Since the industry's inception, healthcare providers have relied on benchmarking to try and understand their organization's position relative to others across various markets.
And, since the industry's inception, almost every healthcare stakeholder — but most egregiously, hospitals and health systems — have incorrectly participated in the practice: benchmarking not according to quantitative factors or sound economic modeling, but instead according to qualitative factors, anecdotes, reputation, and — most often — aspirational goals.
Using mathematical principles to create benchmarks has always been possible; doing so at scale, however, was not, primarily because of the limitations of raw computing power. In today's health economy, computing power limitations are no longer a barrier, with AI and machine learning changing what's possible.
As the health economy faces a turbulent future — especially in a period of extreme market uncertainty — employing an evidence-based strategy, informed by a machine-learning based benchmark focused on market similarities, will be a requirement for providers; it's the only way to get a true barometer of where a system is in comparison to where it needs to go.
And for hospitals and health systems, which are competing for a "shrinking pie" of patients, using a mathematically sound, evidence-based approach is more important than ever, especially one that takes into account market similarities, economics, demographics, consumer behaviors/preferences, and other competitive factors.
Crafting strong M&A and growth strategies through similarities benchmarking
Without benchmarking against true competitors in similar markets, every business strategy is wrong, to some extent, which is especially problematic for healthcare delivery organizations.
Whether you want to exit markets in which your organization performs poorly, or whether you want to invest more heavily in markets in which your system performs well, the core issue is the same: How do you know your position in relation to the market(s) in which you operate?
Here are five ways in which hospitals and health systems can benefit from benchmarking according to market similarities in their M&A strategies:
- Identifying which markets to enter based on successful markets you are already in
- Identifying which facilities to acquire based on similar performance
- Identifying which markets to exit if not performing well in certain areas
- Identifying which markets have a high concentration of primary care physicians if opening/acquiring more primary care practices/docs is a priority.
Beyond M&A, hospitals and health systems should rely on market-similarity benchmarking to chart the most strategic and evidence-based path forward to system growth and optimization -- including identifying markets with attributes of relevance for a particular organizational strategy or company priority.
To walk through an example, consider that ABC Health System learns that, of all its markets, City A (with average patient age of 62) is performing very well in terms of market share/healthcare demand. It also appears that a lot of the patient volume in that market is attributed to surgeries. If surgical care is a strength of ABC Health System, it should explore expanding into markets similar to City A in terms of demographics (e.g., an older patient population stands to need more surgeries).
Another example could be that XYZ Health System wants to improve their patient recruitment strategies and increase/improve referral patterns. If XYZ Health System is an academic medical center, it should be looking to attract patients with certain preferences and psychographic profiles.
Why? In the case of academic medical centers, these systems' recruitment and patient communication strategies should be targeted at "Priority Jugglers": a psychographic profile that tends to value brand name over other factors when making healthcare decisions. With that takeaway in mind, XYZ Health System should look to market(s) that have a higher concentration of patients with that specific psychographic profile.
Using psychographics in this way is not just to the benefit of health systems' growth and optimization strategies, either. Consider where and how Amazon should be targeting consumers and determining which consumers will be more inclined to use Amazon Care services in comparison to primary care services through One Medical.
Given the virtual nature of Amazon Care, it will likely be received best among both "Self Achievers and Willful Endurers, who are more likely to use telehealth. Willful Endurers live in the "here and now" and are more likely to obtain care in urgent care settings. Self Achievers are most proactive about wellness and stay on top of health issues with regular medical checkups, health screenings, and research.
Not every system can — or should — be an Intermountain, Cleveland Clinic, or Geisinger
More broadly, health systems should be thinking about the concept of market and organizational similarity across every aspect of how they benchmark. Just because a certain health system is ranked highly in the ever-popular U.S. News & World Report of top hospitals does not mean that all other health systems should be striving to be and comparing themselves to them.
Instead, hospitals and health systems must start their benchmarking analysis at the market level. Healthcare is local, and benchmarking must follow suit.
For example, which markets are most similar to those in which the top-ranked hospitals operate? Are there markets with similar patient composition or concentration of a disease state in that list, which your system would like to major in, such as treating cardiovascular disease? Then, at the facility level, what hospitals are most similar to those top-ranked systems in terms of cardiac surgery volumes and readmission rates?
One example of a top-ranked (but largely incomparable) system is Intermountain, which serves a fairly homogenous population that tends to be healthier, in a market that's vastly different from others across the rest of the country.
For a health system in the Southeast — a part of the country which has a higher incidence of chronic conditions and comorbidities — benchmarking against Intermountain, which serves a market that isn't as diverse, more commonly abstains from alcohol or tobacco use, and has far lower rates of chronic conditions, is not a fair comparison or organizational aspiration.
Similar thinking goes for any health systems that are benchmarking against and striving to be like Geisinger. For a myriad of reasons – such as the fact that Geisinger is an integrated delivery network (IDN) that operates a health plan and employs all its own physicians — the organization is not a comparable benchmark for most of the nation's hospitals and health systems.
Healthcare is local and benchmarking methodologies must be, too
From benchmarking and market analysis to strategy development and execution, healthcare decisions must be evidence-based and made at the local level. Not every system can be in the top 10, but they can be in a top 10, by taking the right approach to benchmarking.
If a health system and/or one of its programs is in a top 10 within a specific market, then financial success means looking to markets that are most similar and/or emulating the leaders in those similar markets. That's how a health system executive charts the most appropriate path to success now and in the future.