Deb Purcell, Pitney Bowes Business Insight
With so much new data available today to drive effective health care decisions, perhaps the most underutilized is location-based information. When effectively tagged, compiled and analyzed, location intelligence empowers providers and pharmacies to choose the best locations, plan administrators to find and fill voids in their coverage, payers to identify fraudulent transactions, and pharmaceutical companies to optimize sales territories. Leveraging the power of location intelligence in this era of reform, where pressures for improved efficiency meet increasingly electronic records, will help all industry participants and improve patient care and outcomes.
Strategies for optimizing service-location networks are well understood within many consumer-oriented industries, and they apply directly to the health-care location planning. Take a look at the banking industry. Decades ago, the industry comprised primarily local community banks. Over time larger regional and eventually national institutions acquired local operators for many of the same reasons driving consolidation in the health-care industry today. In fact, in the 20-year period ending in 2004, the number of commercial banks fell to nearly half, from almost 15,000 to fewer than 8,000 – attributable primarily to mergers and acquisitions. As documented in “Consolidation in the Banking Industry” by Kenneth Jones and Tim Critchfield, “Nearly all the decline occurred in the community bank sector…and especially among the smallest size group.” According to the FDIC, there are fewer than 7,000 commercial banks today. Government regulations played a role in industry dynamics, as did advances in technology that enabled quicker secure transfer of information. Industry participants leveraged systems to share information across units, enabling banks to serve customers in a unified and comprehensive manner regardless of the location patronized. While the number of bank organizations decreased, the number of outlets for simple, frequent transactions grew through such venues as supermarkets and ATMs. Through affiliation with a larger entity, smaller branches could avail themselves of costly expertise and share resources. Critical mass associated with the combined patronage of several banks made providing specialty services economically viable. Of course, many financial services are now also offered through a different kind of location—online, a channel that is developing a growing relevance for health care – particularly services related to education, diagnostics, and monitoring.
In health care, the banking parallel is particularly visible in the provider space although there are fundamental differences in the inaugural location strategies between the two industries. The first location opened by a community bank was typically in the center of town where it was easily accessible and frequently patronized by nearby businesses and residents. By contrast, suburban community hospitals, which require considerably more real estate, commonly began with the donation of a large parcel on the outskirts of its community. Consumers grew accustomed to the idea that their health care destination was not a matter of choice; medical expertise was limited, and patients were willing to go out of their way to find it. Insurance coverage requiring patients to patronize specific providers fed the acceptance among consumers that obtaining health care was not a matter of convenience. These same factors resulted in a limited need for advertising to drive awareness.
As suburban populations increased, overall demand for health services grew driving additional locations. New treatment options and reimbursement policies fostered the growth of outpatient facilities that fit into smaller spaces and were not necessarily co-located with a hospital. As urban sprawl caused communities to run together, the communities served by health-care providers began to encroach upon each other, and the expanding local service networks began to overlap. Consumers began to view their health-care destination as a choice and, in turn, providers developed services and associated marketing programs to differentiate themselves from an increasing number of competitors. Health care networks were established that capitalized on the cost efficiencies that could be gained by rationalizing services and leveraging marketing dollars across a broader population base in the same way bank networks do.
