Michael J. Pulaski, FACMPE
Medicine & Behavior, V. 2, No. 5, October, 1999.
A new niche market of affluent healthcare consumers is emerging as a result of the growth and consolidation of managed care delivery systems in the United States.
As managed care companies increase their market share, they achieve the advantage of leveraging their market position when negotiating with providers of healthcare services. The negotiations result in providers discounting their fees up to 34%. The managed care companies take these negotiated “savings” and keep them for executive bonuses, shareholder distributions, and increased corporate cash flow. The added cash flow allows the managed care companies to purchase local and regional plans, at times driving superior plans out of existence, in order to gain even larger market share. This concentration of national-based managed care plans has created oligopolistic market conditions in some locales, which in turn has caused the actual cost of health services in these locales to exceed national averages.
Under managed care, the contracted provider is made a gatekeeper for the profitability of the managed care company, creating a conflict with the tenets of informed consent and the traditional provider role of patient advocate. Worse, some providers have been required to sign “gag clauses” as part of their managed care agreements, which place them in ethical dilemmas. As a result, many educated and sophisticated patients have begun to question the basis for their provider-ordered treatments, ending up losing trust in the doctor-patient relationship.
The consequence of this market concentration on the consumer of health services is less access to lower quality of care. Service providers, squeezed by reduced managed care fees, are pressured into seeing more patients in the same amount of time while delaying or denying access to certain treatments. This creates a cost/access dichotomy.
The dynamics of the cost/access dichotomy are evident in other Western industrialized societies. Although socialized, the Swedish, British, and Canadian systems show a relation between government decreases in per capita spending on healthcare benefits and an increase of affluent patients seeking “private” care outside their societal systems.
This consumer behavior is no different in a socialized medicine system than in one that is not socialized. There is a point in the dynamic of the cost/access dichotomy where certain consumers defect from the status quo to seek healthcare services elsewhere. I believe those persons most likely to defect are the affluent; those with household incomes of $70,000 and above, representing 13% of the US population. This describes the new niche market opportunity.
For years healthcare consultants and executives have preached the value of “service excellence.” Unfortunately, as the healthcare system changed from a cottage industry to a rapidly concentrating one seemingly overnight, the noble ideal of healthcare service excellence has largely been ignored in practice. Again, recent patient satisfaction surveys verify this.
However, the logic of “service excellence” argues that healthcare services have become a virtual commodity to the sophisticated consumer. Thus, consumers evaluate healthcare services as they would assess the value or quality of any other consumer good or service.
The traditional product design of the healthcare services industry has been the standard “one size fits all” approach, borrowed from the marketing tactics of Henry Ford when he stated over 75 years ago: “You can have any color Model T as long as you want black!” Since Ford’s famous statement, every sector of the consumer goods and services economy -- except for healthcare services -- has advanced its thinking with regard to product design, development, and delivery. Consequently, today’s nonmedical consumers are nearly overwhelmed with choices.
Many of today’s most successful companies have chosen a segment or “market niche” for their product design and distribution. These companies target a certain narrow demographic for their product and exclude selling to the rest of the marketplace. Now is the time for entrepreneurs in the medical services industry to recognize and exploit the opportunities presented by this “niche” approach.
Successful penetration of this new niche market opportunity requires a healthcare services product that is designed to attract the discriminating, sophisticated and affluent consumer -- one based on Relationship Marketing. Studies of the purchasing tendencies of the affluent show that they are predisposed to purchase customized products from specialty vendors; they demand high quality of product and of service. This new niche market requires the service delivery organization to treat each patient as an individual and to customize the interpersonal contacts to each individual based on information learned about that person on a continuing basis. This approach is exemplified by Individual Care, or I-Careã, a business entity created in this article for illustration purposes.
When Toyota introduced its luxury line Lexus, the company insisted that their dealers locate new showrooms a minimum distance from parent dealerships and make every possible provision to separate the luxury car division from the company’s other product lines. Great effort and expense was used to create a different, more up-scale image. A new corporate culture was created and imbued into all luxury division employees. However, certain “invisible” ties were kept. Information systems, customer databases, suppliers, and technical employees were commonly maintained in order to take advantage of economies of scale.
