Post on 11-Aug-2020
©2014 The Advisory Board Company • advisory.com
Blueprint for Growth 2020 Product, Pricing, and Sales Strategies for a Retail Market for Health Care
Health Care Advisory Board EXCERPT
©2014 The Advisory Board Company 29918 advisory.com 2
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Contributing Consultants
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Design Consultant
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David Lumbert
Natalie McGarry
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Christopher Kerns
©2014 The Advisory Board Company 29918 advisory.com 3
Table of Contents
Source: Health Care Advisory Board interviews and analysis.
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Essay: The Customer-Focus Mandate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Consumer-Oriented Product Design . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1. Maintain realistic perspective on differentiation opportunities . . . . . . . . . . . . . . . . . . . . . . .
2. Ensure that access networks meet diverse patient demands . . . . . . . . . . . . . . . . . . . . . . .
3. Design offerings to address concrete purchaser needs . . . . . . . . . . . . . . . . . . . . . . . . . . .
Competitive Pricing Strategy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Target discounts to price-elastic services, price-sensitive patients . . . . . . . . . . . . . . . . . .
5. Reorient bundled payments to support purchaser-driven growth . . . . . . . . . . . . . . . . . . . .
6. Create new, stable revenue streams with subscription models . . . . . . . . . . . . . . . . . . . . .
Retail Sales Tactics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7. Deliver timely, accurate price estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8. Communicate to employers in dollar-denominated terms . . . . . . . . . . . . . . . . . . . . . . . . .
9. Signal credibility with performance guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
10. Build loyalty through free trials, platform sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
The full Blueprint for Growth 2020 study features product, pricing, and sales strategies for a retail health care marketplace. This excerpt includes
an essay on The Customer-Focus Mandate, and steps to maintain realistic perspective on differentiation opportunities.
For more information on any of the topics mentioned in this excerpt, please contact Ellie Barlow at barlowe@advisory.com or 202-568-7954.
©2014 The Advisory Board Company 29918 advisory.com 4
Executive Summary
Blueprint for Growth 2020
Study in Brief
Source: Health Care Advisory Board interviews and analysis.
10 Lessons for Product, Pricing, and Sales Strategies for a Retail Market for Health Care
The Customer-Focus Mandate
1. Growth strategy in a retail market must focus on patient-
oriented products, not just billable services. Purchasers choose
emergent care, shoppable procedures, and enhanced management
solutions. Most organizations have a well-defined approach for
appealing to payers and referring physicians, but lack a strategy for
selling these products directly to consumers and employers.
2. Successful product strategy involves patient-oriented design,
competitive pricing models, and retail sales tactics. Successful
organizations will be those that can successfully apply this
framework across the three types of products that consumers and
employers buy.
Consumer-Oriented Product Design
3. There is limited potential to differentiate the core business of
procedural care on the basis of brand, quality, or experience.
Providers should prioritize initiatives that have the potential to
differentiate products on non-price factors in the short term, while
enabling longer-term pricing flexibility through and cost reduction
and efficiency gains.
4. Building a successful network of emergent care offerings
requires a focus on individual patients—not employers. Due to
the limited amount of time available to make a decision, consumers
exert more direct influence over the purchase of emergent care
services than products in any other category.
5. Top performers sell employers enhanced management
solutions which include disease management services in
addition to traditional wellness services . Evidence suggests
that disease management services—not lifestyle management
services—deliver a concrete, short-term ROI to employers.
Competitive Pricing Strategy
6. Providers should pursue targeted discounts rather than global price
cuts. Though long-run cost control and lower across-the-board prices are
inevitable, short-term strategy should focus on reducing rates for price-
elastic services and extending discounts to price-sensitive patients. This
approach enables providers to lower prices only as necessary and avoid
an unnecessary race to the bottom.
7. Employers and consumers are attracted to the predictable pricing
inherent in a bundled payment. To transition bundled payments from
physician alignment lever to growth driver, arrangements must include
sufficient volume steerage and downstream revenue gains to offset the
cost of implementation and the price discount inherent in most offerings.
