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A cautionary tale of hyper-competitive physician markets

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The first blow to the hospital's performance came at the beginning of 2011 as a competitor lured away a primary care practice that generated significant inpatient and outpatient volume for the hospital.  Given the loss of the practice, hospital management (of the 250 bed community suburban hospital) wasn't surprised when volumes began to decline in March.  They were already looking for additional volumes to cover the anticipated 1 to 2 percentage point loss in volume.  When the volume loss reached the 4-5% range it was clear to management that something else was going on.  Hospital leadership checked the usual suspects looking for an answer.  Had other major admitters shifted their utilization?  Had there been a major change in ER utilization or ER admission rates?  None of these queries provided the reason for the steep decline in volume.

For several weeks, the reason for the volume decline remained a mystery and yet it persisted.  The answer, when it became apparent, was quite surprising.  During the Spring of 2011 the hospital had implemented a new clinical information system.  While the implementation was functionally successful it did require changes in physician workflows and processes.  Physicians who had been splitting their referral volumes and sending the minority of their cases to the hospital shifted their volumes to competitor hospitals.  After discovering the cause of the volume decline, the hospital focused attention on making the workflows as efficient as possible and hired extra staff to help physicians navigate the system but volumes have not yet returned to normal.

This could never happen to your hospital, right?  While the exact confluence of factors may not be repeated at other hospitals we are seeing these market driven events across the country.  Hyper-competitive markets for physician practices are causing disruption of traditional referral patterns.  Payers are putting pressure on volumes via more stringent rules and increased audit activity.  Patients have delayed elective procedures in the face of difficult economic conditions.  Finally, business models in healthcare are changing, altering the relationships between clinicians and delivery systems.  Any or all of these factors can pop up unexpectedly to cause significant changes in the financial performance of the hospital.  So how does a hospital protect itself from these unexpected changes in volumes?

  • First, insure that your leadership has a clear understanding of the historical volume trends for your organization, including any seasonal trends, referral channels, and geographic distribution. Continue to run your volume reporting and analytics on a regular basis to insure that you can detect and respond to changes in volume very rapidly.  Assemble a multi-disciplinary team to review the volume reports on a regular basis.
  • Second, perform a segmentation analysis on your customer base to make sure that you have a clear understanding of the wants, needs and socio-economic position of each of the customer segments.
  • Third, a segmentation analysis should be performed on your physician base.  This analysis will help you to understand the key wants and needs of each major specialty and admitter group.
  • Finally, the execution of major strategy components should be accompanied by change management tools like a stakeholder analysis, 3-D's Matrix or Resistance Analysis in order to insure that the impact of any given change is handled smoothly.

The future success of any provider organization will require that the entire organization be extraordinarily focused on customers and customer service.  The ability to detect and react to markets shifts will become a key skill set for all providers.


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