The other day we discussed that nobody knows what it costs to acquire a patient. I confirmed that today with three people, each of whom has a PhD in healthcare economics, and each who help lead the healthcare programs at our country’s leading business schools.
It appears the exact same number of people do not know what it costs to lose a patient. My take? It is very expensive. I am stupefied, especially when we know that McDonald’s can tell you the cost of a single French fry. A hospital CFO friend of mine told me ‘We know what we charge for everything, but we have no idea what any individual procedure costs.”
Today let’s look at two costs; the cost of losing a patient, those people who choose not to purchase any more services from your health system, and the cost of losing a prospective patient, someone who chooses not to buy any services from your health system.
Some would argue, erroneously, that there are no costs from losing a patient since those people were never our patients, essentially arguing that you cannot lose something you never owned—Word did not like my use of the pair of double negatives.
I also asked the question of these three learned men whether they were aware of any data around the lifetime value of a patient—there is none. So I did a fair amount of research and cut and pasted and interpreted and came up with a range that I think is pretty defensible. It appears a case can be made that over twenty-five to thirty years an individual is worth somewhere between $180,000 to $250,000 to a hospital.
Just so neither you nor I need to pull out our Texas Instrument calculators, for this discussion I will use the figure $200,000.
Retaining one hundred patients in a year is worth twenty million dollars over the next 25-30 years. (That is only one retained patient every 3.65 days.) Gaining one hundred new patients in a year is worth twenty million dollars over the next 25-30 years. Do both in a year and you are looking at forty million dollars in new revenues over the next 25-30 years. Do both every year and all of a sudden you have good cash flow problems.
Does your hospital have a plan to do either? Probably not. A hospital could not erect the number of billboards it would take to generate those numbers. Taking care of TQE (the Total Quality of a person’s Encounter) seems like a much more cost effective alternative.
The next logical question is what is the relative value of the revenues from a $200,000 patient as compared to the bed-penalty that may be assessed by CMS? Without boring anyone with the math, the ROI of getting and keeping one patient is grotesquely higher than the per patient CMS penalty. Given that, why are all the hospitals focused solely on penalty avoidance instead of new revenue streams?
Let me throw in two other thoughts. First, creating and retaining new customers and avoiding the CMS penalties do not have to be mutually exclusive efforts. The only reason that they appear to be mutually exclusive is that hospitals are only really focused on avoiding the penalties. The overarching theory seems to be that lifting the HCAHPs scores, will not only avoid the penalties, but it will have prior patients so in-like with the hospital that the effort of raising HCAHPs will somehow create an equal number of new customers.
Thought number two. One hundred retained patients and one hundred new patients. These patients have friends and families, and those people are or will be patients, perhaps even at your hospital. That means the revenues associated with those retained and new patients are significantly understated.