Submitted by: Tom DeSanto
Executive Vice President
Aloysius Butler & Clark
Wilmington, DE

Healthcare inflation has returned with a vengeance. Medical costs are rising twice as fast as the consumer price index. Leading the way are hospital care costs, with an annual inflation rate of nearly seven percent.1

Health benefit costs are also skyrocketing. In 2001, employers faced the largest increase in health benefit premiums in a decade. And they’re expected to rise an average of 12.7 percent more in 2002.2

As healthcare costs explode, they’ll ignite a massive chain reaction. Struggling to remain profitable, large employers will demand lower healthcare costs. In turn, managed care companies will pressure hospitals and physicians to cut costs and reduce utilization. These healthcare providers, already in financial straits, will be forced to find ways to cut spending. Throughout America’s entire health system, participants will scramble to reduce expenditures and lower prices.

The greatest burden, however, will fall on healthcare providers. Even in the best of times, they are caught between a rock and hard place, based on society’s conflicting demands. As patients, everyone insists that healthcare providers offer the most advanced technology, utmost convenience and optimal outcomes. But as business leaders or individual citizens, no one wants to pay its true cost. And when the costs escalate, people dig in their heels and demand relief.

Over the years, the federal government has turned this behavior into a science. It purchases healthcare without proper payment by inadequately reimbursing doctors and hospitals for the services they provide to Medicare and Medicaid patients. This, in turn, further reduces the providers’ revenue stream and forces them to “do more with less.”

What does this mean for healthcare marketers? Plenty, if past experiences are any indication.

Lessons from the Past

Healthcare costs last surged in the late 1980s and early 1990s. And healthcare marketers are still experiencing the fallout. As managed care companies became more aggressive, hospitals were forced to find price relief. Conventional wisdom pointed to achieving economies of scale through rapid growth. Healthcare providers merged, affiliated and created joint ventures at a record pace, and the number of hospitals declined. The hope was that the economies of scale achieved by consolidation would help preserve quality and meet the cost demands of managed care organizations. But it didn’t quite work out as planned.

Far too many of the newly created health systems eventually had financial problems or “demerged” because of irreconcilable differences with their new partners. The aftermath for some healthcare marketers was the waste of huge amounts of effort and resources, not to mention the creation of branding and communications nightmares.

Providers that didn’t join the consolidation fray found stiffer competition among hospitals and health systems that continually added new technologies, services and facilities. This forced some community hospitals to close their doors. Others bolstered their efforts by affiliating with stronger players. It became a marketing free-for-all.

Managed care companies also consolidated, producing monolithic and more powerful entities with even greater leverage. But, as the managed care loop tightened and health benefit costs dropped, people rebelled. Soon the consumer’s cry changed from “We want low cost!” to “We want quality!” Business leaders followed suit. The eventual compromise was “We want value!” It was a demand that healthcare marketers could meet.

Over the past few years, however, costs have crept up. Now, with a weak economy and a sudden surge to double-digit healthcare inflation, the cry will soon return to “We want low cost!”

Today, healthcare providers may be less prepared than ever to meet that challenge. They continue to struggle in the face of increasing demand for services, rising labor and technology costs, and the already existing need to decrease expenditures. In 2000 alone, 80 hospitals closed their doors and almost two-thirds of all hospitals reported losing money on patient-care services.3

As health care costs rise again, it is unlikely to result in further consolidation. But the burden will be born in ways that are likely to place increasing pressure squarely on the shoulders of healthcare marketers.

New Pressures

As providers respond to cost pressure in a competitive environment, they find themselves wrestling with two conflicting mandates: drive down costs and drive up revenues. (Maintaining quality, of course, goes without question.) Many embark on efficiency and quality management programs that offer some success in reducing expenses. However, at the end of the day, they remain engaged in a nearly impossible balancing act.

With administrators scrutinizing every expenditure on one hand and demanding growth in patient volume on the other, healthcare marketers find themselves facing more intense challenges.

Providers often compete by creating programs that set them apart in their marketplace. This involves acquiring and implementing new technologies or recruiting exceptional specialists and building programs around them. Each of these methods requires a huge financial commitment and demands a solid return. But as cost pressure increases, management may be unwilling or unable to provide the marketing resources required to promote new technologies and services successfully. This can leave marketers with the task of generating substantial increases in volumes on shoestring budgets.

Another way providers compete is by packaging and promoting services that create more effective and convenient care for their patients. Selecting the service lines that offer the best return on investment can sometimes be difficult because of unclear metrics or entrenched politics. Although these efforts are less expensive than creating new programs, they require a strong marketing push followed by a sustained presence. This ongoing support can also fall victim to cost-cutting measures.