8. Subscription-based payment models provide steady revenue
streams and encourage patient loyalty. A successful subscription
model must be priced according to expected utilization. Providers must
take care to put the appropriate incentives in place to encourage enough
utilization for the purchaser to derive sufficient value, but not so much
utilization as to sacrifice profitability.
Retail Sales Tactics
9. Price transparency is quickly becoming a requirement from both
patients and employers. Patients require up front estimates of how
much a given service will cost, customized by insurance. And employers
require not only price quotes, but estimates of potential total cost savings
over time.
10. Top performers recognize the value of sacrificing short-term gains
for long-term loyalty, using tactics like guarantees, free trials, and
platform sales to drive growth over time. Commitment to such
strategies requires providers to weigh the investment costs of such
strategies against the potential for revenue gain.
©2014 The Advisory Board Company 29918 advisory.com 5
For many years now, provider
organizations have pursued growth by
appealing to two constituencies: payers
and physicians. While both of these
parties will remain important
stakeholders in the health care
purchasing process, the mechanics
underlying the industry have begun to
shift in some fundamental ways. In
particular, employers and consumers
are beginning to take a more active
role in the health care purchasing
process.
Employers, struggling to control
benefits expense, are experimenting
with cost control tactics such as
Centers of Excellence networks and
reference-based pricing. They are also
investing in new services like e-visits
and onsite health services.
Meanwhile, consumers, faced with
greater cost-sharing through high
deductible health plans, have become
much more informed and influential
decisionmakers.
The rise of activated employers and
engaged consumers signals that health
care is transforming into a retail
marketplace where clear value
propositions are essential.
The Customer Focus Mandate
New Customers Exerting Greater Influence Over the Buying Process
Mandating More Direct Consumer Focus
Source: “The New Health Care Imperative: Driving Performance, Connecting to Value,” Towers Watson/National Business
Group on Health, http://www.towerswatson.com/; CDC/NCHS, National Health Interview Survey, 2009-2014,
http://www.cdc.gov/nchs/nhis.htm; National Business Group on Health annual survey, August 13, 2014,
https://www.businessgrouphealth.org/index.cfm; Health Care Advisory Board interviews and analysis.
1) Centers of Excellence.
2) High deductible health plans.
3) Consumer directed health plan.
Employers Experimenting with New
Services and Purchasing Mechanisms
Consumers Increasingly on the Hook
for Care Decisions
38% Provide coverage
for e-visits
38% Offer onsite
health services
41% Use reference-
based pricing
60% Use COEs1 for non-
transplant services
Percentage of Employers with Strategies
in Place or Planned for Next Year
0%
100%
23% 36% in 2009 in 2013
Percentage of Consumers with HDHPs2
or CDHPs3
Open to New Options
Employees who would “definitely
travel” to a COE for knee surgery 68%
©2014 The Advisory Board Company 29918 advisory.com 6
Unfortunately for many organizations,
hospitals and health systems are often
ill-prepared to grow in a retail
environment. A major root of the
difficulty is the growth strategy process
itself.
Traditionally, health systems set
growth strategy through a process of
internal analysis. Organizations begin
by performing an inventory of current
services and determining which
services drive the greatest profitability.
An assessment of market trends,
including reimbursement changes and
demographic shifts, enables systems
to project future volumes and
profitability. Finally, achieving desired
growth targets in high-margin, high-
volume services requires the internal
optimization of staff, technology, and
physical assets.
All these steps are useful and should
not be abandoned. But such a process
does not adequately account for the
demands of consumers and
employers. It is therefore no longer
sufficient in today’s market. As the
industry becomes more costumer-
driven, providers must instead begin
the growth planning process with an
analysis of employer and consumer
needs.
The Customer Focus Mandate
The Old Approach to Growth Strategy
Driving Growth Through Introspection
Source: Health Care Advisory Board interviews and analysis.
