FM002 Marketing Strategies

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PART UU

THE FIVE Ps OF HEALTHČARE İMARKETING

FEATURECASES MARKETMANAGEMENT

This real-life case invites students to analyze and prioritize various kinds of information common to a dynamic and competitive healthcare marketplace as part of an organization's strategic mar- keting process. It presents the unique and important issues and challenges a regional healthcare provider (Community Medical Centers) had to face as it attempted to engage patients, physi- cians, payers, and the general public in a politically sensitive environment. This case reinforces the material introduced in Part Il of this text by asking students to assume the role of assistant director of strategic planning and marketing and to analyze, synthesize, and prioritize findings from Community Medical Centers' recent environmental assessment to position the organization and promote its services to area physicians, patients, payers, and the general public.

Information included in this case was derived from the California Health Care Almanac, a publication of the California HealthCare Foundation (2009). Although the information about the Fresno, California, healthcare market is true to fact, modifications have been made to names, roles, settings, and numerical values to preserve anonymity and accentuate points of learning.

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56 Healthcare Marketing: A Case Study Appro ach

INTRODUCTION Twenty-three-year-old Rachel McKee completed her undergraduate degree in healthcare administration with an emphasis in planning and marketing. To her delight, shewas offered the position ofassistantdirector of strategic planning and marketing at Commu- nity Medical Centers (CMC), a large healthcare organization in central California. Rachel was ambitious and cager to make an early impact. She was pleased that her new boss and mentor, Lindsey Chadwick-a seasonedhealthcare veteran-seemed confident inRachel's ability toprocesscomplex information andassume increasingly important responsibilities.

Lindsey understood the intricacies of CMC and the local healthcare market. Her supervisor and members of the board had put her in charge of updating the organiza- tion's strategic marketing plan in response to important, ongoing changes in the local and regional markets. Lindsey assignedRachel the important task of performing an environ- mental assessment and using the results to complete a strengths, weaknesses, opportuni- ties, and threats (SWOT) analysis and draft a summary of the organization's core strategic initiatives. From these important documents, Lindsey and Rachel would update CMCS strategic marketing plan.

From the outset, Lindsey advised Rachel to gather andassess relevant market infor- mation from varioussources, including noted health industry publications; organization, statewide, and other publicly availabledatabases;and interviews with executives, physician groups, insurance companies, regulators, and others. Like an investigative reporter, Rachel was directed to probe and dig for important and useful information that would ultimately provide a framework and justification for the organization's marketing plan. From her coursework in college, Rachel remembered that a marketing plan must include timely and accurate information about a market's healthcare providers -notably hospitals and local physicians. She knew that a summary of key market demographics, including patient, employer, and insurance company profiles, wasessential. A broad yet detailed understand- ing of the public at large and the political dynamics among the provider community also was vital. Finally, sheneeded to gain an overview of key industry trends. After four months of diligent study, networking, and thoughtful analysis,Rachel presented her environmental assessmentto Lindsey. Herassessment included the following highlights.

FRESNO MARKET BACKGROUND

With a total population of 1.6 million people, the greater Fresno area had seen strong growth over the past decade-up 22 percent compared to 14 percent statewide. It wasone of the poorest communities in California; the incomes of nearly half of the Fresnoarea population were below 200 percent of the federal poverty level. Educational attainment was also well below the stateaverage; only 22 percent of adults held a college degree. Approxi- mately 50 percent of the market population were Latino, 37.5 percent were white (non- Latino), and 20 percent were foreign born. The health status of local/regional residents

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Part I|: The Five Ps of Healthcare Ma rketing 57

wasgenerally not good; approximately 20 percent self-reported fair or poor health status, andmore than 27 percent were living with asthma, diabetes, or both. The unemployment rate in theareawas high and continuing to rise; 15.5 percentof the population was out of work (up 5 percent over the previous year and 5 percent higher than the statewide aver- age). Although agriculture was a vital part of the local and regional economies, the largest employers in the market were public-sector organizations, including Fresno County, the City ofFresno, and the Fresno school district. Two major healthcare systems-CMC and SaintAgnes Medical Center-were among thearea'slargest private employers (California HealthCare Foundation 2009).

HOSPITAL/HEALTH SYSTEM PROVIDERS

Most of the hospitals in the region were nor-for-profit or government/district hospitals. The Fresno community had an acute care bed capacity of 173 per 100,000 (slightly less than the statewideaverage of 182) and an occupancy rate of 68 percent (greater than the statewide averageof 59 percent). The major hospitals ran near capacity at certain times of the year.

