Case history: one hospital’s marketing success

Case history: one hospital’s marketing success – Community Hospital of Indianapolis

Martial R. Knieser

Case history: One hospital’s marketing success

Our hospital’s president saw the handwriting on the wall. Faced with a tightening budget, a dwindling census, and the approach of a new Government health care system, Allan Hicks developed a strategic plan of defense–fully five years before the onset of prospective payment.

To rise above the mounting pressures of cost containment and fierce competition, the plan went beyond traditional solutions. It called for the hospital to raise revenue by expanding services and marketing them to outside medical facilities. This meant spending more money, not cutting back.

The plan was unusual but consistent with the hospital’s longstanding commitment to the community. Some 30 years ago, the people of Indianapolis raised more than $5 million to construct what was then a 300-bed community hospital. Volunteers solicited donations from local businesses and industry, from employees through payroll deduction plans, and from friends and neighbors in house-to-house calls.

It became known as the hospital built with the dimes and dollars of the community. Over the years it reciprocated by remodeling and enlarging facilities and adding more services to meet the growing needs of its population. Today, the Community Hospital of Indianapolis has 800 beds, making it the state’s second largest hospital. The laboratory supports nearly 400 additional beds through various outreach programs.

Under Hick’s plan, CHI would not pass along financial burdens to the people of Indianapolis. The hospital would not resort to massive layoffs, nor would it raise patient fees to offset losses or subsidize new programs. Success depended on taking a fast-track business approach and pursuing an aggressive marketing plan. The goal was to raise revenue by increasing the workload. In this strategy, the laboratory represented a major source of new income for the hospital.

Yet the laboratory was in no way prepared to capture and retain new business. It didn’t have enough pathologists, and the scope of available services was limited.

Support from the medical staff began to wane. The physicians wanted CHI to upgrade existing laboratory services and create new programs. The 11,000-square-foot lab could not be expanded, however. It was land-locked in the center of the hospital’s lower level.

The hospital president’s first move was to launch a search for a director of laboratories; thus I came on board in 1978. Hicks wanted a lab director who could share and execute his ideas. From my point of view, CHI was trying to do all the things I hoped someday to accomplish. It sought to upgrade the laboratory and develop an outreach program to maximize new lab space. It was also committed to computerization.

As director of microbiology at Buffalo’s 752-bed Millard Fillmore Hospital, I had been involved in an outreach program that extended the laboratory’s clinical testing to doctors’ offices. Like most of my colleagues, I had no formal business education, but I quickly learned to deal with such concerns in the real world. Not only did I come to comprehend the financial and marketing aspects of health care services, but I also developed a personal interest in them and a motivation to make business strategies work.

My marketing skills would be put to the test later. The first order of business at CHI was to design and build a new laboratory. We visited several of the country’s most outstanding laboratories in terms of space and services, and we consulted with architects and industrial psychologists. Out of this came a spacious and functional laboratory, added to the hospital as a north wing. There was no disruption of service during the two years of construction.

The cost of building the wing was $1.2 million, and equipment and furnishings would amount to $1.6 million. Our former quarters were put to good use as the hospital’s new data processing center.

The laboratory area had increased by more than 150 per cent to 28,000 square feet. We implemented a “barn” or open layout, using glass partitions to divide the lab sections. This increased the visibility of employees and encouraged interaction. The floor plan was designed to ease the work flow and reduce unnecessary and disruptive traffic. Finally, we followed the recommendations of industrial psychologists concerning the best lighting and window placement for a pleasant working environment.

At the same time, we met with the medical staff to hear complaints and suggestions. As a result of these discussion, we doubled the number of pathologists to eight, added a virology department, developed a four-year medical technology degree program, created a skin pathology service, established a bone bank as part of the blood bank, and hired additional blood bankers.

We also extended our open-heart surgery support capabilities by installing printers in the open-heart rooms and recovery area for immediate result reporting. Within 24 months, the open-heart program grew from 200 to more than 800 annual cases.

The next phase was to heavily automate the laboratory. We anticipated much more test volume, and automation would be the key weapon in our battle for higher productivity.

We went from four automated instruments to a dozen, with backups for all of them except a high-volume chemistry analyzer that simultaneously performs 28 tests per specimen and processes 7,200 tests per hour. Today, automated instruments process 80 per cent of our chemistry volume.

Computerization was equally important for greater efficiency. We conducted a year-long investigation of information systems that could supply timely, organized, and standardized results both in the hospital and at an indefinite

number of off-site locations. A turnkey system would not suffice. We needed a flexible patient and financial computer system that would offer additional options as the hospital continued to grow.

