Health Care Marketing Matters, Fall 1998

Health care's new customers:
For marketers there's a whole new audience out there.

Barbara Bix and Jonathan Kranz

Marcus Welby is dead.

In the not-too-distant past, the health care industry enjoyed a goodwill and stability other professions envied. During the last 15 years, however, an epidemic of economic, legal, social and cultrual changes has infected the industry, dramatically changing the nature of the market itself. The old rules no longer apply. If providers and payors want to stay alive, they must adapt to the changes by adopting the analytical tools honed by marketers in other equally dynamic industries.

Health care marketers must re-evaluate their assumptions about customers, their customers' requirements and their customers' buying behavior if they want to sustain a competitive edge.

It boils down to five key questions:

Who are the customers?

Customer identification comes first because it drives all other marketing decisions: product, positioning, distribution channels, pricing and promotion strategies. In most industries, this identification is relatively straight-forward. All you need to do is find the person who receives the service and pays the bill. But in the current health care environment, purchasing power is shared.

Health care consumers can only choose among providers pre-authorized by their employers. Since purchasers (usually the employers) and payors (insurance companies and managed care organizations) pick up the tab, they exert control over consumers' buying decisions. Health care providers must, therefore, market their services to multiple customers-typically a mix of managers within purchaser and payor organizations. Given this mix, successful providers construct market strategies to appeal to each layer in the purchasing hierarchy.

Children's Hospital, for example, wants to be accessible to all children in New England. To reach this market it developed clinical practice guidelines attractive to both parents and payors.

"Our doctors collaborated with community-based primary care providers and payors to create guidelines for pediatric asthma, a common childhood problem," said Cindy-jo Gross, Director of Managed Care for Children's Hospital. "We collaborated with a managed-care payor to ensure that the specialists and primary care providers had access to clinical data and cost data. In the end, we created guidelines with know outcomes, improving our asthma treatment while remaining accountable to the payor."

By developing practices attractive to multiple customer elements, Children's Hospital is poised for greater market share.

What do customers need?

Any business must offer products or services that conform to its customers' needs. But consider the doctors' "dilemma": While their patients demand quality and easy access, their payors' place a high priority on economic efficiency.

Health care providers serve (at least) two masters and must strike a balance between service quality and cost-effectiveness.

Dr. Mitchell Abramson, a Newton internist providing medical care through Harvard Pilgrim Health Care, PruCare, USHealthcare, Tufts and HMO Blue, has learned to adapt to the different needs of his distinct sets of customers.

"We've expanded our office hours for our patients' convenience while improving our office systems to provide more efficient service to the insurers' and managed care organizations", he said. "We produce many types of bills to conform to each payor's billing system.

"Furthermore, we maintain unique databases for Tufts, HMO Blue and other payors to ensure that patients are matched with their plan's own list of approved specialists."

For Abramson, addressing multiple needs has allowed him to sustain quality care and cost-efficiency.

What are customers' preferred buying behaviors?

Buying behaviors vary as much as customer needs. Providers can anticipate variety in the ways customers choose vendors, make purchasing decisions, time their contracts and plan their purchasing activities. Successful companies anticipate client requirements and meet them. In health care, for example, mergers among payors and providers are creating organizations large enough to meet the needs of nationwide workforces.

These mergers couldn't come too soon. Many nationwide companies feel frustrated with a regional, city-by-city health care system that burdens their staff with unnecessary complexity.

Larry Schilmesiter, human resources vice president of Lawrence-based Malden Mills, describes it well.

"one of my greatest challenges is ensuring that all our employees, regardless of where they work, have access to consistently high-quality health care, " he said. "Ideally, we'd like to contract with a single, or small number of suppliers, to reduce our administrative overhead. We'd like these vendors to produce reports demonstrating that they are meeting our cost and quality requirements for all our employee populations."

The lesson is clear: Simplicity and ease-of-use will win friends and influence decision-makers.

According to Schilmeister, however, simplicity is still the exception to the rule.

"Instead," he said, "most health plans operate in a few areas of the country, so we stil end up handpicking providers in each location. Worse, each payor measures and reports on different information variables. This makes it harder for us to evaluate the quality of the health care we're receiving."

What will customers pay?

Pricing may lead the list of purchaser and payor concerns. In the current balance of power, the volume purchasers
typically large employersare gaining the upper hand, forcing providers to offer discounts and special pricing. As health plans extract deeper and deeper discounts from provider institutions, even Medicare has gained appeal, rising from one of the least attractive payors to one of the most generous.

Bill Katz, director of health care services for Zelenkofske Axelrod and Co. Ltd. sees a clear relationship between pricing and shifting balances of power.

"In the past, businesses, the major purchasers of health care, paid what was asked," Katz said. "But when costs began to exceed profits, CFOS rebelled and sought lower-cost alternatives-self insurance, and managed care. Insurers responded with lower prices, risk-sharing, managed care, price guarantees-anything to keep the business.

"Of course," Katz added, "The lower prices have passed down the line to hospitals and physicians who have had to find ways to operate more efficiently."

Contemporary health care costs cannot overly burden the purchaser without meeting resistance and risking loss of business.

What does all this mean for health care providers?

The one sure constant is change. Consumer demand for new services has inspired the first attempt to provide insurance coverage for alternative medicine (Blue Cross of Washington and Alaska) in America.

Feeling squeezed by increased costs and declining options, many Americans have turned to legislation, as in the movement to ban "drive-through deliveries".

To increase market share, and negotiating power, payors and providers are scrambling to merge and align into organizations hefty enough to wield real clout.

Even purchasers are getting organized, forming coalitions
like the Foundation for Accountability, the New England Health Employer Data Information Set (HEDIS) coalition and the Massachusetts Purchasers' Cooperative—to force health plans into conformance with purchaser requirements for useful and consistent data collection and reporting standards.

These changes, and the ones sure to follow, require health care vendors to continually re-evaluate the market basics: who buys, what they want and how they buy it.

But amidst the uncertainty exists real opportunity for savvy marketers. Providers willing to analyze the customer mix, meet customer needs and adapt to their buying behaviors will gain the competitive advantage. Those prepared to base product, pricing, packaging, distribution and promotion strategies on that analysis will prevail.

Sign up now to receive free articles on ways you can accelerate revenues. Or, schedule a free consultation to determine the single most effective action that you can take now and accelerate revenue right away.

I needed to find and evaluate specific information very quickly. Using her extensive contacts and knowledge of industry information sources, Barbara was able to get me everything I needed and more within just a few days."
Thomas Grape
Managing Director

ADS Senior Housing Division.

Marketing Strategies and
Marketing Programs

  Copyright © 2009, 2010 BB Marketing Plus