The major hospital systems in Fresno County were CMC (800 beds across three hospitals), Saint Agnes Medical Center (more than 400 beds), and Kaiser Permanente Fresno Medical Center (165 beds). These hospital systems represented roughly 50, 30, and 10 percent of the hospital market, respectively. CMC and Saint Agnes served a large geographic area and enjoyed a referral base from several outlying counties. Historically, the relationshipbetween CMC and SaintAgnes hadbeencharacterizedby litle collaboration and intense, long-standing competition bordering on animosity. While Saint Agnes was located in the more affluent part of north Fresno and was often describedas the cash cow' of its 40-hospital parent corporation, CMCS 500-bed flagship facility was located in the heart of Fresno and, with its nine outpatient clinics, served as Fresno County's primary saferynet provider.' Financial lossesat CMC's lagship facility were largely offset by highly profitable operations at its two sister hospitals located in more affuent communities to the north and northeast. In recentyears, CMC hadreversedits negative financial performance and had become modestly profitable.

Reports from the Ofhce of Statewide Health Planning and Development indi- catedan increasingly unfavorable payer mix acrossall Fresnoarea hospitalsan indication of the community's high levels of poverty, lack of insurance, and Medi-Cal (similar to Medicaid) coverage. The Saint Agnes payer basewas approximately 25 percent Medi-Cal. CMC -with its more than 30-year contract with Fresno County to provide indigent care- reported that nearly 40 percent of its patients were covered by Medi-Cal. Major initiatives at CMC inluded the recent opening of 160 new beds at its fagship hospital, including 56 neonatal intensive care beds. After opening a new patient tower, Saint Agnes added 36 neurosurgery and critical care beds. In somecases, new hospital construction was aresponse to both capacity issues and compliance with state seismic standards. Both CMC

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58 Healthcare Marketing: A Case Study Appro ach

and Saint Agnes also added new programs to stem the exodus of patients to out-of-area providers ofservicesnot previouslyoffered within the community.

Survey respondents' characterizations of the quality of care at Fresnoareahospitals ranged from poor to good. Many opted to leave the area when they got "really sick'; a study showed that patients sought nearly $500 million in medical careservicesoutsidethe greater Fresno area annually for a variety of reasons, notably long wait times, physician shortages, and concerns about the quality of care provided by area hospitals. In recent years, arca hospitals aligned themselves with academic teaching programs to support clini- cal/medical training programs, improve the quality ofcare, enhance their reputations,and recruit more physicians to the market. Notable associations included CMC's formal affili- ation with the University of California, San Francisco, and Saint Agnes's affiliation with Stanford University for cardiology andneurosciences.

Although Saint Agnes was widely regarded as the premier hospital in the market, highly publicized recent outbreaks of methicillin-resistant staphylococcusaureus(MRSA) infections and Legionnaires' diseasehad raised questions about its patient care andquality.

PHYSICIAN AND ALLIED HEALTH COMMUNITY

The greater Fresno area suffered from a notable shortage of primary care and specialistphy- sicians, with 45 primary care physicians per 100,000 residents versus 59 statewide and 118 physicians overall per 100,000 residents versus 174 statewide. An aging physician work- force led market observers to expect shortages to worsen. Nurses and other allied health personnel were also in short supply, causing the federal government to classify most ofthe market as a health professional shortage area. Primary and specialty physician shortages invariablyresulted in long appointment waittimes a keyreasonmanyinsuredpatients sought medical care outside the local market. Wait times for dermatologic appointments, for example, were reportedly 9 to 12 months. Other specialists in short supply included neurosurgeons, general surgeons, cardiologists, gastroenterologists, oncologists, otolaryn- gologists, ophthalmologists, and psychiatrists.

Recruiting new physicians to the Fresno area was challenging because of various factors, including poor payer mix, poor reimbursement, ongoing hospital callcoverage obligations, and quality-of-life considerations. Although many physicians alreadyestab- lished in the market were overworked, they were apprehensive about losing marketshare and thus had little interest in recruiting. Many respondents reported that the physician shortage would havebeeneven more acute if it were not for the many foreign-born physi- cians practicing in the Fresnoarea, notably natives of India and Pakistan. Many ofthese physicians were attracted by the area'ssizable ethnic communities and focused their prac- tices on patients from their own ethnic background.

For various reasons, Fresno had few large physician practices. Most physicians opted to practice solo or in small groups of fewer than five physicians, andsingle-specialty

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Part ||: The Five Ps of Healthcare Marke ting 59

rather than multispecialty groups were the dominant practice type. Although many com- munity physicians maintained admitting and practice privileges at multiple hospitals, they generally concentrated their practice at one hospital. For years, emergency call coverage had been a source of friction berween area hospitals and physicians due to the expensive stipends hospitals had to pay to get physicians to provide call coverage.

