Betting on the 80/20 rule: it's a familiar equation in most industries: 80 percent of your revenue comes from 20 percent of your customers. Is that also true for health care—an industry that is mandated to serve all who come?

Healthcare Financial Management, July, 2005 by Arthur C. Sturm, Jr.

For El Camino Hospital in Mountain View, Calif., the answer is "yes." Its discoveries--and, more important, its strategies--may hold insight for others who find themselves facing the "revenue monolith," that ever-present challenge of "growth" faced by so many hospitals today.

"El Camino is in a unique situation," said Ann Fyfe, senior vice president, business development. "We operate in one of the most expensive media markets in the country [San Francisco], in the shadows of some of the nation's leading academic medical centers. Although we are doing well financially, we simply had to find a way to bring greater focus and accountability to our marketing efforts and, frankly, more efficient revenue streams to our organization as a whole."

"Most important, we needed to challenge traditional approaches," said File. "We knew we needed a presence in the market through advertising, but we wanted to push the envelope and see if we could move to the next level of market expansion."

Start by Looking Within

The journey for File and her team began by analyzing the demographic and psychographic composition of the hospital's customer base. The questions: What opportunities are we leaving on the table? What opportunities can we develop among similar populations?

Fyfe's instincts to look within are founded on solid principles. El Camino enjoys high patient satisfaction rates, good margins, and significant community support as witnessed by the passage of a $150 million bond issue last fall for the construction of a new hospital.

But market share has been challenged. "If we have happy customers, we should be getting more business from them," said Fyfe.

Next Step: Data Mining

Among the tools in File's toolkit is a master customer information file. It allows her to look at who is coming to the hospital by channel, their spending, and their profitability. Once in the application, households are "assigned" to one of 56 different life stage segments based on five key variables: marital status, age, gender, income, and number of children. With that information, File can see how an individual, a household, or even a demographic group uses the hospital.

Among the analyses conducted by File's group, the most telling was that for cardiology. As is true for many hospitals, it is the lifeblood of the hospital's revenue stream. Like most hospital services, it is under assault from virtually every angle.

But the data mining revealed the path to pursue. El Camino's cardiovascular business indeed has a distinct demographic focus. Although Fyfe's analysis showed that 50 percent of the total business came from the over-65 crowd, the younger population was extremely well defined in terms of its demographics, preventive healthcare behavior, and profitability to the hospital.

Highlights of the Data Mining

Applying the 80/20 rule means that 77 percent of El Camino's under-65 cardiology business comes from just 10 of the 56 life stage segments. Close enough (10 out of 56 segments is 18 percent).

"I had to admit that we were surprised at the analysis," said Fyfe. By looking at its business by segments, El Camino found there were some clear areas of opportunity. These households presented some characteristics that the hospital found extremely appealing, including:

* The financial value of these households was twice as high as for the average cardiology patient.

* As a group, these segments represented 36.7 percent of the hospital's overall cardiology business.

* The hospital's market "penetration" was only 7 percent of the households (penetration is defined as the number of El Camino households compared with all households in the service area matching that profile).

* The segments indexed high for prevention programs such as screenings--an important part of the hospital's patient acquisition strategy.

What to Do with the "20"

Finding the "20" appeared to be the easy part. More challenging was crafting a strategy that would not only reach out to similar households but also maximize the relationships with existing patients--a classic acquisition and retention scenario. The trouble is, that scenario is hardly a classic in health care. Usually, it doesn't exist.

"We had to think outside the box a bit," said Fyfe. "But we had support from our senior management team, who believes a more targeted approach will provide a higher yield. So we plowed forward."

In an early use of the data, El Camino found opportunities to reach out to the over-55 population with screenings for peripheral vascular disease. According to the data, PVD represents a desirable clinical area.

"We wanted to test the power of segmentation coupled with direct mail to see if a highly targeted effort would work," she said.

The hospital developed a series of PVD screenings, which were offered this past spring. A universe of 8,000 households received an invitation to register for a free screening. The goal was 216 enrollees. By running the mailing list through the hospital's master customer information file, the staff was able to delete households that were already El Camino patients. With this editing, the campaign was reaching truly "new" potential patients.