healthcare.

Keywords: Healthcare, Portfolio Strategy, Focus, Related Focus, Choice, Complexity, Quality Signaling, Services