Unlike in many markets in California and elsewhere, formal integration between physicians and hospitals was limited. Relationships generally were marked by strain and distrust. In recent years, CMC's relationships with its primary physician groups had improved, whereas Saint Agnes's hospital-physician relationships had deteriorated. Hos- pitals efforts to attract and align area physicians were focused on joint ventures, many of which failed.

Area physicians' lack of loyalty to area hospitals was evidenced by the extensive movement ofvariousservices- -incuding imaging, orthopedics, plasticsurgery, and endos- copy--out of hospitals and into physician offces or physician-owned facilities. Many reportssuggested that physicians' ongoing dissatisfaction with area hospitals was the basis ofthis activity.

PAYER/INSURANCE COMMUNITY In contrast to other California markets, the greater Fresno area only modestly embraced managed care. Even at their peak in the mid-1990s, health maintenance organizations (HMO)) and their variants never achieved dominance in the Fresno area, and their pres- ence shrank from roughly 30 percent in 2000 to 25 percent today. According to one report, theabsence of a strong HMO/managed carepresence meant that health system fea- turescommon to other communities formation oflarge multispecialty physician groups, close hospital-physician alignment, provider familiarity with performance measurement and reporting, andaggressivecare and utilization management--were not pervasive in the Fresno market.

Only 46 percent of area residents (compared to 59 percent statewide) had private medical insurance, and 16 percent were uninsured. Medi-Cal enrollment was high in the Fresno area, at approximately 30 percent. Fresno's safery net was generally considered weak, fragmented, and inadequate for the needs of the population. Indeed, healthcare was considered a low priority for many of thearea's county governments. Blue Shield of California and Anthem Blue Cross were the leading health insurers in the greater Fresno market. As in other regional markets, these health plans were under high pressure to moderate premiums. Many believed that doing so would be extremely challenging in the face ofescalating hospital costs.Becausesomehospitals -notably SaintAgnes and CMC'* Clovis Community Medical Centerwere considered"musthaves by employer purchas- ers, these hospitals had strong negotiating leverage with area health plans.

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Healthcare Marketing: A Case Stu dy Ap proacho

THE FUTURE OF HEALTHCARE: KEY INDUSTRY TRENDS Rachel recognized that healthcare is a dynamic and ever-changing industry whose futurg is difficult to predict. Herassessmentsummarized the key trends that would likely def. healthcare's immediate future.

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THE ECONOMY

Although the economy was slowly improving, it was expected to remain fragile due to continued high unemployment in the United States and Europe. The national economy wasexpected to impact both demand and supply dimensions of the healthcare industry (Valentine and Masters 2012).

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HEALTHCARE REFORM IN Various elements of the Affordable Care Act were implemented on schedule, including ventures into bundled payment, accountable care organizations (ACOS), andvalue-based purchasing activities. State health insurance exchanges loomed around the corner; many were in active development. This trend-with its focus on benefits and network develop- mentneeded to be monitored (Valentine and Masters 2012).

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HOSPITAL-PHYSICIAN ALIGNMENT

Physician employment was expected to remain the preferred approach to hospital- physician alignment. Some physician/medical groups would still favor independence, and most hospitals/healthsystems would need to balance a dual approach to meeting theneeds of both independent and employedphysicians. The need to clinically integrate employed and independentphysicians would remain critical if hospitals/health systemsexpectedto respondeffectively to healthcare reform (Valentine and Masters 2012).

REVENUES AND EXPENSES

Per unit revenues(e.g.,average net revenue per procedure or per patient day) were expecteacted to increase at a rate slower than cost trends over the next 12 to 24 months. Medicare pay ments would increasebyless than 2 percent, and most states were expected to hold the line on Medicaid payments (or even reduce reimbursement rates). Commercial payers would likely limit rateincreasesto 4 to 6 percent. Somepayers, including Medicare, wereexpecteded

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to tie certain rateincreasesto documented quality improvements. Value-based purchasıng bundledpayments, readmission rate reductions, ACOS, and other risk-basedarrangement wouldpresentopportunities forgreaterfinancial reward for low-cost, high-quality providers. Reducingcosts would remain a top priority in the coming fiscalyears. Simultaneously, itWa

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expectedthat patient throughput and occupancy levels would necd to increase in boch acute care/hospital-basedand outpatient settings to maximize economies ofscale(i.e., reduction of per unit cost resulting from high volume) anduseofresources(Valentine andMasters 2012).