The parallel between the dynamics in the health-care industry now and the banking industry over recent decades is notable, even if the consolidation has not been as dramatic. The number of community hospitals in the United States hovered around 4,900 between 2002 and 2008; however, 2,261 were classified as being in a system of at least two hospitals in 2002 whereas 2,868 were classified as being in a system in 2008 (source: American Hospital Association). Until the economic downturn in 2007 acquisitions by regional health systems were on the rise. The poor economy has caused even the largest non-profit system, Ascension Health with 500 provider locations in 19 states, to see a 23 percent increase in bad debt due to treating uninsured patients. With the slow improvement in economic conditions and better understanding of health care reform measures, merger and acquisition activity is beginning to tick up. Many independent hospitals and smaller nonprofit networks are once again being targeted by for-profit organizations that will look for operational efficiencies. Last month, Caritas Christi Health Care which operates a struggling chain of six Catholic hospitals in Massachusetts to Cerberus Capital Management, a private equity investor making it the largest for-profit hospital chain in the state. Just this week, Michigan’s Attorney General approved the sale of the eight-hospital Detroit Medical Center to Vanguard Health Systems, converting it to a for-profit network and preventing the chain from being forced to discontinue service. The for-profit space has also been dynamic. Hospital Corporation of America (HCA, Inc.), one of the largest for-profit operators with 169 hospitals and more than 115 outpatient centers in 20 states, made headlines earlier this year when it announced plans to go public, and again when its current investors postponed those plans in favor of a dividend payment. The pressure on hospitals and providers to operate efficiently is sure to continue with pressure from health care reform, and the economies of scale that result from network location optimization will be a critical component to a successful strategy.
Of course, the healthcare providers include more than just hospitals. Most hospital systems include a network of out-patient treatment locations. Specialty provider networks may offer only specific care, such as urgent care, rehabilitation, imaging, or cosmetic procedures. Similar to financial services, health-care offerings vary in terms of the overall level of demand and the profile of customers who are most likely to seek out that service. Financial services like cash withdrawals are ubiquitous, leading to numerous convenient locations, while home-equity loans are in smaller demand and are therefore offered at fewer locations. Understanding the factors that drive demand is fundamental to developing a successful network strategy.
The decision regarding the appropriate location of a provider unit should focus first on a few key underlying drivers of demand. Specifically, the feasibility of a location depends on how far consumers regularly travel for a specific purpose in light of the number and location of competitive alternatives, how many consumers reside within that distance, the propensity of those residents to need or want the service considering their demographic and behavioral characteristics, and their ability to pay. This last attribute is dynamic in light of current health-care reform. That is, the question of a site’s financial sustainability is answered by assessing market demand (the anticipated number of revenue-generating visits) and then comparing it to the cost of operating a facility at that same site. By incorporating consumer attributes, preferences, and behaviors, along with diagnostic and incident data, health-care providers can identify the optimal number and locations of sites that should offer specific services, building a network that is cost efficient and meets the market’s needs. That is, the key to optimizing service offerings is an understanding of the distribution of demand and the constraints around the nearby population’s ability to travel for a specific service (e.g., urgent care versus rehabilitation), or the feasibility of regular travel by the provider to the patient’s location in the case of home health care and visiting nurses.
Providers that are part of a network often have a wealth of data available in existing patient records that can be used to facilitate planning. The maps below illustrate the importance of understanding a patient’s profile. The first map shows the general population distribution around a service location (designated by a yellow star) in Detroit’s western suburbs.
Service provider location in Detroit’s western suburbs, relative to general population.
Initially the location seems centrally located within the population; it is also accessible by freeways throughout the market. However, depending on the service provided, there may be a better location. The shaded areas represent high concentrations of children (green) and seniors (orange). If the services provided have a higher concentration of patients in either age cohort (e.g., urgent care or cardiac care, respectively) a more localized approach, central to either concentration of potential patients, may be more convenient and more cost effective.
The map below depicts a dot distribution of potential urgent-care patients (green) and cardiac patients (orange), based on the typical age profile. Better-located facilities are presented for each offering; the urgent-care facilities are represented by a black cross and the cardiac facilities are represented by a heart symbol.
Well located urgent care and cardiac locations relative to
concentrations of children (green) and seniors (orange)
As these maps demonstrate, the patient profile impacts the geographic area and the number of anticipated patient visits originating from each service. Demographic, psychographic, and diagnostic or incident data that can be used to identify patient profiles and to quantify the impact of variance on patient visits are widely available. Specialized services should be central to the target population that exhibits in-profile characteristics instead of to the population at large.
