Bringing Value: Process Meets Profit in Patient Relationships

Managing relationships with customers — for physicians, that means patients — is no longer a soft science. Clearly defined and well-implemented processes can make the difference for any practice.

Consumers today are much more knowledgeable, have many more choices and demand more value for the services and products they want or need than ever. Social media plays a transformative role in shaping how consumers relate to providers. In addition, the demand for value is articulated by major stakeholders and policymakers in the form of accountability for long-term outcomes.

The nature of this changing customer relationship has been described with such words as reciprocation, mutual benefit, trust, transparency, concern, interdependency, commitment, shared values and adaptation.1 Likewise, the trajectory of the health care industry points to an environment in which consumerism will play a greater role — on top of increasing competition from alternative providers, the globalization of care at a cheaper cost, and consolidation on the provider side. It should be evident that, in this era, organizations that don’t respond to consumers will struggle to survive. Accordingly, organizations need to develop strong customer relationship management processes to engage and retain their customers.2

CRM essentially is the process of learning all you can about your customers; communicating with them in a timely and relevant way; tracking the results of your efforts to satisfy, retain and gain customers; knowing which organizational processes affect the customer; and making timely adjustments to those processes.3

As health care has become more corporate in its structure, the need to develop and use customer relationship management processes has become more critical. CRM makes sense regardless of the reimbursement environment.

The concept has been practiced for centuries, from the time when artisans dealt directly with customers.4 Since the Industrial Revolution, however, companies increasingly engage with middlemen and less with consumers, thus distancing themselves from their customers. Today’s consumers want direct relationships with suppliers and less with middlemen.5 The appeal of a direct relationship with an organization stems from the psychological and sociological benefits associated with a reduction in the choices they have to make in the marketplace.5 Direct relationships seem particularly important in health care, because many patient-provider relationships are sticky and costly to switch for both parties.6

Defining the Process

As health care has become more corporate in its structure, the need to develop and use CRM processes has become more critical.

With its roots in the 1980s,7 CRM emerged from the information technology arena in the mid-1990s to describe technology-based customer solutions, but it has evolved to include more than just software applications.8 Although there are many published definitions, this oneseems to work best: “… a comprehensive strategy and process of acquiring, retaining and partnering with selective customers to create superior value for the company and the customer. It involves the integration of consumer marketing, sales, customer service and the supply-chain functions of the organization to achieve greater efficiencies and effectiveness in delivering customer value.”

It should be noted, however, that a lack of consensus about the definition of CRM has been implicated as a cause of the high failure rate of its implementation in organizations.9 An estimated 50 percent of all CRM efforts fail to meet expectations.10 Many health care organizations that have initiated CRM will be better served by fully understanding how to implement the principles of customer service in order to manage their patients on an ongoing basis.

Functioning CRM processes11 consist of the following:

  • Creating a database, which requires active direction from senior leaders and the medical staff.
  • Analyzing the data to create customer segmentation.
  • Selecting customers to target for future marketing efforts using customer segmentation.
  • Targeting customers using a portfolio of marketing methods.
  • Developing and implementing relationship marketing initiatives, such as rewards programs.
  • Ensuring consumer privacy while simultaneously creating customized services and products.

 It should be noted, however, that a lack of consensus about the definition of CRM has been implicated as a cause of the high failure rate of its implementation in organizations.9 An estimated 50 percent of all CRM efforts fail to meet expectations.10Many health care organizations that have initiated CRM will be better served by fully understanding how to implement the principles of customer service in order to manage their patients on an ongoing basis.

  • Functioning CRM processes11 consist of the following:
  • Creating a database, which requires active direction
    from senior leaders and the medical staff.
  • Analyzing the data to create customer segmentation.
  • Selecting customers to target for future marketing efforts
    using customer segmentation.
  • Targeting customers using a portfolio of marketing
  • Developing and implementing relationship marketing
    initiatives, such as rewards programs.
  • Ensuring consumer privacy while simultaneously
    creating customized services and products.
  • Finding ways to measure the success of the organization’s
    CRM efforts.


