The Effect of Normative Social Forces on Managed Care Organizations: Implications for Strategic Management

Abstract

Drawing on institutional theory, this study examines how adherence to a number of "institutional" and "technical" environmental forces can influence the business success of managed care organizations (MCOs). The standards studied include: (1) institutional forces: socially accepted procedures for delivering care (access to quality care, availability of information, and delivery of care in a personal manner); and (2) technical forces: industry standards for cost control and efficient use of financial and medical resources. The most significant finding is that successful MCOs must conform to both institutional and technical forces to be successful. MCOs that conform to either one or the other type of standard were no more successful than those that conformed to neither. These findings have several important implications for MCO strategy. First, to be successful, MCO executives must understand the external environment in which they operate. They must anticipate and respond to shifts in that environment. Second, this understanding of the external environment must place equal emphasis on societal demands (e.g., for accessible care and information) and on technical demands (e.g., for cost-efficient care). These findings may well reflect that once managed care penetration reaches relatively high levels, marketshare can no longer be gained through cost-efficiency alone; rather, enrollee satisfaction based on societal demands becomes a key factor in maintaining and gaining marketshare. Institutional theory provides' some strategies for accomplishing these goals. Cost-containment strategies include implementing policies for cutting costs in areas that do not affect the quality of care, such as using generic drugs and reducing administrative excesses and redundancies. At the same time, MCOs must implement strategies aimed at improving conformity to prevailing societal perceptions of appropriate care, including providing patients more freedom to choose their physicians and encouraging and rewarding care providers for being friendly and personable. An MCO should work to inform the public of the organization's efforts to provide high-quality, low-cost medical care in a friendly, convenient manner.