Identify most
profitable services
Optimize internally
to enable growth
Assess market trends,
project volumes
Cardiac Services
• Cardiac
Catheterization
• Cardiac Surgery
• Medical Cardiology
Lab
• Consultation
• Testing
Neurology
• Degenerative
Disorders
• Multiple Sclerosis
• Seizure/Epilepsy
• Stroke and
Transient Ischemic
Attack
General Medicine
• Dermatology
• Endocrinology
• Gastroenterology
• Infectious Disease
• Nephrology
• Psychiatry
• Pulmonology
• Rheumatology
• Substance Abuse
• Primary Care
Obstetrics
• Antepartum Care
• Delivery
• Post-partum
Orthopedics
• Joint Replacement
• Sports Medicine
Neurosurgery
• Brain
• Peripheral and
Cranial Diseases
General Surgery
• Bariatric
• GI
• Endocrine
• Transplant
• Trauma
Oncology
• Hematology
• Radiation Oncology
Radiology
• CT
• Mammography
• MRI
• PET
• Ultrasound
• X-Ray
Spine
• Fusion
• Medical Spine
©2014 The Advisory Board Company 29918 advisory.com 7
To develop a customer-focused growth
strategy, provider organizations must
answer two additional questions.
First, systems need to understand what
purchasers want to buy. Providers
must identify which key problems
customers want solved and what
corresponding solutions will address
those pain points. This analysis will
enable organizations to identify
services that represent top
opportunities for growth.
Second, it is critical for providers to
understand how consumers are
shopping for those products. Because
purchasers tend to have numerous and
varied preferences, a detailed analysis
of consumer buying behavior will
inform the development of a successful
go-to market strategy.
The Customer Focus Mandate
The Customer-Focused Approach to Growth
Answering Two Broad Strategic Questions
Source: Health Care Advisory Board interviews and analysis.
What Are Purchasers
Shopping for?
• What problems and pain
points do they have?
• Which solutions will actually
meet those needs?
How Are They Shopping
for Those Products?
• What information do they
use to make their decision?
• What trade-offs are they
willing to make?
Identify Top Growth Opportunities
Figure out which products and services
have biggest potential to drive growth
Develop a Go-to-Market Strategy
Put together a strategy to deliver
those products to the market
©2014 The Advisory Board Company 29918 advisory.com 8
It is helpful to recognize that despite
the hundreds of distinct billable
services most organizations offer,
purchasers tend to think of their health
needs in terms of three types of
products: emergent care, shoppable
procedures, and enhanced
management solutions.
Emergent care services treat an urgent
illness or injury that must be addressed
quickly. Ranging from serious
emergencies to low-acuity but time-
sensitive needs like a child’s strep
infection, these needs allow consumers
very little time to make a purchasing
decision.
In contrast, shoppable procedures
encompass treatments and
interventions that patients schedule in
advance. For these services,
consumers have the ability to shop
around and compare provider
offerings.
Finally, enhanced management
solutions focus on disease prevention
and the treatment of longitudinal health
needs, typically within the confines of
an ongoing relationship with a provider.
Due to the non-urgent nature of these
care needs and the importance of the
provider-patient relationship,
consumers tend to shop around
extensively, taking time and care to
make an informed decision.
The Customer Focus Mandate
What Are Purchasers Shopping For?
Consumers Think in Care Episodes, Not Itemized Bills
Source: Health Care Advisory Board interviews and analysis.
“I have an urgent injury or
illness that must be
addressed immediately.”
“I need to have a procedure
done, but it’s not urgent.
Where do I go?”
“I want a relationship with
a provider to manage my
ongoing health needs.”
• Low- to-mid acuity
urgent care
• Emergency care
Emergent
Care
• Diagnostic procedures
• Surgical procedures
• Therapeutic procedures
Shoppable
Procedures
• Preventative care
• Lifestyle management
• Chronic disease
management
Enhanced
Management
Choosing Three Types of Products
©2014 The Advisory Board Company 29918 advisory.com 9
Shoppable
Procedures Enhanced
Management
Emergent
Care
Successfully driving growth by selling
products across all of these categories
requires a three-part go-to-market
strategy.
First, providers must design products
that address distinct consumer
problems and meet specific purchaser
preferences and needs.
Second, health systems must develop
a successful pricing strategy for each
product. This includes not only a
competitive price point—one which
drives sufficient value for both
purchaser and seller—but also the
most appropriate payment
methodology.
