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What's Your Share of Customer?

THE TAKEAWAY: A Share of Customer analysis is easy to do (with the help of an actuary) and may just point the way to significant, overlooked revenue opportunities.

Take 20,000 random accounts from your revenue files. To each account, append the appropriate demographic variables, diagnosis and treatment codes, and the charges for it all. Bundle it up into a suitably-scrubbed data file (so as to avoid the HIPAA police) and send it off to your favorite actuary.

Ask the actuary to estimate the total charges of that 20,000 person cohort (i.e. how much they’re estimated to spend ANYWHERE on all types of health care) and your “Share of Customer” (i.e. how much of that total they spent with you.)

Reporting on my first SoC analysis, the actuary pronounced that we were the beneficiary of roughly 86% of the cohort’s estimated total spending on inpatient and outpatient care. I didn’t think that was too bad. We were leaving a few million dollars on the table but there’s always things like out-of-area, tertiary and trauma care to consider.

Notably, our market area contained a number of snowbirds who gleefully left us behind as the snow fell and didn’t return ‘til it quit six months later. Their health care spending during that fun-in-the-sun was not really amenable to being redirected back to us no matter how many times we plowed the sidewalks.

And, as a community hospital system, we didn’t perform some tertiary-level services like transplants or heavy-duty trauma care. But now at least we knew what we were leaving on the table - by not competing for it in some cases, and not wanting to compete for it in others.

The actuary’s report continued: “You’re getting very little of their estimated pharmacy spending, and virtually none of their spending on complementary and alternative medicine.” Hmmm. Right there were two revenue streams, each between $5 and $10 million per year, that we weren’t competing for at all. Not at all. Hadn’t thought about it.

Did we WANT to compete? Ah, there’s a question. Both opportunities posed certain challenges - logistical, legal and supply chain challenges in the case of pharmacy revenues, and long-standing medical staff resistance to anything smacking of CAM. Did we have the core competencies and innate patient loyalty to compete with Walgreen’s and CVS? How many pints of blood should we reserve for those debating with the medical staff over, say, acupuncture?

That’s a bad pun and a good question. But now we’d learned the value of having those discussions and the costs of leaving barriers in place: possibly $20 million a year in lost revenues. Everybody - even a hospital CEO - has a threshold where the motivation to do SOMETHING powers through the inertia to leave well enough alone.

And this was for a suburban system of fairly modest size. How many bigger opportunities do YOU have? Add a SoC analysis to the analytical work you’re already doing on market share. It may be good for your opportunities list.


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