The ROI of Patient Engagement: Patient Loyalty

Much hospital marketing comes down to a simple goal: To attract patients that have good insurance to profitable service lines. An article covering hospital marketing in the St. Louis Post-Dispatch captured this quote:

“Why do hospitals advertise? There is a noble side to it, and also a realistic side,” said Laura Keller, a spokeswoman for St. Louis University Hospital. “I don’t think it ever hurts to remind someone that there are lots of choices that you have if you’re dealing with a major health issue. We need to educate the patient, and there are good messages there. On the business side, people need to understand that without money we cannot support our mission,” she said.

If you take the the 107-mile drive from Raleigh to Winston-Salem, NC, you are likely to see billboards from many of the following health systems:

                   

 

Hospital ads often promote procedure-based service lines such as those offered in cardiac and cancer centers, which are typically the most profitable hospital activites.  The patients that they hope to reach are those that reliably cover their out-of-pocket obligations and have health coverage that reimburses at attractive rates.

A relatively small swing in the number of these patients can put a hospital in the red. While two-thirds of US hospitals are non-profit entities, and roughly 20% have a negative total margin, none aim to operate at a loss.

 

Precarious Hospital Margins

This focus on attracting and retaining profitable patients makes sense within the context of relatively thin hospital margins. How much of a swing in profitable admissions would erase a typical hospital's net profits? Just 2,000 in a mid-sized hospital:

Beds 500
Annual admissions 30,000
Annual revenue $500,000,000
Net margin 2%
Net profit $10,000,000
Contribution per profitable procedure $5,000
Profitable procedures lost 2,000
Value of lost profitable procedures $10,000,000
Net profit after lost profitable procedures $0

 

A 5-10% swing in admissions can mean the difference between a good year and one with zero profits.

It stands to reason that hospitals spend heavily to build brand loyalty among patients. Billboards are only one marketing vehicle. Hospital ads can be found in airports, glossy magazines, and websites. The stakes are high.

 

Hospital Marketing and the Art of Positioning

Hospitals operate in a unique economic environment.

  • The market for routine services is hyperlocal and the market for specialty services is largely regional.
  • The way service is delivered, including the tools used, is subject to regulatory standards and approvals.
  • The end customer (i.e. the patient) is increasingly sensitive to quality, but much less so than in other industries.
  • Patients typically pay for about 5-15% of the cost of the services. The government and third party private insurers typically pay for the rest.
  • Patients largely direct purchase decisions, which are influenced by a health system's reputation.
  • Patients increasingly choose health systems vs. individual doctors.
  • Reputation is built through word-of-mouth from other patients and through referrals from primary care physicians and specialists. 

A hospital marketer's job is to differentiate the health system from the competition. To do this, they must find a way for the message to cut through the noise and reach the target. This is called positioning. The authors of the marketing classic "Positioning: The Battle for Your Mind" characterize the positioning challenge this way:

"The mind, as a defense against the volume of today's communication, screens and rejects much of the information offered it. ... [Generalities] have become a way of life in our overcommunicated society. Once a mind is made up, it is almost impossible to change. Certainly not with a weak force like advertising."

We live in an era of extreme information overload. As consumers, it is very difficult to cope with this deluge of information without simplifying and categorizing that which is constantly coming at our eyes and ears.

Successful positioning recognizes this and concentrates on the "receiving side" of its marketing messaging. Specifically, it seeks to create a message that can break through the clutter and stick in a person's mind. In communication, as in architecture, less is more. This message must be sufficiently differentiated from that of competitors. Here are some healthcare examples:

"The state's leading cancer center"
"Cardiac and vascular center in partnership with the Cleveland Clinic" 
"New robotic surgery center for less-invasive procedures"

Once the positioning is honed, the marketer chooses appropriate advertising vehicles to make people aware of it. Many health systems' marketing stall out at the awareness phase, which is at the beginning of the buying cycle. Some health systems use search engine advertising to capture patients at the other end of the buying cycle. Very few health systems have a program that bridges the awareness-to-purchase continuum. That patch of strategic ground is called engagement. And engagement is where patient loyalty is created. 

Without an engagement program, health systems stand to lose much of the value of their advertising investment. Not only is the ad investment lost, but more importantly, the opportunity to drive patient loyalty is lost, which is the goal of the advertising. 

 

How Ads are Priced

There are variety of ways to price advertising, but a common method is based on "impressions". In the print publication world, impressions are typically counted by totalling the number of paid subscribers with the number of people that get the publication at the newsstand. The sum is the "total circulation" for the publication. Each of the people in the total circulation is counted as an impresssion. Publications then express a price in terms of the cost to make 1,000 impressions. The shorthand for this is CPM (Cost Per M with "M" standing in for 1,000 as a Roman numeral.)

An ad buy within a mid-sized monthly print publication might look like this:

Total circulation 300,000
Units of 1,000 (M) 300
CPM $25
Cost for one ad $7,500
Ads per year (i.e. "ad schedule") 12
Total ad buy 90,000

 

Each ad vehicle (outdoor, online, etc.) has its own nuances, but the idea behind the pricing is roughly the same. Cost per action ads, like those offered by Google, charge the advertiser every time a user takes an action -- like clicking on an ad. All in, the annual ad spend for a hospital can quickly get into the hundreds of thousands of dollars -- and sometimes much more.

According to the St. Louis Post-Dispatch: "The nonprofit BJC Healthcare system, which operates 13 hospitals in Missouri and Southern Illinois, spent $13.4 million on “advertising and promotion” in 2010, according to two of its IRS Form 990 tax filings."