Finally, selling these products requires
an effective sales strategy that
communicates and proves the value of
these offerings to potential purchasers.
The remainder of this study will focus
on imperatives for successfully
accomplishing each element of this
customer-focused growth strategy.
The Customer Focus Mandate
How Are They Shopping?
Go-to-Market Strategy Must Answer a New Set of Questions
Source: Health Care Advisory Board interviews and analysis.
Consumer-Oriented Product Design
Which features and attributes should these products have?
Competitive Pricing Strategy
What price point and payment methodology will appeal to customers?
Retail Sales Tactics
How do we demonstrate product value to consumers and employers?
I
II
III
Growth in a Retail Health Care Market
©2014 The Advisory Board Company 29918 advisory.com 10
I. Consumer-Oriented Product Design
Protecting the Core Business
1. Maintain realistic perspective on differentiation opportunities
©2014 The Advisory Board Company 29918 advisory.com 11
A successful growth strategy must
begin with a desirable product.
While health systems have become
incredibly skilled at orienting around
physician needs and preferences,
providers have not traditionally
packaged health care services in a
consumer-friendly fashion. Hospital
executives tend to view health care
services as a series of line item
codes, rather than a complete episode
of care.
While organizational structures such
as hospital departments and service
lines attempt to integrate and
coordinate care, they do so from the
provider perspective and tend to
organize around clinician training
models. These structures make
incredibly effective operational
frameworks, but fall short of appealing
directly to consumers.
To remain competitive in a retail
health care market, providers will
need to approach product design from
the customer perspective and
combine the inputs on the left of the
graphic here to form the value-added
outputs on the right.
From Individual Inputs to Consumer Products
Designing Around Purchaser Preferences
Source: Health Care Advisory Board interviews and analysis.
Office Visits
Imaging
Lab
Emergency Care
Inpatient Procedures
Outpatient Procedures
Wellness Programs
Long-Term Care
Pharmacy
Product
Packaging
Shoppable Procedures
Diagnostics, surgery, follow-up
care, planned treatments
Emergent Care
Low- to mid-acuity urgent care,
emergency care
Enhanced Management
Care/disease management,
wellness, ongoing primary care
Current Health Care Production Model
©2014 The Advisory Board Company 29918 advisory.com 12
Providers will encounter unique design
challenges within each product
category.
First, as price competition increases,
hospitals and health systems looking to
maintain a higher price point for core
procedural services will need to find
ways to deliver a superior product. This
entails determining what aspects of
product quality—clinical outcomes,
reputation, and patient experience—
consumers will pay more for.
Second, as retailers and vendors
continue to offer consumers an
increasing number of convenient
emergent care options, health systems
will need to figure out how to succeed
in a crowded marketplace with a large
number of potential product offerings.
And finally, as employers struggle to
contain health care costs and chronic
disease continues to drive long-run
costs, providers have an opportunity to
move beyond one-size-fits-all primary
care and wellness solutions, and
instead develop health management
products that deliver a demonstrable
impact on cost and outcomes.
The subsequent section will examine
how to address each of these
challenges in turn.
Building a Customer-Focused Product Portfolio
Meet the Unique Retail Market Challenges of Each Product Type
Source: Health Care Advisory Board interviews and analysis.
Retail
Market
Challenge
Best-in-Class
Approach
Consumers’ definitions of
convenient access varies
by demographic, market
2
Ensure that access
networks meet
diverse patient
demands
Emergent Care
Current offering not
delivering return on
investment
Design offerings to
address concrete
purchaser needs
3
Enhanced Management
1
Maintain realistic
perspective on
differentiation
opportunities
Consumer cost sharing,
price transparency
driving price competition
Shoppable Procedures
Competing in an On-
Demand World
Expanding the Enhanced
Management Portfolio
Protecting the
Core Business
©2014 The Advisory Board Company 29918 advisory.com 13
As the industry transitions to value-
based care, focus has shifted away
from hospital-based services to
primary care and care management.
