Growth is the Answer: 3 Ways to Grow Your Hospital Business

"Growth is the answer!" That was the first response of Alfred Marshall, one of the grandfathers of contemporary economic thought from 19th century England, when he was asked how to deal with difficult economic environments. Similarly, growth should be a hospital leader's first response to a challenging business environment.

Hospitals' reimbursement rates have been cut as a result of federal government spending cuts and insurance payers gaining a stronger position. Procedure volume has been flat as patients pull back on healthcare spending due to the economy and growing insurance deductibles. The impact on a hospital's bottom line can be significant. Some hospitals have responded as victims of circumstance, resorting to significant cost reductions. But cutting costs can often restrict a hospital's ability to grow revenue, creating a downward spiral for the facility. There are other options. Instead of simply cutting costs, healthcare leaders should find ways to redirect existing, current resources and expenses, to create more effective growth strategies. In this very tumultuous time, growth is paramount.

1. Connect with the hospital's customer, the physician. The best low-cost investment is spending time with the physicians who send (or could send) referrals to the hospital. Rethink the mission of the marketing department. Do billboards and newspaper advertisements build a stronger relationship with referring physicians? Probably not, in most cases! Consider focusing marketing efforts on physician outreach. Dedicate effective, well-trained staff members to meet with referring physicians on a daily basis, identifying barriers to referrals and building relationships. Support the physician marketing effort by creating helpful materials to simplify the ordering process, such as order forms, ordering guides and educational materials. It may appear too simple, but these are the things that can make doing business with your hospital just a little easier, compared to the local competitor. Be sure to include radiologists and key administration professionals in your marketing outreach efforts. Above all, remember that the customer wants to feel special and be heard. A simple lunch or conversation with a physician, asking what that physician wants to see and listening, can go a long way toward improving a relationship and building loyalty to the hospital. It does take dedicated time and resources to reach out to key or potential referring physicians, and to listen and respond to their concerns. But this investment of time and resources is crucial in order to grow the hospital's business.

2. Keep the front door wide open. Every company has a front door, but it may not be a physical entrance. For a hospital's outpatient services, the front door is the scheduling department. If the phone is not answered when a physician calls to schedule an appointment, the front door is closed. Consider the additional "doors" that customers pass through, and the potential bottlenecks associated with each door. Identify departments that have excessive wait times or backlogs. These are departments with lots of customers — but they have the equivalent of a line at the front door. Make small investments, such as adding support staff to improve operating room turnaround or shorten the time between MRI exams. Consider expanding the hours of operation for departments that have fixed assets, such as diagnostic imaging.

As an anecdote, there is a hospital in California that had a prolonged hiring freeze and an understaffed scheduling department. The referring community complained of long hold times and dropped calls; feedback proven by the phone system reports and ghost calls. Because of the poor service, physicians defected and volume dropped, which led to declining productivity standards. More FTE cuts followed to match productivity standards, which only decreased the service of scheduling further — the front door.

Adding FTEs may not always be the best way to improve service and open the front door, but it's rare that FTE cuts are good for service. FTE productivity standards may be a helpful guide to staffing levels, but they should never be the determining factor for the size of a hospital's "customer doors." Productivity does not always equate to good service and profitability.

3. Target the outliers. The 80/20 rule may apply to healthcare more than any other industry. Much of the profit within a hospital comes from a few key service lines, procedures and physicians. Identify those service lines that provide the hospital a majority of the profit — usually diagnostic imaging, surgeries and some auxiliary service lines such as physical therapy or rehab. Focus efforts and resources on these positive outliers. Likewise, evaluate the negative, money-losing outliers. Are they necessary to the hospital? Identify the surgery outliers that produce a significant amount of profit in a health system. Determine if the volume of these key surgeries can grow. Bariatric and inpatient joint replacement surgery are often positive outliers. A visual picture is always helpful. Plot the service lines, procedures and physicians on a scale of profitability: points on the right represent profitable areas, points on the left represent money-losing areas. The points on the far right of the scale are the immediate places to focus for replacing lost revenue. And if cuts are needed, look to the left side of the scale.

The challenges in today's hospital environment are obvious, and there is no promise the payer environment will improve. In any local or national market, the competitor that is growing is winning. Developing and executing a strategy for growth attracts positive energy, innovative employees, proactive physicians — and ultimately — patients. Simple strategies are often the best, along with adhering to core business principles: know the customer, keep the front door open — and know where money is made and lost.

Remember, growth is the answer!

Barrett Clark is the director of strategy and Analytics at Ivy Ventures, LLC. His focus is on identifying and implementing strategic initiatives to help health systems grow profits. Prior to joining Ivy Ventures, Mr. Clark was a financial analyst for the Financial Planning & Analysis Team at Wachovia Securities (now Wells Fargo Securities). He can be reached at bclark@ivyventures.com.

J. Stephen Lindsey, FACHE, was CEO at HCA Henrico Doctors' Hospital for 16 years. He has served as an affiliate professor in the MHA program at Virginia Commonwealth University. Mr. Lindsey is a principal of Ivy Ventures, LLC, a consulting firm that helps hospitals grow outpatient service lines. He is a fellow of the American College of Healthcare Executives. He can be reached at slindsey@ivyventures.com.

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5 Ways for Young Healthcare Leaders to Achieve Their Most Important Goals

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