Hospitals Retool for the Outpatient Imaging Market

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After watching outpatient-imaging centers siphon away their often-lucrative outpatient imaging services, hospitals in growing numbers are moving aggressively into surrounding communities to establish outpatient imaging center beachheads. The trend began heating up five years ago, according to Craig Anderson, Sr, founder of Charis Healthcare LLC, Hudson, Ohio, a company that specializes in helping hospitals and physicians accelerate services in the non-hospital outpatient environment. “Hospitals are realizing that a large majority of the revenue is leaving the hospital campus—or at least leaving the walls of the hospital—for a couple of reasons,” Anderson reported. “Physicians are adopting and acquiring more technology that allows them to deliver services in their offices; entrepreneurs are coming into the marketplace and putting up services that are taking away business from the hospital; and patients really are demanding a more customer-focused, friendlier, easy-to-get-to set of delivery systems. In competitive markets this is becoming a battleground between hospitals and hospital systems to put up significant, comprehensive ambulatory care delivery systems. So the market is changing dramatically.” This trend has spread well beyond the early adopters as both community hospitals and health care systems enter the market strategically (look for Part II of this article in the October issue of ImagingBiz.com). “The level of interest has grown precipitously, and the level of individuals is increasing,” Anderson noted. “So you are now seeing the COO—not just the CEO—realize they’ve got to figure out how to compete in this business or they’re going to lose it.” Developing the Retail Mindset Succeeding in the outpatient arena has required hospitals to learn a whole new set of operating principles in health care delivery, Anderson said. “Hospitals that win off of the hospital campus have an entirely different approach to designing processes, hiring people, managing people, incentivizing people, training people, and building delivery systems,” he said. “It’s a completely different approach to care, and as they have been learning that, we are starting to see a couple of best in class delivery models percolate up.” A retail mindset is the first key competency, Anderson said. “If you think about what customers in any industry want, they want value, which is a high level of service for a reasonable price,” Anderson said. “They want customer accoutrements, they want to be cared for, they want to be appreciated, and they want it to be easy.” Easy, as translated by Anderson for health care, means: Easy access and good parking Minimum waiting room time Rapid delivery of results “Now that sounds pretty simplistic and generic, and it is,” Anderson began. “But the next question that it gets to is, ‘What kind of people do you want in this organization?’ Typically, best-in-class providers of outpatient services have a very rigorous recruiting policy. So if a hospital builds an outpatient center, hospital employees can apply to work in those centers but they don’t automatically have the option to work in those centers. They have to meet the recruiting requirements, get hired, and then follow the performance appraisal system to function well in those outpatient settings. “Typically, those centers have their own HR requirements, their own incentive-based compensation system, shared team goals, and incentive team goals, which are very hard to do in a hospital because of the complexity of so many service delivery groups within the hospital.” Choosing the right center manager is key and also may require going outside the hospital management pool. Not only must this individual have a retail mindset with respect to customer service, but he or she also needs to understand the importance of the sales effort. “There is a huge sales component, which doesn’t exist on the hospital side,” Anderson emphasized. “The hospitals frequently will have an individual or individuals who go out and call on doctor’s offices to talk about their services, but that is very different than a sales force in an ambulatory environment. You want to hire people typically from pharmaceutical firms who are trained in disciplines of selling to physicians and convincing physicians of the value of your services.” Just as important as selling a center’s service is delivering on that service commitment, the linchpin in convincing referring physicians and their front office staff to prefer one facility over another. “So it really becomes a game of selling, servicing, and delivering,” Anderson said, “always increasing your service delivery to be one step ahead of the competition.” To help clients achieve a culture of service, Anderson teaches a program based on the book Raving Fans, by Ken Blanchard. Blanchard’s book describes a concept called Plus One, which achieves best-in-class service delivery by always increasing the value to the customer by 1% to stay ahead of the competition, through performance metrics, goals, and measurement systems. “There’s a science to it,” explains Anderson. “It’s a management discipline that, if done well, differentiates your service from the competition, and it drives volume up. One of the biggest concerns for hospitals—and this is a key, critical concern—is that if we build these outpatient centers, are we getting new volume or are we simply cannibalizing business we would have gotten anyway?” The Reimbursement Advantage Since the implementation of the imaging reimbursement cuts contained in the Deficit Reduction Act of 2005, hospitals have a competitive advantage in the outpatient market if they can retain hospital reimbursement under the ambulatory payment classifications (APCs). “If a hospital can build these centers and get hospital rates, typically they can get a much higher level of reimbursement than independent centers can that have to contract with third parties,” Anderson said. The key to preserving hospital reimbursement is that the hospital retains majority