The CFA Perspective

Maintaining/Defending a Clinical Service in Declining Cardiovascular Markets

Posted by John Meyer, FACHE

5/31/16 6:00 AM

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What does marketing strategy have to tell us about maintaining or defending a service in a declining or mature market?  In essence, quite a lot.  For the cardiovascular administrator, there are CV sub-markets in ascension, and there are also those in decline.  Those in 

To put it simply, the CV administrator’s strategy becomes maintain and defend.  Keep one’s sub-service line offerings as competitive as possible and defend them against threats that could result in further declines in volume, profitability, quality outcomes and overall patient experience.  Importantly, competitive advantages come through differentiating your service; no less true in a declining market.

Let’s use diagnostic cardiac catheterization as an example of a service line sub-market in overall decline.  In marketing theory, a “defender” strategy works where the basic technology is not very complex or is unlikely to change dramatically over time.  This market is obviously complex and with multiple variables, so we will try to simplify the strategy to illustrate our points.  Here are some defender strategies to maintain and defend this market:

  • Seek a competitive advantage through differentiation.  How is your cath lab service different (read “better”) than your competitors?  It may not be perceived as any better, but one should always try to differentiate a service on its tangible benefits to the end user (e.g., the catheterizing physician).  If cardiologists have a choice of where to take their patients (granted, an increasingly limited choice), they will be concerned with issues of access, convenience, scheduling, staff familiarity and competency, special features, levels of service and the like.  All are tangible and important and need to be managed aggressively.

  • Seek a lower cost/price position.  When volume declines, profit margins also decline (as fixed costs are spread over less volume), making cost a critical issue.  Reducing overhead, lowering the cost of materials, managing staffing and overtime and innovating efficient clinical practices are critically important in protecting profitability.  Supply chain issues, best-practice protocols, physician preference items, staffing and other cost-drivers must be aggressively managed.  Cost management should impact the ability to price aggressively as well, as transparent pricing is increasingly important to empowered consumers.  The ability to price aggressively may also be beneficial to a larger bundling project inclusive of other select CV services.  Here are just two further examples of cost-lowering tactics.

    • Changing clinical practices – Hospitals that have promoted the conversion of predominantly femoral access for cardiac cath and PCI to an increased use of radial access have been successful in both lowering the overall cost of performing these procedures and impacting quality outcomes, thus lowering their overall cost per case.

    • Lowest cost location – A CFA client hospital had access to multiple cath labs in the main hospital and also had an outpatient-only lab in an adjacent free-standing facility.  They successfully began to engineer a shift to channel low/medium-risk diagnostic cath and PCI patients to the outpatient facility, thus lowering their overhead and decreasing their overall cost of performing these procedures (and thus potentially impacting their charge position).  This was challenging, as they had to successfully address those physician-preference issues listed above.  (Note that this strategy is subject to potential change under pending site-neutral reimbursement proposals).

  • Seek volume growth.  Perhaps the ultimate challenge in a declining market, seeking additional volume can be a reasonable strategy in select markets and conditions.  Are there physicians who are not using your service who could be influenced to do so?  Identifying potential customer needs and moving aggressively to meet those needs may be productive.  Addressing access, convenience, scheduling, staff familiarity and competency, special features, levels of service and the like will again come into play.  Additional markets may be available for your services, but may require the commitment of additional resources that a declining service cannot justify without cross-subsidization.  Updated technology may be considered an inducement; however, it would also have to be cost justified.  Parenthetically, many hospitals in a similar situation would attempt to confine its most simple procedures (diagnostic caths and low-risk PCIs, for example) to its oldest equipment, attempting to avoid any substantial re-investment to manage overhead.

  • Rationalize or divest.  Hospitals that are part of a system or network must always consider service line strategy within the greater context of overall system strategy.  There may be opportunities to “pool” resources and develop a strategic approach to growth that can mitigate the impact of a declining market.  While our example of a cath lab, a basically fundamental cornerstone of a CV service line, is not the best example of a potential system approach to regionalizing services, other declining market sub-service line components may be (e.g., electrophysiology, vascular).  Taking a system wide approach to rationalizing specialty services over the entire system or network can result in positive benefits that can help to mitigate declining volumes and negative revenue impacts.  If all else fails, divestiture, although never an easy answer, is a last alternative if growth seems elusive, volumes fall below reasonable or regulatory mandated minimums, resources are scarce, and the totality of market factors are against you.

Maintaining and/or defending a service in a declining market are, unfortunately, a fact of life in managing cardiovascular services.  While there are CV sub-service lines that are ascending, they require a completely different strategic approach to marketing than do those that are in decline.  Recognizing your strategic and marketing options for those in decline is an important first step.  The second step is to recognize that there are strategies and approaches that can be utilized to maintain and/or defend your competitive position.  Increasingly, these strategies and approaches will become important to every CV service line administrator.

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As always, CFA welcomes your comments, suggestions and questions.

[1]Mullins, J., and Walker, O.C.;  Marketing Management:  A Strategic Decision Making Approach, Chapter 16, Strategies for Mature or Declining Markets, McGraw-Hill Publishing, 2010.

Topics: low volume cardiac surgery programs