Customers are expecting more of health care providers. The national debate about skyrocketing costs, concerns about quality and lack of transparency — plus the fact that consumers are shouldering more responsibility for the cost of insurance and treatment — have placed health care delivery in the crosshairs.
Employees insured under group plans are paying a larger share of premiums and are migrating to high-deductible plans that trade lower premiums for more exposure to care expenditures. With 30 percent of covered employees enrolled in such plans, sensitivity to price and other value elements is growing. (See "Reshaping Health Care: Best Performers Leading the Way" by Towers Watson and the National Business Group on Health, 2013.) These consumers are demanding more from providers — either directly or through their employers and insurers.
Providers need to be aware of these emerging market requirements and build their competitive capability to meet these needs. Those providers that can demonstrate they deliver greater value — in terms of both cost and quality — will be able to differentiate themselves and generate sustainable competitive advantage in a challenging marketplace.
Consolidation Is Not the Answer
Some providers may feel that they are insulating themselves from the demands of the marketplace by making themselves indispensable through consolidation. Merger activity has increased in anticipation of the Affordable Care Act that is coming fully into effect. Accountable care organizations will result in further consolidation. As this trend continues, the large, fully integrated hospital systems may feel that as the only player in town, they have a stronger negotiating position with insurers, and that patients have no choice but to come to them.
While this may be true for certain services such as emergency department care, it is also true that for most treatments, many patients and employers are willing to travel if they can get better value. Many providers have created a brand for themselves that extends the geographic catchment area nationally and even internationally — consider the Cleveland Clinic, Mayo, MD Anderson, Sloan-Kettering and others. Large employers have negotiated directly with these hospitals for their workers' specialized care across the country.
Payers, increasingly under pressure to reduce costs, are aggressively renegotiating reimbursement contracts with providers. They possess claims data on hospitals and their competitors. Without compelling evidence and data, hospitals will be negotiating from a position of weakness.
How Is Value Defined?
Providers need to conduct extensive research to understand how each group of stakeholders defines value. While there is a common desire for better outcomes at lower cost, the emphasis placed on each element of the value story will vary by segment and market, and providers need to identify the components that resonate most with their target audience and support their story with data. Payers are under increasing cost pressures themselves and, in the absence of outcomes data, they will assume that all providers are equal and drive reimbursements to the lowest price possible.
Likewise, consumers (employers and patients) want to see outcomes data — on measures like length of stay, recovery time and complication rates — to help them select their providers. As they are bearing more of the cost of their own health care, consumers will examine the comparative value provided by a delivery organization, just as they do for most major purchases. This behavior will be crucial on the marketing front.
The provider's value story will enable stakeholders to select one facility over another. Also, with more transparency, a value story will be required to justify price differentials among providers. And more transparency is coming. If hospitals don't proactively tell their value story, others will define it for them.
The recent decision by the Centers for Medicare & Medicaid Services to make public the rates charged by participating hospitals clearly indicates that, from a public policy perspective, competition can restrain price growth. Aside from such mandated transparency, other sources are springing up to help consumers evaluate comparative cost and quality for the care they need. Leapfrog and Consumer Reports both are compiling and publishing quality data on hospitals across the country.
At the state level, a website called AZ Hospital Compare allows consumers to compare more than 100 hospitals in Arizona. In addition to reporting outcomes, the site lists what each hospital bills for each of several hundred different medical procedures; and it spells out what each hospital reports the procedure actually costs them.
Any institution that does not provide such economic and clinical value data — some of which is now mandated by law — risks being omitted from consideration and thus losing patients. Past reputation will be insufficient unless decision-makers can see datato support their claims.
Building the Value Story
Building the value story for customers can be broken into four distinct steps:
1. Understand and document current performance and the causes of cost and quality variability. To compete and prosper in this new marketplace, hospitals will have to generate, analyze and publish data that many don't currently have. Despite significant recent investments in information technology, very few providers have a good understanding of their actual performance and of the relationship between financial and clinical outcomes. Often investments have been in either the state-of-the-art electronic health record systems or financial reporting tools, resulting in one-sided data. In many cases, providers have not invested in training and have not incentivized their staff to capture data, ultimately resulting in white elephants — expensive systems with missing or inaccurate data.
Unless providers capture and analyze the appropriate clinical and financial data together, it's impossible to generate the evidence needed to support the value story. Additionally, without such data, it's difficult to determine the causes of variability in cost and quality, or to manage their health and economic outcomes effectively.
