The shift from fee-for-service to value-based reimbursement in healthcare has created a potentially catastrophic squeeze on hospital margins. Furthermore, a payment system that levies a financial penalty on hospitals unable to achieve the required patient satisfaction scores may put them in a cost-cutting death spiral.
A recent study by Chartism Group and Vantage Health Analytics showed that 80 rural hospitals have closed in the past seven years, and more than 41 percent of rural hospitals operated with a negative margin in 2016.
CMS reports that by 2019, up to five percent more hospitals will experience negative total facility margins and approximately 15 percent more will meet with negative Medicare margins.
By 2040, nearly half of all hospitals will have negative total facility margins, the report states.
Growing Clinical Service Lines to Maximize Margins
One way hospitals are offsetting the results of this reimbursement debacle is through clinical service line (CSL) optimization — operational and growth strategies that use evidence-based medicine to weed out costly and unnecessary variations and improve provider performance, care quality and patient experience.
There are many companies and entities out there that help hospitals analyze cost structures down to the procedural level and optimize expenses to increase margins for CSLs.
In fact, a recent report by the Congressional Budget Office suggests multiple ways hospitals can attempt to offset the margin squeeze created by reductions in Medicare’s reimbursement model. Strangely enough, with each suggestion, the CBO counters their idea with a downside or reason why the suggestion might be unethical or even illegal.
I found it interesting to note that buried at the end of a paragraph was this one little sentence where the CBO offered a suggestion with no counterpoint:
“However, individual hospitals might alter the mix of services they provide, shifting toward those that are most profitable.”
Immediately following that statement, the report goes on to make different suggestions and shoot each one down like some kind of verbal whack-a-mole game.
It was as if they had no clue how a hospital could drive revenue to a particular service line or didn’t want hospitals to pursue that course because the CBO had no way to account for it in any forecast model.
As I scoured the web for more solutions to shrinking Medicare reimbursements and a challenging payer mix, it appeared that virtually every solution offered centered on cost reductions or procedural efficiency.
However, as any good CFO knows, once you’ve trimmed all the costs and streamlined every internal procedure possible, you’ve got to increase the flow of patients to those optimized service lines if you really want to bring overall margins back to healthy levels.
In most hospitals, the more profitable service lines are cardiovascular, orthopedic and bariatric. Adding those CSLs, if they don’t currently exist, can involve massive capital expenditures and years of recruitment.
So, the most logical way to reverse the direction of a southerly pointing net income line is to increase market share by intentionally growing existing, already optimized CSLs.
To pull that off, hospitals must create a mechanism that provides a consistent stream of new patients flowing into these service line funnels.
That’s where old-school marketing models fail miserably, but new methods allow hospitals to build revenue-accountable marketing systems that return 10X or more on marketing investments.
Drive Service Line Growth with Targeted Digital Marketing
Talk to a traditional marketer or agency, and you’ll hear words like repetition, exposure, reach, frequency and branding. You’ll also see dollars flying out the window with no idea as to whether they will ever come back. Measuring the effectiveness of a traditional marketing campaign boils down to guesswork at best.
Digital marketing, on the other hand, when set up correctly is 100 percent trackable and, therefore, accountable.
Imagine if you knew with absolute certainty, day-in and day-out, that for every $1,000 you spend on marketing, you would generate no less than $100,000 in revenue.
What would life be like if you had that kind of marketing formula and certainty?
How much money would you put into marketing at that point?
Mastering this formula is the key to offsetting margin erosion caused by legislative mandates or a poor payer mix.
Successful digital marketing campaigns involve much more than slapping up a couple of ads on Google.
With the proper research, planning, execution and refinement, hospitals have been able to produce the exact level of predictability into their service line growth that I described above.
Effective digital marketing strategies can change the trajectory of your service line growth and dramatically impact your profit margins for the better.
A relevant example comes from Penn Medicine, an academic medical center associated with the University of Pennsylvania. Penn Medicine’s CMO, Suzanne Sawyer, uses landing pages and other digital marketing techniques to drive leads and conversions to the health system’s clinical service lines.
In this example, Sawyer’s team built a page specifically focused on the Heart & Vascular Institute in Lancaster, Pa.
It’s a single page that educates and inspires visitors through the “Risk Assessment,” “Tips & Tools” and “Patient Story” sections in hopes they will take at least one of the requested actions: “Schedule an Appointment” or “Take a Heart Risk Assessment.”
Sawyer was recently quoted as saying she has run more than 100 targeted digital marketing campaigns, generating the hospital a whopping 20,000 leads. Of these, a phenomenal 37 percent became patients.
She didn’t disclose any revenue numbers, but after looking at Penn Medicine’s service lines by CMI, I’m guessing that the conversion rate led to somewhere between $70 million and $150 million in top-line revenue for the Penn Medicine health system.
Naturally, I reserve the right to be WAY off on those calculations, but her math adds up to more than 7,400 patients, and from the ads I was able to track down, Penn Medicine targets service lines and procedures that generate at least $10,000 in top-line fees.
Unlike traditional media, with digital advertising, you’ll know how every dollar is spent. You’ll be able to easily distinguish ads that are working from those that aren’t and quickly make adjustments to improve performance.
With these systems in place, setting a budget for patient acquisition becomes easy, as you’ll know exactly how much you can spend to generate a predictable flow of patients to the hospital’s most profitable service lines.
The results we’ve seen by following a focused service line marketing approach are no less than staggering. Clients who had never seen a single lead come through their website in the preceding five years are now generating one or more per day.
We prepared an eBook to show you the exact steps you can take to successfully move beyond physician referrals and drive more patients to your most profitable service lines.
Download a copy of the eBook: Beyond Physician Referrals: 3 Steps to Grow Select Clinical Service Lines in 90 Days.