 

How Mobile Drives Patient Engagement & Loyalty

For the price of a bi-monthly ad schedule in a regional publication, a health system can maximize the effectiveness of all advertising and promotion. A mobile app is a natural "call-to-action" to download to learn more about virtually any health care campaign message. 

From Awareness to Conversion

"Half the money I spend on advertising is wasted; the trouble is I don't know which half."

This famous quote attributed to an early 20th-century retail tycoon cuts to the heart of display advertising's biggest liability: measurement. A call-to-action inserted within the ads establishes something that can be measured: conversion. Mobile apps are a natural complement in this regard. The app download is the first conversion. The next step is to offer the patient utility such as a library of health content that is pre-loaded on the app. Another onboarding feature is to give patients that ability to communicate with the health system. This could take the form of a click-to-call hospital directory or a mechanism by which patients can provide feedback to the health system. 

From Conversion to Engagement

Health systems are in the business of healing and wellness. Apps can be powerful tools that drive patient engagement in wellness. Apps give patients the ability to take control of the management of their condition. Consider migraines, a condition that is behind 112 million bedridden days every year. Knowing what triggers migraines, as well as when, where, and how often they occur, is a key to proper treatment and management. Keeping track of that information can be difficult, especially for those suffering from the condition. A phone allows a very simple way to track otherwise unwieldy information. Here's how Axial's app handles migraine management: 

      

      

Since people have easy access to their phones throughout the day, a well-designed app can be a convenient way for a patient to capture clinically-relevant information about their condition. Migraine management is just one example of a virtually limitless array of health management tools that lend themselves to smartphones. This user-generated health information is expected to be included in Meaningful Use 3.

From Engagement to Loyalty and Word-of-Mouth

True patient loyalty develops once a patient begins to actively manage their health via tools provided by the health system. It becomes solidified when a health system's providers actively use the patient-tracked information as a key input in the care process. From there, word-of-mouth builds courtesy of the "pocket demo". A pocket demo occurs when a user is so enthusiastic about the capability of a mobile app that they happily demonstrate it to colleagues, friends, and family. But isn't a health app different? Do people share informaiton about their personal health with friends and family? They do. Cholesterol, migraines, glucose management, and weight loss programs are discussed with frequency. Smart health systems understand this and leverage it. 

 

Estimating the Financial Return

Let's take our 500-bed hospital from the example above. The hospital operates in a metro area with 1 million people. Within that population are 400,000 prospective patients that are covered by insurance with desirable reimbursement rates. The smartphone penetration for this segment of the population is 60%, which leaves a target user base of 240,000. Roughly 1 of 10 Americans is admitted to the hospital each year. That figure covers all admissions, which we'll use for this calculation. If $5,000 is the contribution for a target procedure, a contribution of $2,000 for a general admission is relatively conservative as the bulk of the hospital's expenses are fixed. In other words, the hospital rarely has to hire new staff or buy new equipment to accommodate admissions. At our contribution of $2,000 per procedure, these 24,000 patients represent $48,000,000 in bottom line impact. Our goal is to engage 500 of them via our mobile app and generate $1,000,000 of bottom-line value.

Beds 500
Population of Metro Area 1,000,000
Target Patients 400,000
Smartphone Penetration within Target Patients 60%
Target User Base 240,000
Annual admissions of Target User Base  24,000
Contribution per Admission $2,000
Total Contribution $48,000,000
Number of Mobile Users Engaged 625
Value of Mobile Engagement $1,250,000

 

The ROI Calculation

Now that we've determined the "R" in in ROI calculation. It is time to determine the "I" or cost of the investment. ROI is calculated by subtracting the cost of the investment from the gain from the investment and dividing by the cost of the investment. Note that a more complex ROI model might forecast all future returns and costs and discount them back to present value based on cost and risk. This post uses the first year ROI as a proxy for future years.

ROI = (Gain from investment - Cost of investment) / Cost of Investment.

What is the cost of launching and managing a smartphone app? That depends on how you build and manage it.

 

Here are two scenarios:

1. You build and manage the app via your in-house technology team.

1/4 marketing person

1 iOS developer

1 Android developer

1 HTML5/CSS/Javascript developer

1/2 designer

1/4 QA engineer

While salaries vary depending on where you live, a range for the annual fully-loaded cost (including benefits, etc.) for this scenario might be $300,000 to $600,000. Note that some teams could easily be 2-3X this large depending on the scope of the app. This also assumes that existing "back-end" technical resources can be used for maintaining the app. This is the permanent team that will manage the app on an ongoing basis. With this scenario, we can estimate our ROI.

 

2. You use an outside firm that specializes in mobile health apps.

Design and development fee + ongoing updates and enhancements. 

Depending on which firm you use, the cost and quality can range widely. If we include the one-time design and set up fees and add them to the ongoing enhancement fees, we'd get a annual average fee of around $150,000 with the first year being higher and the out years lower. 

Let's assume that the health system chooses option #2 based on the lower cost. 

ROI = 433%

Note that this return is for patient loyalty improvements alone. See how to generate the full 1,560% return here.

 

BOTTOM LINE

Mobile devices are quickly making an impact on how patients manage their health. For a health system, not having a mobile engagement offering in 2013 may be similar to not having a website in 2003. Our posts on ROI should help you evaluate the quantifiable value that mobile health can deliver to your organization.