ACCESS TO CAPITAL

Accessto capital (funds) would continue to be a key catalyst for mergers, sales, affiliations, and other alliances among hospitals. Capital was expected to be more difficult to obtain in the immediate future due to the weak economy, lower patient volumes, and deteriorating payer mix. Most independent hospital boards would continue to ask whether they could remain independent and, if so, whether they should (Valentine andMasters 2012).

INFORMATION TECHNOLOGY

Useful data that could inform clinical and financial decisions in real time would become key to increasing revenues and managing expenses more effectively. Information technol- ogy systems and strategies would need to be sufficiently robust to capture large volumes of data that could be readily integrated into decision making (clinical and financial) and marketing efforts (Valentine and Masters 2012).

CONSOLIDATIONS, CLOSURES, ALLIANCES, AND MERGERS

The healthcare reform agenda was expected to continue, with 5 percent of acute care hospi- tals closing by 2020. Further consolidation and alignment ofhospitals and medical groups wasexpectedas these entities joined together to improve accessto capital, form ACOS, and achievecost reductions through economiesof scale (Valentine and Masters 2012).

CLINICAL INTEGRATION AND CARE DELIVERY REDESIGN

Processesassociated with clinical integration and care delivery redesign were within the golden triangle" of cost containment, quality improvement, and financial performance. Fururesuccessfactors for clinical integration and care delivery redesign included attention to all points of the care continuum: coordination of primary care, acute care, and post- acute care (Valentine and Masters 2012).

WORKFORCE ISSUES

Pressure to reduce operating costs from 10 to 20 percent over the next three to five years wasexpectedto continue. The enormity of this reduction would mandate further reducing nonclinical stafing, outsourcing functions to less costly vendors, and reducing wages or

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62 Healthcare Marketing: A Case Study Approach

holding wages flat and adjusting benefit plans. Backlash from organized labor (i.e, unions) was expected (Valentine and Masters 2012).

SMART GROWTH

Inpatient and selective outpatient use rates were expected to decline in the immediate/ intermediate futurebecauseof continued high unemployment, shifting thecosts ofhealth- related benefits from employers to employees, increased price shopping among patients seeking to obtain health services at the lowest cost, and postponing nonessential medical care. Accordingly, healthcare leadership teams would need to identify ways to selectively grow their organizations' marketshare inareasthat would improve their profitability (Val entine and Masters 2012).

NEXT STEPS

Lindsey waspleased with thesubstanceand quality of Rachel's environmental assessment. Thetask ofanalyzing, synthesizing,and prioritizing these findings including developing a summary of strategicissuesand marketing plans -lay ahead.

NOTE

The term safety net provider generally refers to providers (including hospitals and physicians) who offer government-financed programs that enable people to receive healthcare services when they cannot pay for them due to a lack of private resources. For example, Medicaid becomes a safety net for long-term care services after a patient has exhausted his/her private funds.

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DISCUSSION QUESTIONS

According to Rachel's environmental assessment, what were CMC's most important strengths, weaknesses, opportunities, and threats? ldentify and describe CMC's most important strategic issues. In what ways should CMC's strategic issues have driven the development of a strategic marketing plan?

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2.

3.

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Part I|: The Five Ps of Healthcare Marketing 63

the foremost issues Rachel and Lindsey should haveconsideredas they 4. Wha

positioned thegeneral public?

CMC and promoted its services to area physicians, patients, payers, and

ompleting the environmental assessment-including theSWOTanalysis and Aftercom

5- summaryofoketing plans to advance the organization's strategic initiatives. In yourjudgment, sof strategic issues-Lindsey and Rachelneeded to develop business and

whatare the mentsor racteristics ofa valid marketingplan?

REFERENCES

(alifornia HealthCare Foundation. 2009. "Fresno: Poor Economy, Poor Health Stress an

AlreadyFragmented System." California Health CareAlmanac regional markets issue

brief,July. www.chcf.org/~/media/MEDIA%20LIBRARY%20Files/PDF/A/PDF%20Alma-

nacRegMktBrieffresnoo9.pdf.

Valentine,S. T., and G. M. Masters. 2012. "For Board Members Only: 10 Trends That Will Define Healthcare in 2012." Governance Institute E-Briefings g (1). Published in Janu-

ary.www.governanceinstitute.com/ResearchPublications/ResourceLibrary/tabid/185/ CategoryiD/63/List/1/Level/a/ProductlD/1219/Default.aspx?SortField=DateCreated+D

ESC%2cDateCreated+DESC.

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