Like Lexus, the I-Careã facilities will have separate, unique locations, with sophisticated elegance for decorum and a different name than their “parent”. However, the professional service providers will be supplied by the parent clinic, which is either free standing or university affiliated. In addition to the regular advertising and marketing efforts to solicit new business, and because of I-Careã ’s business relationship with the parent clinic, potential customers will be identified from the parent’s database and will be solicited to convert to I-Careã ’s provider organization.
Certain back office functions will be done by the parent clinic, such as billing, insurance processing, transcription, accounting, and purchasing. These functions will use different forms and stationery as well as different guidelines regarding customer or vendor interface. Enhancements to the parent’s computer software will be made to reflect all the requirements of Learned Relationship Marketing. The software enhancements and proprietary database information will be physically located on I-Careã ’s local area network, while billing, accounting, and purchasing will be interactive with the central host.
The initial contact the patient has with I-Careã will be with a Patient Manager. While the Patient Manager may have some duties similar to those of traditional medical office receptionists, much more will be required. The Patient Manager must be a college graduate, thereby drawing from a different demographic profile than that of a typical receptionist. Besides being the initial contact person, the Patient Manager will be responsible for a certain set of patients, managing each patient’s Economy of Scope and Lifetime Value.
The Patient Manager (as well as all other I-Careã employees) is empowered to make on-the-spot economic decisions, most of which lead to immediate resolution of non-medical patient problems. In addition, the Patient Manager is responsible for the Depth of the Relationship with each patient. The identification of individual patient needs is done by a process of customer Interactive Dialogue that all I-Careã service providers and non-service providers conduct and record on its management information system.
In order to fully develop the Depth of Relationship, the Patient Manager will collaborate with the Capability Manager, who is also a college graduate, responsible for contracting or building service delivery products for I-Careã.
The ambiance of the service setting will reflect first-class accommodations. The decorum of its service facilities will be understated elegance, with an abundance of silks, leather, Oriental rugs, fine art, cut flowers and classical music. The patients will experience designer care in a boutique setting.
The length of each patient encounter will be twice that of the norm in practice today. If the patient’s lifestyle requires that the encounter be in the home or office, I-Careã ’s providers will make the out-call. In addition, its mobile diagnostic vans will be available to provide most testing remotely.
The corporate culture of I-Careã is markedly different from that of the traditional clinic. Recognition of the chained relationship of employee satisfaction and loyalty to patient satisfaction and loyalty, which in turn influences the enterprise’s profitability, will result in a departure from the traditional roles, interactions, selection criteria, and compensation of the employees. A focus on front-line employees and patient relationships will take on a greater priority in resource allocation. Emphasis on high employee and patient satisfaction indices will become as great as the emphasis placed on profit, because the philosophy of the enterprise is that they are essentially the same thing.
The selection criteria for I-Careã employees will be high in regard to education levels as well as technical and interpersonal skills. I-Careã employees will be compensated above the average, with a high salary and level of benefits, stock options, and a bonus program tied to patient satisfaction/loyalty levels.
The description of I-Careã ’s operations and economics is not as utopian and extravagant as one would normally think. If the reimbursement for services performed by I-Careã is accomplished without discount to insurance plans, there will be up to 36% more revenue per procedure available to cover added overhead. According to recent Medical Group Management Association statistics, the median discount rate for the largest multi-specialty groups is 36%; that is, the statistical median of the groups studied wrote off 36% of their fees due to various contractual agreements with Medicare and other insurers. I-Careã will not make any such agreements. Rather, each patient will be responsible for paying the full fee. Since the patients will be affluent, it is assumed that the collection rate will be close to 100%. However, I-Careã business personnel will assist in every way possible so the patient gets whatever insurance benefit is due.
Preliminary financial analysis shows the profitability for an I-Careã organization to be higher than the traditional practice. This same phenomenon did not escape the Lexus developers and marketers. They understood there is more profit per unit sale in the high end market than in the traditional market.
Do you see an opportunity for yourself in the I-Careã scenario?