However, procedural services continue
to represent the biggest book of
business for almost all hospitals and
health systems.
For these core services, hospitals now
face a new challenge in the form of
price competition. Price sensitivity and
transparency now extend beyond the
familiar terrain of diagnostic imaging
and selected outpatient procedures—
and so price competition does as well.
The risk of commoditization is very
real. We estimate that up to $700
billion of revenue within the health care
market comes from procedures that
consumers could shop around for on
the basis of price.
To be clear, commoditization is not
inherently threatening. Many extremely
profitable industries are based on the
efficient production and delivery of
commodities. The difficulty lies in the
fact that hospitals, with their high fixed
cost structures and historical reliance
on cross-subsidization, are particularly
ill-prepared to succeed in a
commoditized market.
Protecting the Core Business
The Looming Threat of Commoditization
Commoditization Not Limited to the Usual Suspects
Source: Advisory Board Estimates; Healthcare Bluebook, https://healthcarebluebook.com/; Health Care
Advisory Board interviews and analysis.
Healthcare Bluebook provides prices on more
than 200 shoppable procedures including:
Biggest Areas of Pricing
Weakness Already Exposed
Diagnostic Exams
Front line of price sensitivity;
main area of focus for steerage,
with little to no quality variation
Outpatient Procedures
Care performed in the outpatient
setting is increasingly vulnerable
to price competition (e.g.,
ambulatory surgery, GI centers)
Definition of Shoppable
Procedures Expanding
Arm Amputation (hospital, physician,
anesthesia fees)
Pacemaker Insertion (hospital,
physician, anesthesia fees)
$700B Estimated market size of
shoppable procedures
©2014 The Advisory Board Company 29918 advisory.com 14
In the inevitable world of price
competition, providers have two
options: either embrace
commoditization, achieve meaningful
efficiencies, and thrive as price-takers;
or justify above-market prices through
clear and sustainable product
differentiation.
These two strategies are not mutually
exclusive; organizations may
differentiate a select number of
services on non-price factors while
competing on the basis of price for
others. Only the rare organization can
maintain above-market prices across
the board, and in the long run all
providers will need to trim underlying
cost structures.
In today’s retail market, however,
differentiation opportunities do exist.
Let us consider the practical viability of
three different approaches: providing a
truly unique market offering, delivering
demonstrably superior clinical
outcome, or providing perceptibly
better patient experience.
Theoretically, all should be possible,
but in practice, none of these three
options are easily achieved—or
maintained.
1. Maintain realistic perspective on differentiation opportunities
Two Paths Forward in a Commoditized Market
Providers Faced with Budget or Service Improvements
Source: Pellet, J, “Controlling Health Care Costs,” Chief Executive, 2013;
Health Care Advisory Board interviews and analysis.
Study in Brief: Sustainable Acute
Care Enterprise
Health Care Advisory Board presents a
comprehensive strategy to restructure
acute care operations and bend the cost
growth curve
Reduce labor costs, streamline
supply chain management
Attain a unique market position
Demonstrate superior clinical outcomes Focus on improving case mix,
increasing profitable procedures
Deliver exceptional patient experience Establish role as price-taker,
advertise services only on price
“We’re dealing with people, not screws
and hammers…we must maintain, or
better yet, improve the quality of care.”
Herb Pardes, Executive Vice Chairman,
New York Presbyterian Hospital
Differentiate to Preserve Pricing Power Embrace Commoditization
©2014 The Advisory Board Company 29918 advisory.com 15
History has established the potential to
differentiate on niche or rare services;
children’s hospitals, in particular, have
done so quite successfully for many
years. However, the market for rare
services is typically limited, and only a
few organizations can realistically rely
on this approach as a comprehensive
growth strategy.
In lieu of offering a rare service, some
providers may charge a higher price
point for a premium brand name. This
can take the form of a single physician
or encompass an entire institution. Of
course, reputation generally takes
many years to build, and increasing
patient willingness to travel means that
competition on this front will be limited
to those that can build nationally or
even internationally recognized brand
names.
Unique Market Position
Does This Sound Like You?
