A hospital's market analysis should go well beyond the usual head counting and look at ways to offer what customers really want.
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| Rita E. Numerof | Bill Ott |
New sources of competition are emerging in health care, including physicians who used to be your best patient referral sources. And now patients are asserting themselves in decision-making, expecting more transparency with outcome and price data.
These rapidly changing market forces are challenging even the most successful hospitals to adapt their patient care models and rethink their go-to-market strategies. So far, physician-owned surgery centers, miniclinics and other outpatient facilities have been more nimble and responsive in providing more attractive alternative care options than an inpatient hospital stay, skimming off the most attractive patient customers.
Hospitals that expect to compete and win in this emerging new market competition must develop and operationalize a different business model—one that results in a clear and compelling reason for being the first choice for care needs.
Health care is not the first industry to face the need for a fundamentally different business model. Many industries go through transitions as a result of changes in their regulatory environment, competition or technology. These times of transition are very difficult. They force all stakeholders to rethink their business models and challenge fundamental assumptions about their markets, who their customers are, what products and services they should offer, and how they should bring them to market.
The needed transfusion of fresh thinking starts with an external analysisof customers—in this case, health care consumers—to identify truly unmet needs. Such analysis must go well beyond what is understood as traditional market research, which is typically constrained in its ability to describe potential demand for services.
It's true that traditional research provides plenty of useful information for the number of people, their age and their socioeconomic status. And it might even provide focus group insights as to how to make a hospital stay more patient-friendly. But most traditional market research and planning doesn't look beyond the obvious, and doesn't identify the real opportunities to be more competitive for health care consumers.
For example, we can all look at the glut of aging baby boomers and reasonably assume plenty of future patient business. But who really wants to stay in a hospital if there is an alternative, especially if it costs less? Any reasonable person would rather:
Health care organizations with a real patient-centered strategy need to think creatively about all the services they can provide to give health care consumers what they really want—to avoid a stay in the hospital. As one hospital executive puts it, "If we're really providing health care, we're putting ourselves out of business as we've traditionally known it."
The key to success in this market is also at the core of the current health care reform initiative: better care at lower cost. Underlying the need to develop a new business model is the need to identify a better value proposition.
The health care industry has historically been focused on a clinical value proposition. Health outcomes, for the most part, have been measured only in terms of mortality and morbidity rates. The industry has experienced a surge of innovation, providing more and better treatment options, but at increasingly higher costs. Now costs have reached an unsustainable level.
Generally missing in current efforts to attract health care consumers is any genuine innovation to develop new care approaches that would provide total economic and clinical value over a continuum of care. Such innovation would create a truly differentiated and compelling value proposition—one that would clearly be the preferred choice of consumers.
Real market leaders position themselves to "own" customers over their lifetime. Health care organizations that can break their inpatient, acute-care mindset will be able to strategize and implement a range of services, care continuums and facilities to compete for all of a consumer's likely health needs and preferences, across different life stages.
A few leading health care providers, such as Geisinger Health System, Mayo Clinic and Kaiser Permanente, have already done considerable research establishing new predictive care paths and quality outcome metrics. This is evidence-based medicine at work. The amount and types of care required for some conditions can be predicted, so a transparent total price can be established and marketed. The result is a track record of great outcome results for a guaranteed, fixed price—exactly the economic and clinical value proposition customers want and get when providers compete for their business.
Many hospitals have created service lines to provide a focus of clinical excellence and to define a product that will generate growth. In most cases, service lines are defined by a group of acute care procedures, rather than a truly integrated new approach to manage a disease state over time—with evidence of longer-term favorable outcomes. Basically, the hospital's value proposition is "we'll replace your knee after a lifetime of arthritis ravaging your joints." Given a choice, that's not a very attractive option.
Integrated care paths—and the outcomes they achieve—are the true "product" of hospitals and physicians, not each procedural detail. Considering the goals of health care reform, this implies that, like manufacturers, investments in R&D (e.g., new approaches to care delivery) will need to become part of the new business model. As such, these products can be audited for quality just as products of pharmaceutical and medical device manufacturers get audited.
Care paths as a tangible product of evidence-based medicine also promise a better standard of care than currently required by the Joint Commission. Innovations in health care delivery should lower cost and improve outcomes, as is true in other industries.
With products there must also be transparency of both the price and the value of the care path products being offered. Responsible buyers need this information if we expect them to be accountable for the cost consequences of their decisions. This is true of CMS, private insurance or consumer buyers. Transparency of price and value is already evident and established in non-covered health care markets such as cosmetic dermatology and corrective vision surgery—a clear demonstration of how a natural, competitive market can function throughout health care.
Implementing this business model to better compete requires a whole new range of operational decisions and organizational competencies:
Which physicians should we build a strategic alliance with? What does a business partnership with such physicians look like and how does it work? What new roles and skill sets do we need in our organization to manage such physician relationships?
What are the different types of facilities we will require? What are the various resource models of skilled staffing we will need to cost-effectively deliver the different services each facility provides?
Which technologies should we invest in to best deliver the patient-preferred health care services we've identified? What will provide the best payback to keep our organization financially healthy?
Are there clinical and economic benefits of our range of services that would make us a preferred provider to payers? How will we capture and communicate these benefits? What and how will we communicate to patient consumers to attract their patronage? What is our differentiated value proposition?
Imagine a single health care organization, with:
Wouldn't that be your choice of a health care provider?
Rita E. Numerof, Ph.D., is the president, and Bill Ott, M.B.A, is a senior consultant at Numerof & Associates Inc. (NAI), a strategic management consulting firm in St. Louis.
This article 1st appeared on February 16, 2010 in HHN Magazine online site.
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