Healthcare Intermediaries in Electronic Markets: Performance and Choice of Market Entry Mode

Operational inefficiencies as well as disparate standards and administrative processes plague the U.S. healthcare industry despite its size and significance. In response, a novel breed of electronic healthcare intermediaries has evolved aiding providers, patients, and other market participants in negotiating more consistent and efficient operations. Intermediation theory posits that intermediaries engage in four distinct functional roles, specifically: (1) information management, (2) logistics management, (3) transaction securitization, and (4) insurance/market making and liquidity management. Employing data from 58 U.S. electronic healthcare intermediaries this research examines how the provision of these functions relates to firm performance and choice of electronic market entry mode. We find the provision of logistics management and, to a greater extent, insurance/market making and liquidity management to be associated with greater firm performance. In addition, we see firms engaged in insurance/market making and liquidity management activities demonstrate a propensity for direct entry and acquisitions in the pursuit of electronic market initiatives. By contrast, healthcare intermediaries offering transaction securitization services employ direct entry and joint ventures. We conclude by reflecting on the significance of these findings for the management of intermediaries within and outside of the healthcare industry.