Only a Select Few Truly Unique
Source: U.S. News & World Report Best Hospitals Rankings 2014; Mayo Clinic , Rochester, MN; National
Organization for Rare Disorders, Danbury, CT; UPMC, Pittsburgh, PA; “Dr. James Andrews Gets Topps
Trading Card,” July 12, 2014; ; Health Care Advisory Board interviews and analysis.
Provide a Niche, Rare Service…
UPMC’s Children’s
Hospital of Pittsburgh
specializes in the
diagnosis, study, and
treatment of rare
genetic disorders
The National
Organization for Rare
Disorders (NORD)
helps patients track
down providers
treating rare diseases
…Or Cultivate Indisputable Brand
One-of-a-Kind Physician
• Dr. James Andrews,
renowned orthopedic
surgeon
• Go-to physician for injured
athletes
• Received own sports
trading card in 2014
Unassailable Reputation
• Mayo Clinic, world-
renowned hospital
• Ranked the number one
provider in eight
specialties in 2014 (only
3% of providers rank in
one specialty)
IMAGE CREDIT: THE TOPPS CO.
©2014 The Advisory Board Company 29918 advisory.com 16
While most organizations recognize the
limited potential to compete on the
basis of reputation alone, many have
bet on the ability to differentiate on
clinical outcomes.
However, for clinical performance to
justify above-market prices, the
standard is not excellence, it is
exceptionalism. This is a much more
demanding criterion.
For one thing, although patients value
clinical quality and claim to be willing to
pay more for it, research has shown
that individuals tend to assume
provider quality or to depend on poor
proxies such as recommendations from
friends and family members.
Furthermore, if patients were to
examine true clinical outcomes data,
they would find minimal variation.
Providers have made tremendous
strides in recent years against
industry-wide quality standards and
core measures. While these gains are
undeniably a success for the industry
as a whole, widespread clinical
excellence limits the opportunity for
any single organization to differentiate
on these types of measures.
Superior Clinical Outcomes
Excellence Not Necessarily Exceptional
Consumers Want Quality, but Difficult to Differentiate from the Median
Source: “Consumer Choices About Physicians, Health Plans, and Hospitals,” Harris Interactive Poll; “Finding Quality
Doctors: How Americans Evaluate Provider Quality in the United States,” The Associated Press-NORC Center for
Public Affairs Research; “Improving America’s Hospitals, The Joint Commission’s Annual Report on Quality and
Safety 2013,” The Joint Commission; Health Care Advisory Board interviews and analysis.
Difference in Quality Difficult to See Transplants
Cancer care
Heart surgery
Patients Seeking Quality Care…
Percentage of patients
responding they want the
best quality health care
“no matter what it costs”
81%
…But Assuming Quality, Using
Proxies
Percentage of Joint Commission-
accredited hospitals meeting core
quality performance requirements
99%
60% Patients who say they very much
or completely trust “quality” ratings
from friends or family
Patients assume clinical quality of
physician and facilities; often use
their own experience as a proxy
for quality
Particularly for Life-Threatening
Conditions, Procedures
©2014 The Advisory Board Company 29918 advisory.com 17
While the opportunity to differentiate on
clinical quality when appealing directly
to patients may be limited, some
payers do analyze quality data and
reward providers for better outcomes.
Blue Cross Blue Shield, for example,
uses a tiering system that recognizes
high-quality providers as “Blue
Distinction Centers.” BCBS also works
with employers to design benefits
around these tiers, with distinction
centers receiving preferential status
and the potential for steerage through
reduced cost-sharing on the part of the
patient.
However, BCBS also analyzes cost
efficiency data in addition to clinical
outcomes, and those organizations that
prove to be both high-quality and low-
cost receive even higher distinction
than those that succeed on clinical
outcomes alone. And the types of
outcomes data that BCBS analyzes—
infection rates and readmission rates,
for example—often have a direct link to
total cost.
While outcomes do enable
organizations to differentiate and
potentially maintain a higher-price
point, these types of programs do not
preclude price competition altogether.