ownership in a center, if it involves a joint venture with physicians. “Typically, even if it is a joint venture with physicians, as long as the hospital is the majority owner to the tune of about 70% it can preserve hospital rates,” Anderson said. “Interestingly enough, some of the studies we’ve done show that if a physician has a 25% ownership in a hospital-sponsored, hospital-reimbursed delivery model, they will make more money than if they were a 60% owner in a venture where they had to compete independently for third party contracts.” “Reimbursement is a real key element in how to structure these,” Anderson added. “And they are different in every market, because you have to really understand the managed care issues in each market.” Hospitals should also keep in mind the following parameters when setting up an imaging center, Anderson advised. Location, Location, Location. Location is a function of demographics, as well as access, Anderson said. Look for where the bulk of the population resides, as well as housing starts, new developments, and new industry. He also noted that there are many subtleties associated with ease of access, including egress out of major highways and proximity to other services that cause people to be out in the marketplace, such as shopping malls and sport centers. “A recent trend that is very attractive is hospitals building health centers inside YMCAs, and really aligning with the YMCAs to bring both the health component and the medical care component into the campus setting,” Anderson said. “Location is critical.” The Staffing Differential. Look for employees with a passion for service delivery, Anderson urged. “You almost have to design your requirements for the best in class employee, and then have open recruiting and hire employees with a high level of passion around service delivery,” he said. “You need technical competence, but a service-delivery mindset is as important as technical competence is in these employees.” Compensation and Incentives. The best way to incentivize the team to perform and generate more revenue for the outpatient center is to let them share in the profits of that growth, Anderson said. But in order to do that, a center must measure, first determining what it wants to measure, how to respond to measurements, and how to tie those measurements to compensation. “Most of the incentive compensation plans that we develop have a fixed and a variable component,” he explained. “The variable component is tied to the customer satisfaction and profitability of the center: patient satisfaction, referring physician satisfaction, and family satisfaction. You have to measure and document to tie that to compensation.” Anderson recommends measuring monthly, unlike the annual Press Ganey surveys used in many hospital settings. “Those results are good, but they come too late,” he said. “We have to have dashboards of indicators and measurements that are monthly, because competition is changing the marketplace so rapidly that we have to understand changes in customer requirements, and then respond by modifying our service to meet those demands.” Operations. Anderson led a study several years ago that looked at best performance practices in the automotive, healthcare, telecommunications, and finance industries called the International Quality Study. “What we found was that every industry has its own unique set of characteristics,” Anderson said. “But we also found that every industry that is best in class operates off of best-in-class people, processes, and technology. And it starts with process. Designing the processes to deliver the most efficient, highest-quality service possible. You then have to support those processes with the right technologies, and then you have to hire, and train, and incentivize people to work those processes in a way that delivers best-in-class service. And when you do that, you get a higher quality, more efficient, more profitable, more customer-centric service delivery system than you can if you don’t look at those three elements.” Choosing the right technology for a market based on its preferences is part of the process. “Just to assume that a certain technology is going to work in a marketplace is false, because each marketplace has a unique and different level of technology expectations,” Anderson said. “So, you’ve got to select and design the technology to the unique characteristics of the markets you are going after. You then have to design the process uniquely to go along with those technologies—they go hand in hand—and then you’ve got to hire and train people on those processes so that you have teams of care delivery people that are seamless. The team concept is much like developing a football team or a basketball team, where every single member of the team feels a part of the team, realizes the criticality of their role to everybody else on the team, and shares in the incentive compensation of everyone else on the team, has a stake in the business.” Branding. Whether or not a hospital chooses to use its own brand when branding its imaging center is also a function of the marketplace. “In some markets, there is a value of using the hospital’s brand, and in some markets, there’s not,” Anderson said. “A lot of it has to do with competition. If you are in a very competitive market and you are branded as part of the hospital, then entities aligned with the competing hospital will just naturally not use your service. You need to look at each situation and independently make a decision based on that setting.” Hospitals operating in the outpatient-imaging arena accrue many ancillary benefits, Anderson noted. First, these businesses become what Anderson calls “incubator companies,” where hospitals learn new approaches to medicine that can be brought back into the hospital environment. Second, if volume is good, the hospital essentially is feeding patients back into the hospital for tertiary care. “You are capturing the very key patients that you need to have on an inpatient basis, so the imaging center really becomes part of your feeder system,” Anderson concluded.