Distance from patients also plays an obvious role in the viability of a health care provider’s location. After considering the patient profile, understanding how far patients are willing or able to travel for service is important in developing effective location and marketing strategies. Using de-identified patient data, network providers can develop distance-decay curves that represent typical decline in visits as distance from the site increases. The graph below presents an example of the difference between the distance decay curves of two types of services. Urgent-care visits, represented by red dots, are more common and originate from more proximate residents. By contrast, specialty-treatment visits (blue dots) are made by a smaller proportion of the population that is willing to drive a greater distance for care.
By applying the value of the visit (e.g., average revenue or number of visits associated with the service) to these patterns, health-care providers can create predictive models that can be applied to potential future locations to estimate annual visits and associated revenue. These models can be particularly useful in planning the number and spacing of locations within a market’s outpatient network.
Providers can gain a wealth of information about their target patient base by analyzing and understanding a market’s demographic, psychographic, and behavioral composition. Upon identifying who their target patients are and where they live, providers can develop more customized marketing programs. Customer segmentation and profile analysis can provide valuable insight into any health-care service’s most productive customers (e.g., the 10% of a specific population that generates 40% of service visits). Understanding who these customers are and where they are concentrated geographically is essential to supporting effective business decisions because it contributes to myriad business issues, from facility location (or rationalization) to setting the investment priority of advertising and marketing dollars. Another critical factor to consider in health care location and marketing strategy is the influential role of referring physicians and benefit plans. In health care, location intelligence includes understanding the distribution of referring physicians and plan coverage within a market, and filling voids through partnerships with these important industry participants.
Pharmaceutical companies were one of the early adopters of these marketing practices. They began sending product-marketing and health-maintenance messages to both patients who had filled maintenance prescriptions for their drugs and prescribing physicians. Health-care providers can augment this communication to promote preventative care and adherence to treatment plans by supplying specific health-oriented messages to their patients.
Using enhanced demographic and location-intelligent targeting techniques, health care providers can assure that the message reaches not just patients who are likely to need a particular health-care service, but also those who are likely to choose their facility based on a location’s ease of access. Similarly, these marketing techniques can be used to acquire new customers in the most targeted and cost-efficient manner. Applying an understanding of which potential customers are most conducive to particular procedures, screenings, or diagnoses can greatly enhance the likelihood that the marketing communication will resonate with the customer. Further, more-efficient targeting can lower the cost of customer acquisition.
Predictive analytics have long been used by such consumer industries as banking to identify the most profitable sites for new locations and to more effectively market to customers. In today’s increasingly competitive environment, health-care providers are now poised to leverage patient information to predict a market’s current and future need for services. Understanding how to better serve patients by providing the right health-care services and facilities is becoming an increasingly important aspect of efficient and effective health-care delivery. Health-care providers are using predictive-analytic techniques and tools, tapping into available internal and external data sources to identify a location that can offer the greatest benefits to the communities they serve. The same insights garnered from patient analysis conducted for the purpose of location planning also applies to the development of marketing programs that ensure that a network not only provides physical market coverage, but also taps into available potential through campaigns that generate provider and service awareness.
Consolidation is a long-term trend in health care that is likely to gain steam as the economy recovers and health care reform effects become clearer. With changes in payer composition, declining reimbursements, and elective procedures being postponed by cost-conscious consumers, health-care providers must find greater efficiencies in their operations. The financial benefits of consolidation derived from greater economies of scale are straightforward: providers are able to reduce fixed costs associated with administrative functions, such as billing and marketing, and are able to share assets, systems, and processes between units within their network. Providers also want to provide the best care to their patients, not just in terms of state-of-the-art diagnoses and treatment, but also with locations that are within reach of the majority of residents in the communities they serve. Despite health-care reform, industry transformation, and technological advances, the fundamental need for patients to visit a facility for care (or to be visited by health care professionals in their homes) will remain, underscoring the need to develop an effective location strategy and an associated patient-communication program that strikes an acceptable balance between the patients’ need for access and providers’ need for cost control.