Preferred Tiering a More Realistic Opportunity
Gaining Entry into More Attractive Tiers
Source: “Blue Distinction Centers: An Overview,” www.bcbs.com; “Cost and Quality Transparency,” www.allhealth.org; Health Care
Advisory Board interviews and analysis.
Case in Brief: Blue Cross Blue Shield
Blue Distinction Centers
• National designation program that
recognizes providers for high quality
outcomes at low cost for specific services
• Distinction centers are grouped in higher
tiers in employer benefit design
Blue Distinction Specialties
Hip/knee
replacement
Cardiac
care
Spine
surgery Transplants
Blue
Distinction Plus
Blue
Distinction
Employer Benefit Tiering
90%-100%
Benefit
70%-80%
Benefit
50% Benefit
17.4% Overall
cost savings
Results from Spine Program:
Lower site
infection, 30-day
readmission rates
In-Network
Not Precluding Price Competition
“What quality can get you is inclusion in a
better tier. Within that tier though—there’s
still going to be price competition. You can’t
succeed on quality alone.”
Senior Director of Planning,
Academic Medical Center
©2014 The Advisory Board Company 29918 advisory.com 18
In the face of difficulties in leveraging
reputation or clinical outcomes, some
organizations have turned to patient
experience as a differentiator.
Providence Health & Services, for
example, focused heavily on the
patient experience when establishing a
new approach to maternity care for its
Oregon market.
Recognizing the high cost of its
maternity care services relative to the
market, Providence set out to develop
a maternity package that would be
worth the greater cost. Leaders not
only reviewed publicly available
literature but also convened patient
focus groups to incorporate consumer
preferences directly into the design of
the package. Providence’s new offering
includes the use of new, value-added
services such as nurse midwives,
doulas, and group visits—services
which consumers had enthusiastically
requested.
Since rolling out the package, the
redesigned service has not only
increased volumes, but also reversed
payer mix at the initial rollout site from
60% Medicaid to 60% commercially
insured. The package also significantly
reduced the cost of maternity care;
Providence has achieved a 15%
reduction in inpatient maternity costs.
Service Excellence
An Experience Worth Paying For?
Adding Value to a High-Cost Service
Source: Health Care Advisory Board interviews and analysis.
Providence recognizes
the high cost of
maternity care and
shifting consumer
preferences
Surveys consumers,
reviews journals, and
consults providers to
define market need
Standardization
improves capacity,
reduces cost while
package features
attract new patients
Develops maternity
package, standardizing
care with nurse
midwives, doulas, and
group visits
Providence Structures Maternity Package
to Meet Consumer Preferences
Case in Brief: Providence Health & Services Oregon Region
• 1,484-bed system in Portland, Oregon
• Created a maternity package to appeal to changing consumer preferences
• The new offering increased volumes, reduced costs, and improved capacity
Package Increases Capacity, Attracts
Commercially Insured Patients
30% Increase in
capacity
15% Reduction of
inpatient costs
60% 40%
40% 60%
Payer Mix
Operational Improvements
Before Package
Rollout
After Package
Rollout
Commercial
Medicaid
©2014 The Advisory Board Company 29918 advisory.com 19
Of course, the specific elements and
features that drive patient experience
will differ greatly product by product.
While doulas and group visits
effectively differentiate maternity care,
those looking to make improvements to
cancer care or cardiology services, for
example, will need to consider other
types of differentiators. The table
presented here lays out some of the
most common differentiators across
service lines.
While organizations have achieved
great success in attracting consumers
by improving the patient experience, it
is important to note that competitors
can easily replicate these types of
efforts. Efforts may be short-lived and
providers will need to continuously
iterate on product design efforts to
maintain advantage over time.
Difficult to Sustain Experience Advantages
Which of These Is Out of Reach of Our Competitors?
Source: Health Care Advisory Board interviews and analysis.