The PathNet Laboratory Information System met our criteria. This system operates on a Digital Equipment Corp. VAXcluster configuration of dual VAX 11/785 processors. Both processing units have equal access to high-performance instruments and a shared data base that significantly reduces unplanned downtime. This configuration provides open-ended capacity for network communication and growth. If necessary, we can add up to 14 processors.

To further enhance productivity, we brought a robot on staff. Originally used as a mail-mobile, it now transports specimens between the Stat and main labs every half-hour, moving along a fluorescent strip painted on the floor. Motion sensors stop the robot three inches away from anyone who stands in its path. Then it beeps and starts nudging forward slowly.

With a spacious and productive laboratory, improved and diverse services, automated instrumentation, and expanded data processing capabilities, we were ready to begin a marketing campaign. Since the laboratory incurs the same fixed costs whether an instrument performs 10 or 100 tests, it made sense to go after as much outside business as possible.

We initially targeted smaller hospitals, group practices, doctors’ offices, and clinics. We went out into the community and publicized our services through word of mouth. At the same time, we gathered information about the competition–who was providing support to nursing homes, doctors’ offices, and other sources of business, and whether these sources of business were happy with their current laboratory service. This effort included separate marketing surveys of the house staff and 2,000 physicians in the area.

I pursued leads and even made cold calls to prospective clients. I’m a fervent believer in getting the pathologist involved as much as possible in the marketing game. The physician-to-physician interplay is vital. I can talk to clients on their level and in their language. As a physician myself, I can relate to their pressures, problems, and needs. My medical expertise is part of the service we offer. Therefore, I will remain a visible member of the marketing team even though we now have a formal business plan and a marketing manager, a customer service representative, and two sales representatives.

Our approach is working. The laboratory serves 15 remote locations in a 65-mile radius, and additional sites will be added in the near future. These locations include hospitals, group practice laboratories, physicians’ offices, and phlebotomist or drawing stations. We also provide quality control for physicians who do some of their own on-site testing.

With annual revenue approaching $16 million–and with a profit margin of 30 per cent–our hospital seems assured of longevity. Reference testing income alone has jumped from $25,000 annually to upward of $220,000 per month. The laboratory’s workload has tripled since 1978, reaching a current daily volume of 7,700 tests. Productivity is up by 48 per cent, and the average test cost has been cut in half.

In an ongoing study conducted by a hospital consulting company, ours was rated the most efficient laboratory in the country. The study compared our test costs with those at three of the most efficient hospitals analyzed by the company. Our costs were consistently lower in every laboratory section–by as much as 63 per cent in some cases. We learned of our top-ranking status when the consulting company began sending people over for a firsthand look at our setup.

Increased outpatient test volume compensated for a drop in our inpatient workload. We didn’t have to lay off anyone. On the contrary, the laboratory staff increased from 117 to 137 FTEs to handle a growing overall workload, such new services as virology testing, and the expanded open-heart program.

That staff increase was actually modest when you consider that annual test volume soared from 900,000 to 2.4 million procedures in the last six years. The switch from a paper-dependent operation to a fully computerized laboratory brought the greatest labor savings.

All of our changes have established a presence–I call it a “spirit influence”–for CHI in the greater Indianapolis area. We have a well-deserved reputation for fast turnaround time, competitive prices, and quality care. And there have been residual benefits. For example, physicians in other communities refer patients to our open-staff hospital.

What seemed a gutsy move seven years ago–to expand and market our services–has paid off for CHI. Perhaps the most difficult aspect of the transformation was selling the idea to administrators and a medical staff used to a nonprofit environment. However, resistance to the idea is diminishing across the country, as evidenced by the growing number of medical schools offering business courses. All health care professionals must develop a good business sense. It’s a matter of survival, especially for smaller hospitals.

We educated our employees to understand the reasons for changes in the laboratory and why we felt it necessary to deviate from traditional solutions. Although no one was laid off, we did juggle responsibilities and move staff members from one section to another. And we did so successfully: Turnover has been less than 5 per cent.

Our current marketing focus is on group practices, health maintenance organizations, preferred provider organizations, and industry. In that last category, I think drug abuse testing for industrial clients will become a major market for enterprising labs. The first laboratory to offer such a service will be the winner, with the rest of the pack struggling to take the business away.

Our next volume milestone will be 3 million tests per year. It’s not that far away if we keep working toward it.

COPYRIGHT 1986 Nelson Publishing

COPYRIGHT 2004 Gale Group