Finally, in a crowded, competitive marketplace, a consistent brand image can mean the difference between blending in and breaking through. Brands are the “mental file folders” where patients and prospects store and assimilate messages about healthcare providers. Consistent branding maximizes marketing efforts. Unfortunately, with new programs, service lines, community events and a host of other efforts competing for limited marketing dollars, branding can be relegated to the back seat.

What is a healthcare marketer to do?

Suggestions for Success

After consulting for more than two dozen healthcare organizations of every description over the past fourteen years, the author would like to offer the benefit of his clients’ experiences. Here are ten suggestions that can help ensure success in the challenging times ahead.

1. Use the power of relationships—internally and externally. On the inside, it’s more important than ever to build relationships with key physicians and administrators. In the struggle for additional marketing resources, these power brokers can be strong advocates with management. Even if funds are not forthcoming, the relationships will ensure that key people understand the struggles and limitations faced by the marketing staff.

On the outside, limited advertising opportunities underscore the necessity of building relationships with referring physicians in the
community. Keep them informed about the programs and services available to them and their patients—and the advantages they offer.

2. Triage carefully among competing marketing needs. Although many services vie for marketing attention, not all can receive it. And in tight times, even fewer will. Gather the best metrics available and ask some tough questions. Which service lines are most profitable? Which have marketing mandates—and why? Who is the audience? How easy is it to reach the audience? How does the service stack up against the competition? What are the referral patterns? As more questions get answered, it will become clearer which services should be marketed and to what degree.

3. Plan to demonstrate return on investment. Increased accountability goes hand in hand with decreased budgets. Whenever possible, specific marketing plans should include some projection of the cost per lead. Of course, this requires marketers to set an approximate budget, determine how to measure responses—such as calls to a physician referral line, net increase in office visits or attendance at an event—and predict a result. This process is not easy. But if it becomes a discipline, the lessons learned and the goodwill generated with management will be invaluable.

4. Make branding a part of every marketing activity. The brand is a clear expression of the unique reason why someone would choose one healthcare provider over another. The push to drive down costs and drive up revenues can undermine branding. Lower marketing budgets customarily move emphasis away from brand-centric communications at a time when the power of branding is needed most. To remedy this, be sure to build brand messaging into every marketing communications effort.

5. Invest in research. All too often, research is the first casualty of budget crunching. The insights and benchmarks provided by research are essential to making the best use of increasingly limited marketing resources. Even if research efforts are limited to less expensive, more qualitative methods, they can help ensure that dollars are well spent.

6. Rely more on public relations efforts. Look carefully for activities, accomplishments and personal stories that are interesting and truly newsworthy. Then think of creative ways to share them with the community and the press. This will help you promote doctors, gain exposure for the organization and eventually get more people in the door.

7. Avoid micromanaging. When marketers are under extreme pressure from management to produce results, they can tend to become myopic. In an effort to squeeze maximum performance from each word of copy, every media insertion and each direct mail piece, they can become micromanagers who spend too much time on the details. This can slow down progress and increase costs at a time when they cannot afford to do either.

8. Simplify and amplify messages. As the number of marketing communications venues is reduced, marketers can get the urge to load ads with messages they don’t have the chance to convey elsewhere. The rule to apply here is “the less you say, the more your audience will remember.” Tell audiences only what they really need to know to make a decision about a program or service. Save longer copy for brochures and websites.

Amplify messages by presenting them with clarity and consistency in every medium. As much as possible, move budget dollars from creative development to media placement. In this way, the messages have the exposure necessary so your audiences receive them loud and clear.

9. Don’t disappear. Success often depends on maintaining share of voice in the marketplace. As pressures increase, advertising budgets are more likely to get bottled up in the approval process or suddenly cut. If dollars run dry, try to maintain some presence in the media by stretching an old campaign with additional insertions. Also, focus
more on community events and press relations for opportunities to shore up your exposure.

10. Get a fresh perspective. If you have an ad agency, consultants or industry colleagues you trust, take time to share your difficulties and frustrations with them. Be honest and open, and then listen to what they have to say. Be willing to look at things differently and blaze some new trails.

Surging costs and shrinking budgets are sure to bring rising expectations and anxieties. The best overall advice is to be prepared for some extraordinary challenges. Concentrate resources and energy where they are most likely to bring success. Plan to be more scientific about pursuing and documenting results. Most of all, learn be patient, even when those around you seem to be coming unglued. The healthcare market is volatile. What goes up, must come down. Keep your cool and try to enjoy the ride.

1HealthINFLATION™ News, December 2001
2William M. Mercer, Inc., survey, December 10, 2001
3Hospital Statistics™ 2002 Edition