Service Line Patient Experience Differentiators
Maternity Doulas, midwives, group visits, 24/7 access
Oncology Navigators, expedited first visit scheduling, 24/7 access, short wait
times, faster diagnosis, second opinion
Cardiology Specialist or second opinion visit scheduling, access
Imaging Reduced wait times, extended hours, access, improved ease of
scheduling
Neurology Specialist or second opinion visit scheduling, access
Orthopedics Location, access, hours
Typical Differentiation Strategies
©2014 The Advisory Board Company 29918 advisory.com 20
However, there may be longer-term
strategic gains from both clinical quality
and patient experience differentiation
efforts as well. In practice, these efforts
often require providers to improve
efficiency and thereby reduce
operational costs. In other cases,
patient-focused improvements also
increase capacity and hence generate
additional revenue
For example, North Shore-LIJ Health
System’s “Dream Practice” initiative
focuses improvement efforts in key
specialty practices by transforming
customer service, streamlining billing,
and improving staff engagement. In
addition to increasing patient
satisfaction, reforms in the system’s
orthopedic practices have increased
revenue by $3 million within two years.
This type of differentiation effort yields
two advantages. First, it provides a
short-term competitive advantage by
increasing patients’ likelihood to
recommend a service to friends and
family. Second, the accompanying
efficiency and revenue gains allow
providers to prepare for inevitable price
competition.
When It Pays to Do the Right Thing
Opportunity to Translate Short-Term Differentiation into Pricing Flexibility
Source: Health Care Advisory Board interviews and analysis.
Personalized Customer Service
• Call center conducts appointment reminder,
follows up with no shows
• Concierge makes follow-up appointments,
provides next steps
Simplified Billing
• Improved copay collections, clarified billing
for patients
• Developed new coding process to reduce
denials
Case in Brief: North Shore-
LIJ Health System
• 17-hospital system based in
Manhasset, New York
• “Dream practice” aims to
achieve 99th percentile in all
metrics
• Practices organize around
patient-centric care, reduce
inefficiencies resulting in cost
savings
Increase in revenue
from 2012 to 2014
$3M
Dream Practice by the Numbers
Increase in average
monthly visits from
2012-2014
35% Improvement in patient
“likelihood to recommend
practice” score
2.8%
North Shore “Dream Practice” Works to Create
Ideal Patient Experience
©2014 The Advisory Board Company 29918 advisory.com 21
If procedural services represent the
biggest book of business for health
systems, they are followed by
emergent care services, which
currently represent a $125 billion
market in the United States.
The dominant challenge for health
systems in the emergent care market is
the shift away from traditional delivery
sites. Growth in alternative sites of care
such as freestanding EDs, retail clinics,
urgent care centers, and e-visit
platforms vastly outpace the growth in
primary care offices and EDs.
Advisory Board analysis suggests that
by 2020, revenue from alternative
emergent care sites alone will reach
$40 billion, up from $24 billion today.
Competing in an On-Demand World
Landscape for Emergent Care Shifting
Fastest Growth Occurring in Nontraditional Settings
Source: "A New Front Door," Health Facilities Management, www.hfmmagazine.com; Kahn S, "Emergency & Other
Outpatient Care Centers in the US," IBISWorld, August 2014;"Retail Health Clinics & Urgent Care Centers Poised For
Strong Growth – Market Worth $10 billion," Market Data Enterprises, www.prweb.com; "When the Tiny Hospital Can't
Survive: Free-standing EDs with Primary Care Seen as New Rural Model," Modern Healthcare,
www.modernhealthcare.com; Son A, “Urgent Care Centers in the US,” IBISWorld, February 2013; Health Care Advisory
Board interviews and analysis.
1) Freestanding emergency room, telemedicine or e-visits, urgent care center, retail clinic.
Alternative Care Sites Already Large
Part of Provider Business
$24B
$64B
$38B
Traditional
Primary Care
Alternative
Emergent
Care1
Moderate-Urgent
ED Care
2013
Projected alternative emergent
care site revenue, 2020
$40B
8.9%
4.0%
2.5%
Alternative
Emergent
Care
Traditional
Primary Care
Moderate-
Urgent ED
Care
Alternative Care Sites Significantly
Outpacing Traditional Growth
2014-2020
©2014 The Advisory Board Company 29918 advisory.com 22
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For more information on the Health Care Advisory Board, please contact Ellie Barlow at barlowe@advisory.com or 202-568-7954.