Q: Profitable growth is challenging for any business, and is especially challenging for hospitals, which have historically operated on comparatively low profit margins and today face increasing pressure on reimbursement from payors. Your book promotes the idea of driving profitable growth through “unlocking your customer chain.” How do hospitals go about unlocking their customer chains?
George Brown: It’s definitely a very challenging environment for hospitals. In almost every other industry, if you do a good job and provide a service at the highest end of the spectrum, there will be a greater demand for your services and people will be willing to pay a higher price for them. For hospitals, you take those factors out of the equation. Hospitals don’t have control over Medicare payments and pricing with commercial payors is based on often challenging negotiations.
In other industries, a business can greatly benefit by thinking about different ways to add value to the customer, but this isn’t true to the same extent in healthcare. As a result, the focus really needs to be on making quality care more efficient and finding ways to provide services at a lower cost.
Q: In your book, you suggest companies map out their customer chain and look at ways that increase value to multiple customer groups. What would a hospital’s customer chain look like?
GB: Physicians, patients and payors are in a sense the genuine customers of the hospital. Suppliers are in another class, but are still important. Traditional business conventions and economics don’t always apply for hospitals, but there is an opportunity for these providers to better collaborate with these groups to increase efficiency. Hospitals have moved toward collaborating with physicians, but they could really stand to build closer relationships with suppliers.
When a business works together with suppliers and customers, it can create a ‘co-destiny relationship.’ A great example of this is in the healthcare IT area. Here, IT suppliers work closely with hospitals to develop systems and programs that meet a specific hospital’s operational and clinical needs. This collaboration not only makes the supplier’s tool more valuable to the hospital, but also helps the hospital more efficiently meets its goals, making it more valuable to its customers.
Q: Your book also talks about segmenting customers. How does this idea apply to hospitals, beyond just segmenting customers by physician, patient, payor?
GB: The idea of segmenting patients by ability to pay runs a bit in the face of our country’s culture. But, there is no question that hospitals will need to do this to understand the profitability of the different segments it is in. It’s common knowledge private payors pay better rates than public ones, and hospitals need to plan for that. In some industries, I might counsel an organization to get out of a segment that’s not profitable, but that isn’t necessarily advisable in healthcare. It’s standard practice for businesses to figure out what they make money on, and do something about the areas they don’t. Of hospitals, that may not mean leaving the segment all together, but it does help you focus your thinking on what you can do differently so the segment can be sustainable rather than a burden.
Q: Your book closes with a discussion around using customer information to inform market plans. What are some key considerations for hospitals as they develop such plans?
GB: While there are always going to be a few elements of a strategic or market plan that are confidential, what we say to companies is that in general they should share their plans with their key customers and stakeholders. Vetting it through physicians and suppliers, for example, can provide valuable information. I know a lot of examples where good ideas were made better, and bad ideas were scuttled in advance because of feedback from stakeholders. If hospitals aren’t sharing their plans with these groups, I highly encourage they do.
Q: Although there are signs the economy is beginning to turn around, the downturn has had a negative impact on many hospitals as many patients put off medical care for financial reasons. Does economic environment change how hospitals should think about their customer chain and growth opportunities?
GB: The economy is definitely down. The whole healthcare debate spotlighted the fact that people without insurance are put in very difficult circumstances, and hospitals are the ones that bear that burden. In must sectors, the demand for services will go down as people look to cut costs. It’s almost exactly opposite in healthcare. While people can put off elective procedures, the demand for many other services doesn’t change, which is challenging for hospitals that often have to foot the costs. One remedy is expanding coverage options, but it’s uncertain rather that alone will be enough. The healthcare business is very challenging, and it’s difficult to know what the answer is to improve the model.
Learn more about “Co-Destiny, Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs.”
At Becker's 4th Annual CEO + CFO Roundtable, taking place November 2–5 in Chicago, more than 1,500 hospital and health system executives tackle decisions that determine whether organizations thrive or merely survive: protecting margins under cost pressure, choosing where to grow, renegotiating payer relationships, stabilizing the workforce and proving real ROI on technology. This is where leaders work through them together, face-to-face. Apply for complimentary registration now.
