By Randena Hulstrand, Vizient
While many healthcare organizations continue to struggle financially, some are seeing better, if modest, operating margins. According to Kaufman Hall, hospital operating margin medians for 2023 and early 2024 were over 2% (but still below the healthier range of 3% to 4%), and recent data shows that 40% of American hospitals continue to lose money from operations.
But Laurie Dowd, consumer innovation principal at Sg2, a Vizient company, says now is the time for healthcare leaders to move beyond a "flat is the new up" mentality, and take a more proactive approach by enhancing services to not just gain but keep patients as part of their financial growth strategies.
"Healthcare systems have cut all they can," Dowd said. "They can't save their way to growth — it's not sustainable."
In this Q&A, she discusses how organizations that are still budget conscious and constrained are still thoughtfully investing in ways to better serve their patients and move the needle on their system's financial success. From adopting technology and strategically growing service lines to building a better customer experience and increasing provider network integrity, Dowd emphasizes that leaders must empower their teams to do their jobs and provide the best patient care.
What are the biggest challenges that organizations are facing in moving from a "flat is the new up" mentality to a more strategic investment in financial growth?
Healthcare organizations for consecutive years post pandemic have been facing financials in the red, forcing them to cut key business functions. While these cost-reduction strategies were implemented out of necessity to stabilize their financial health, system leaders often now are stuck, accepting a "flat is the new up" reality as they figure out how to move forward in facing issues of access, workforce constraints while maintaining quality. Now is the time for them to boldly move beyond the short-term fixes to a more holistic, forward-looking approach to determine where they need to strategically reinvest back into their systems so they can experience and truly sustain growth.
Many systems cut key business functions such as marketing, physician liaison teams and front door staff post-COVID, what have been the consequences and how can leaders readjust their strategies to increase volumes?
The ramifications of "robbing Peter to pay Paul" — a short-term fix — creates a longer-term problem as it stifles growth. Providers need to strategically restart critical business functions geared toward a better patient experience to achieve sustainable growth. An example that often immediately gets cut from an organization's budget is marketing dollars, which will impact their short-term growth as their communities will have less awareness of their unique offerings.
How can systems use technology to better meet patient needs?
From a consumer perspective, technology can improve the way that patients seek, interact and receive care. While there may be pain points during the initial adoption, technology creates less friction for current and prospective patients. Instead of leaders thinking about operationalization from a health system lens, it's important to use a customer lens to consider what patients prioritize when seeking care.
An early place where we see health systems using AI in their operational practices is from a documentation and call center perspective, both of which also aid workforce constraints by creating efficiencies. Many have been able to deploy these changes relatively quickly within the system, which in turn helps them improve the patient's customer experience.
We know that patients have other options, especially if they can more easily schedule an appointment without having to wait 30 minutes to talk with someone or possibly not even have their call answered. Identifying some of these operational inefficiencies and pain points within a health system can be relatively easy fixes for providers to better accommodate patients.
Can you discuss the importance of creating patient loyalty and how that positively increases revenue streams? Why is it important to track customer insights data for improvement — for example, identifying patient leakage and consumer habits?
Healthcare has been on a hamster wheel with fee-for-service transactions for so long that organizations have focused almost entirely on net-new patients as the gold standard KPI. For example, how many net-new patients do you get in the door, how many come in for particular service lines, how long does it take them to schedule an appointment?
Certainly systems should bring in new patients, but we know that it's much more expensive to acquire a new patient than it is to retain an existing one and build customer loyalty.
Leaders need to step back and really look at customer insights data and understand how much of their patients' medical needs they are actually serving versus what's going to competitors within their immediate market area. For example, what are you offering them and where are they "leaking" to for other services? This can help providers gain a strong understanding of how to better serve patients holistically. It's much more cost efficient to grow service lines with you existing patients than to chase new patient volumes.
What should leaders think about in terms of capturing their share of wallet in a community?
First, leaders need to take a holistic look at their organization and the market they serve. For example, are they in a major metro like Miami, where there's multiple health systems as well as disruptors with numerous offerings versus a very rural setting, with only two health systems? Then, they need to look at their own data, such as share of wallet, and determine how they can impact it as well as decide where to focus efforts. They can't be all things to all people.
For example, if women's services is an area where they seek to maintain share of wallet because they want to ensure that females are receiving all their care within the system, then figure out what their splitter behaviors are through insights. Then leaders can monitor the data and track it over time as they adjust to identify where and why they are leaking patients outside of their system — whether it's access or they don't have enough providers for the services needed. From there, they can begin to fix issues and benchmark against themselves to track progress.
How important is physician network integrity in terms of financial growth?
They are more interconnected than we think. For example, health leaders can look at patient claims data to see that a primary care physician is sending a lot of their orthopedic patients outside the system. But the question is: Why are they sending them outside of their network? By taking a deeper look at that data, leaders can determine if it's lack of access within the system that's causing the consumer to seek care elsewhere. If it is because of access, which is really common right now, the data will help to diagnose that on an operational level, and then leaders can focus on how to better keep physicians to increase their network integrity, which then helps retain patients.
What can health leaders learn from disruptors?
We've recently seen a lot of disruptors exit the healthcare game. The ones that are successful continue to approach healthcare with a different lens. They are thoughtful and strategic around how they are scaling. Additionally, I think we will continue to see those that are forward-thinking incorporate pharmacy offerings into their services to improve their margins.
What advice would you give healthcare leaders who want to embrace financial growth?
While I don't want to minimize the critical challenges that health systems face, leaders have to get started on their evolution, even if it's a crawl-then-walk approach. They're not going to solve everything within the next year, two years or even five years as there are always new challenges that arise based on the ever-changing healthcare landscape. So, continue to figure out what are the most critical ways you can improve your patient experience and try to tackle up front, get those under your belt and then look at where to grow next. Addressing issues in a phased approach is critical to making sustainable changes.
Learn more about how to unlock your near-term revenue generation and long-term consumer loyalty through Consumer Innovation solutions.
Explore this blog by Byron Jobe, president and chief executive officer at Vizient, discussing how focusing on the customer experience gives healthcare systems a competitive advantage.