E-Mail Bulletin
March 2006
Healthcare's Elephant in the Room: The Need for a Sound and Effectively Executed Strategy in an Era of Consumerism
E-Mail Bulletin
Hello, everyone.
With an increasing number of patients responsible for a larger share of their health care costs, consumerism in health care (read: shopping for doctors, facilities, and services) is a evolving trend no organization can afford to ignore or downplay.
This very interesting article is from the March 21 issue of HealthLeaders News.
Gil Weber
Healthcare's Elephant in the Room: The Need for a Sound and Effectively Executed Strategy in an Era of Consumerism
By Brian McDonald, for HealthLeaders News, March 21, 2006
Suppose for a moment that consumerism in healthcare really catches on; that it is not on the distant horizon or represented only by small numbers of people, but fully arrives and is embraced by the masses. What does this mean for your organization as a provider of healthcare services? Have you examined this potential reality?
Today, consumers' demands and expectations for healthcare are both insatiable and insensitive. Price still is no object for most people. Now imagine your healthcare patrons relying on their purchasing experiences in the consumer products arena. Imagine consumers who relate to healthcare's vast product offerings very well, and are sensitive to what they spend and consume.
What if your organization starts to talk about the elephant in the room? Think of the growing numbers of working uninsured and the trend favoring high-deductible health plans, or consider the millions of Medicare Part D subscribers. The number of price-sensitive consumers is only increasing and this trend has the power to transform the provider industry.
If you support the supposition that consumerism is a major factor influencing your organization's future success, then what strategy will your organization create to respond to this influence and what will be done to ensure that your strategy is effectively executed?
Embracing a new reality
The need for price-sensitivity among consumers of healthcare is unprecedented. With General Motors teetering on bankruptcy, attributing much of its dilemma to rising healthcare costs, and with increasing numbers of smaller firms dropping health coverage just to stay in business, consumerism must take hold.
Value considerations associated with most consumer product experiences will begin to apply to healthcare purchases: Do I need it? Can I afford it? Is the quality worth the price? Can I delay it? Should I compare it? Are there options? How does it make me feel? Do I deserve it?
Consumerism also places price pressures on some health services more than others. Some consumers value quality over price; others value service. Consider the benefits of a good bedside manner. In turn, utilization of some services is affected by price, while for others, price continues to have little bearing on consumption.
Consumerism requires an understanding that healthcare is not a single product. Certain healthcare services are "convenience" products, some are "shopped," and others are "service-oriented" products. Also, there are "emergency" or "unsought" products. With some deliberation, you can begin to slot your organization's services into such consumer product categories. Armed with this knowledge, you can model consumer attitudes and behaviors in your market, and begin to enable your organization's embrace of a consumer era.
Has your organization's position been one of "ignore the elephant and it may go away?" Has the posture been one of profiling your favorable gross charges or defending higher charges? If so, soon consumerism may leave your organization vulnerable. Having retail-oriented services currently, such as cosmetic surgery, fertility or heart scan services may or may not give your organization an advantage. Many existing retail services are targeted to an exclusive niche of healthcare consumers; not the masses. This new era compels strategic and structural change, and requires in-depth examination of your organization's service offerings.
Creating sound strategy
Whether you agree or disagree that a consumer-responsible marketplace is the best course for healthcare, consumers' direct financial responsibility for an increasing portion of their consumption of services seems inevitable. Not unlike the managed care era, consumerism will require adjustments along the way and, decades later, may advance to a new state. Yet, your organization would be wise to invest in a well-planned consumer strategy.
Lawrence Hrebiniak's book Making Strategy Work: Leading Effective Execution and Change, provides insight into the ways organizations may take full advantage of their strategy making efforts. Healthcare providers would do well to pay attention to the role of organizational structure as well. Providers ought to consider carefully the impact of consumerism. Keep these tips in mind as you begin the process of adopting a sound and manageable consumer strategy:
- Interpretation of market trends must include how execution will be supported. System strategy interprets the implications of consumerism and ensures that the overall organization is positioned to take advantage of these trends. Delivery unit strategy weighs its core competencies, and existing markets and shares, in the context of its role as prescribed by the system. For instance, is the delivery unit to pursue a strategy of differentiation or one of low cost producer?
- Strategies at the system level and delivery level must be aligned. If at the system level a hospital service, such as interventional cardiology, is treated as a cash cow in order to fund a transition to a consumer culture, but the hospital views its traditional service as a star that is deserving of significant reinvestment, then conflict is certain.
- System strategy should effectively transfer to delivery unit objectives. If it is your goal to be the trusted provider of quality services worth the price in a consumer era, then delivery unit objectives and measures must support the organization's ability to realize the goal and make that claim. An ability to demonstrate quality at levels differentiated by consumers suggests that added resources at the point of service may be needed. Such a goal also may mean that certain services no longer fit the organization's strategy.
- Recognize the demands placed on the organization's resources. Adjusting to an environment where consumers' decisions include the consideration of price is a watershed change. What levels of performance are expected by service? Does the organization have the skills to achieve and maintain this performance? Is your organization adequately resourced?
The consumer movement that changed the managed care industry "overnight" began about ten years ago. Some health plans effectively changed strategically and structurally, while others did not weather the storm.
Making your consumer strategy work
The execution of strategy is the point where organizations often falter. If your consumer strategy serves the purposes and enjoys the attributes of good strategy as outlined above, then you should follow these steps to ensure that it is effectively executed:
- Consider organizational structure. If your organization determines that consumerism requires low cost production across all delivery units, then a highly centralized structure may be best. Or, you may determine that some units require a low cost strategy while others require greater customer attention; then a mix of centralized and decentralized resources need to be assembled. For instance, consider consumer experience differences between physician office visits and hospital inpatient stays.
- Consider the interdependencies in your organization. Healthcare organizations are complex and have many interdependencies. A consumer strategy may require redefining your organization's coordination points. New channels may be obstructed if responsibilities and accountabilities are not clear. All managers must clearly understand the new strategy and how their roles support it. Consider a simple example: if strategy calls for quick clinics in retail malls, but the patient services department does not know (or does not support) that the nursing pool will staff the clinics, then implementation will be compromised.
- Align incentives to meet the needs of your consumer strategy. Incentives are linchpins of successful execution. Often in healthcare, incentives are not aligned with strategy or its supporting objectives. If a consumer strategy calls for supporting the development of key service capabilities at a system level, but management incentives and controls continue to support specific facility performance, then execution may be in peril. You get what is paid for.
If ignored, consumerism, like an elephant in the room, can mean disaster for your organization. Healthcare providers should start talking about the implications of consumerism. Consider carefully the opportunities for your organization. Create a strategy that embraces where the market is heading, is honest about your organization's capabilities and needs, and is intent on aiding execution. A sound and effectively executed consumer strategy has the power to strengthen an already strong competitor; alternatively an effective strategy can reorder the market for those organizations seeking to recover from less favorable positions.
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