2. Define the economic and clinical value drivers applicable to each stakeholder. Providers should consider their value proposition from the perspective of the intended target. By putting themselves in their customers' shoes, they can determine what each group values. An employer may look for a broad range of services, quality outcomes, the caliber of physicians and low cost. A consumer likely is focused on outcomes and quality of life during and after treatment as well as convenience of location. Payers may focus on operational efficiency and cost.
Providers will need to conduct extensive market research to determine which factors are of greatest importance to different segments of the stakeholder population. These factors may change over time as the health care landscape evolves. For example, cost may become even more important to patients as their co-pays increase and high-deductible plans proliferate. Insurance companies now are beginning to flip the traditional model of expanded networks to become much more exclusive about who can be in network. They are demanding quality and cost data, and providers that aren't able to deliver will be left behind.
As consumers become more sophisticated in the way claims about value are presented and data are analyzed, hospitals will need to maintain and deepen their understanding of customer needs. The emergence of additional sources of comparative data on quality such as Leapfrog or Consumer Reports' new health care division will make it all the more critical that providers understand their own data and can present them in a way that supports those claims deemed of highest value by their customers.
3. Develop a value story and support it with evidence. Lacking a regulatory mandate or customer demand for this information, few institutions have published data on their health outcomes or charges. This, however, is changing. CMS's recent release of inpatient and outpatient charges for hospitals across the country is an indication that transparency is seen as a tool with cost-containment potential. And, as consumers grow more price-sensitive, they will want more information about what they are getting for their dollars.
Studies by the RAND Corp. revealed that consumers switching to high-deductible health plans spent between 14 and 21 percent less on health care the first year. They had fewer episodes of care and spent less per episode. (See "Skin in the Game" by the RAND Corp., 2012.)
These changes and trends should galvanize providers into action to prepare for more transparency. While hospitals may be reluctant to be the first mover, there is an opportunity to gain advantage over the competition by setting the bar and demonstrating a willingness to share information that has been unavailable.
There are providers who believe that patients can make better decisions about their health care if they have accurate information. For example, University Hospitals in northeast Ohio is reporting publicly how the system ranks in nine conditions, from heart attacks to hip replacement, on a range of recognized quality measures.
Based on an understanding of their own data and what customers consider important, providers have to determine which elements of transparency would be an opportunity for competitive advantage. Not only must they define the services that can be their strategic strengths relative to the competition, but they must be able to support their claims with evidence. For example, there is no point in claiming that you have a cardiac service line that's better than a competitor's if you haven't been collecting statistics on outcomes.
4. Determine how to target the intended audiences and get the differentiated message out. Hospital marketing will need to evolve from promoting the newest technologies, ease of setting up appointments or valet car parking services to articulating a data-based differentiation of value in terms that are most important to the hospital's customers. Once hospitals determine the basis on which they can compete and have developed the claims they wish to make, they will have to determine how they communicate with their intended audiences.
It will no longer be sufficient to establish a reputation in the local marketplace with acts of philanthropy — the target audience is much more geographically diverse and the message less about image and more about facts and data. Being the largest regional employer does not carry as much weight across state lines and around the world. Providers, now dealing with stakeholders who either don't know or don't care about an institution's community impact, will need to change their mindset.
Seeing national ads for such institutions as Mayo Clinic, MD Anderson or Cancer Treatment Centers of America may seem strange today, but it is happening. And it will become much more prevalent as agreements between provider organizations and employers to provide services to their employees regardless of geographic location become more common.
Providers will need to prepare for competitors who are targeting their local sources of revenue from afar, and they may need to target customer segments outside their immediate market area. The capabilities required for this more targeted and data-intensive approach to marketing are a paradigm shift for the majority of hospitals today.
Act Now or Be Left Behind
The anticipated revolution in health care will not take place overnight, but the pace of change has accelerated and will continue to do so as the ACA is implemented. The investments required to generate, analyze and communicate the data supporting economic and clinical value claims are not insignificant. Additionally, it will take time to develop the research and marketing capabilities necessary to define and articulate competitive attributes.
For provider institutions that want to become or remain market leaders in the new marketplace, building an economic and clinical value story will take time, resources and new expertise. There is no time like the present to start this journey.
Rita E. Numerof, Ph.D., is president and Christopher de Wolff, M.S.F.S., is a consultant at Numerof & Associates Inc., St. Louis.