Assessing healthcare market trends and capital needs: 1996-2000

An analysis of recent data suggests several significant trends for the next five years, including a continuation of market-based reform, increases in managed care penetration, growth of Medicare and Medicaid health maintenance organizations, and erosion of hospital profits. A common response to these trends is to create integrated delivery systems, which can require significant capital investment. The wisest capital investment strategy may be to avoid asset-based integration in favor of "virtual integration," which emphasizes coordination through patient-management agreements, provider incentives, and information systems, rather than investment in large number of facilities.