Across the country new payment models being tested by CMS like MACRA and the Comprehensive Joint Replacement Program (CJR) are driving healthcare delivery organizations to focus on the value they deliver to payers and patients.
Historically, healthcare delivery organizations defined value in narrow terms and focused on complication and mortality rates. In addition, processes were designed to meet the needs of the physician, not the patient or customer. Efforts to increase volume focused on providing amenities like car valets and private rooms rather than outcomes.
However, recent policy changes and a greater focus on economics are encouraging individuals to assume more responsibility for healthcare decisions. Hospitals competing in this environment need to adopt a market-based model centered on transparency, accountability for outcomes, and customer choice. This demands a much broader framework for evaluating value and healthcare executives would be wise to look at other industries. A more useful framework is one drawn from the world of retail sales, and incorporates what are known as the 7 P's of the marketing mix.
The marketing mix is not a new concept. It was originally developed in 1953 by Neil Borden, President of the American Marketing Association, to look at product, price, place and promotion. Since then it has been expanded to include people, process and physical evidence. Here's how the seven components of the marketing mix translate into the healthcare delivery context.
Define the Product Components
Determining what a product is going to be requires understanding the full extent of customers' needs and wants, and then developing the product in such a way that it fulfills those needs. Within a health system, every customer wants to 'get well', however, what that looks like varies by individual. Two people with a similar cancer diagnosis might want different outcomes from their treatment. One might want to extend life as long as possible no matter the side effects, while the other is less concerned about longevity but wants treatment that maintains current quality of life without debilitating side effects. The product here is the treatment plan, and as the example suggests, there can be multiple "products" for the same condition for different patient segments who define what they want from treatment differently.
Determine the Price (and Understand Your Costs)
Developing a price requires understanding the direct and indirect costs of providing the product – as well as how much customers are willing to pay for the specific or comparable products. What a customer will pay takes into consideration features/benefits/experience of the product, how well they relate to a customer's needs and wants, and how they compare to the competition.
Most organizations don't understand what it costs to deliver the services they provide. They tend to look at costs at a macro level and struggle to define what it costs to deliver a specific treatment or episode of care. Understanding such costs will enable healthcare leadership to assess the profitability of individual service lines, external partnerships, or clinical management of specific patient populations, and then make informed decisions about where to invest.
Identify the Best Place
Organizations must ensure their product is offered at the right place at the right time, where and when it is convenient for the customer to access it. In general, delivering care in the least costly setting minimizes the cost of delivery. In addition, expectations of customers about where they obtain care are changing. Outpatient alternatives to delivery in an acute care setting – urgent care clinics or standalone imaging centers, for example – are becoming routine, as customers seek to minimize the burden of obtaining care.
Determine How to Promote Your Product
The promotion aspect of the marketing mix refers to how an organization communicates how its product addresses customers' needs and wants. It requires creating a value proposition that translates demonstrated product benefits into a narrative that resonates with customers. Promotion helps to identify what is unique about a product and provides the customer with information, including facts and data, to support product purchase.
People Play a Significant Role
In traditional product businesses, customers can return the product if it doesn't meet expectations. However, in service businesses like healthcare, the product is the experience provided and depends on the people providing the service. Since customers often can't touch or feel the experience in advance, they must trust that the service will be delivered as promised. That means organizations must ensure clarity of expectations and deliver in full against those expectations. When an organization doesn't deliver as promised, its reputation can be tarnished which can have a strong impact on future sales. To address the people component of the marketing mix, delivery organizations must ensure that the people involved in providing the service have the technical and interpersonal capabilities and skills needed in order to deliver high quality service and ensure customers' expectations are fulfilled.
Processes Ensure Consistent Performance
Processes address how the product is delivered to the customer. They support the customer experience to ensure that the service is delivered effectively and consistently. Processes can be direct activities that touch the customer, like how they are greeted upon arrival, or steps taken to ensure operation on the right body part. Process can also be indirect activities like back-office procedures that support the overall experience before, during and after the service. Standardizing processes ensures that the customer can expect the same performance on a consistent basis.
Creating Physical Evidence
Physical evidence reflects the things a customer can see that impact the overall experience. Think of an entertainment venue like a baseball game. The physical evidence includes the uniforms, the logos around the ballpark, and convenient location of refreshments and other services, among other items. Each of these physical attributes contributes to the value of the overall experience.
In a hospital, a welcoming environment that includes a car valet and a beautiful entrance is only part of physical evidence. How well they navigate the labyrinth of a delivery organization and what they see as they move from location to another also provides physical evidence. Clear and extensive signage as well as hallways with pictures rather than sterile walls also creates physical evidence. After all, it doesn't matter how well the service was provided if people struggle to find their way.
Putting it All Together
Successful healthcare delivery organizations understand that all potential customers expect to come to their facility for safe care. As they assume more financial responsibility for their healthcare, they'll make decisions with their feet about where they go for services. By adopting a retail approach, hospitals and health system leaders can broaden their thinking about what they do and how they do it. New thinking will unlock opportunities to achieve sustainable competitive advantage and profitability now.
Kimberly E. White, MBA, is a Vice President, and Michael N. Abrams, MA is Managing Partner at Numerof & Associates, Inc. (Numerof). Numerof is a strategic management consulting firm focused on organizations in dynamic, rapidly changing industries. We bring a unique cross-disciplinary approach to a broad range of engagements designed to sharpen strategic focus, increase revenues, reduce costs, and enhance customer value. For more information, visit our website at www.nai-consulting.com.
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