A modern CRM framework usually has three high-level organizational components: the proper technology, an amenable business culture and relationships, and specific processes that are implemented by the organization.12

When a Little Is a Lot

CRM is based13 on four fundamental tenets:

  • Customers should be managed as an important organizational asset.
  • Not all customer interactions result in the same level of profitability — meaning, not all customer interactions are equally desirable.
  • Customers vary in their needs, desires, buying behaviors and price sensitivity.
  • By understanding their customers, organizations can improve their overall offerings and ultimately the value of their products and services.

It ultimately costs less to retain customers than to acquire new ones,14 and even small increases in customer retention — as little as 5 percent — can have a profound effect on the organization’s net present value — as much as 95 percent.15 

FALLACIES

An organization’s failure to implement customer relationship management sometimes can be attributed to cultural misconceptions and unrealistically high expectations, including these beliefs:

  • CRM software alone will enhance business performance.
  • Companies should focus only on customer relationship development.
  • Customer acquisition and CRM are unrelated activities.
  • Customers want to have relationships with companies.
  • Long-lasting relationships with customers are always more profitable.
  • Satisfied customers are always more loyal.
  • Firms should focus their marketing efforts on their most profitable customers.
  • The customer pyramid is a good segmentation scheme.
  • Loyalty programs always improve customer loyalty.
  • The customer lifetime value is predictable.
  • The internet is the most suitable tool to enhance customer loyalty.

Source: Verhoef PC, Langerak F. Eleven misconceptions about customer relationship management. 2002. Business Strategy Review. 13 (4); pp.70-76.

Developing a relationship with the consumer does not occur overnight. It requires an ongoing and systematic approach. Behavioral scientists describe such relationships as going through six stages: contact, involvement, intimacy, deterioration, repair and dissolution.1

Involving the consumer allows an organization to align its processes to integrate the customer’s needs and requirements, thus creating future consumer loyalty and value.11,16 Creating brand loyalty among customers is important; it hinges primarily on customer satisfaction driven by service quality and customer trust.17

The role of mass marketing is declining while one-on-one, real-time CRM has a more primary role in many industries.1 Health care organizations are no different — the more patients return, the higher the profits.2 This is predicated on the fact most patients require follow-up after an initial visit.

In a fee-for-service reimbursement environment, it makes perfect strategic and economic sense for a health care organization to recognize that patients requiring multiple and ongoing treatment creates lifelong value to the organization. 

In a capitation and pay-for-performance reimbursement environment, it makes sense to have engaged patients. Holistic care is essential for long-term outcomes.

Health Care Applications

Health care organizations should consider an integrated CRM process that is part of the organization’s long-term strategy. Physician leaders should take an active role in shaping the strategic patient/family service experience.

Part of this integration process is the ability to measure success. Of the 11 typical indicators of CRM success, the top three are customer satisfaction, customer retention and increased revenue.18 It makes sense for those three measures to be part of a governance and senior-leader balanced scorecard. IT teams have an important role in developing and integrating the processes that enable long-term value creation.8 There are three elements within IT that create organizational connectivity: linking individual departments, online analysis and data mining that identifies relationships.19

Data mining is an increasingly important component in health care — not only on the administrative side (such as detecting fraud and abuse) but also on the clinical side (such as evaluating best practices).20 Indeed, technology — when used to harness the vast amounts of data being collected and stored digitally21 — has a significant potential to help health care organizations achieve their objectives.

Defining success and failure of CRM implementation usually is company-specific, making it difficult to compare initiatives across industries — or even between similar companies.18 Implementation failure often is multifaceted, and its causes can include:

  • A lack of strategic planning before implementation.
  • Problems with technical implementation.
  • Poor design, planning and measurement of processes.
  • Viewing CRM only as an IT issue, rather than as a customer-centric process.
  • Insufficient appreciation of the customer’s lifetime value.
  • Inadequate support from senior leaders.
  • Underestimating the importance of change management.
  • Failing to re-engineer business processes to meet consumer needs.
  • Underestimating the difficulties in data mining and data integration.

By contrast, the four biggest catalysts for success are senior management support, IT system management and integration, a clearly defined organizational strategy, and organizational culture change.12

Ultimately, understanding what CRM brings to an organization — in the form of superior consumer value — and how to successfully implement it into an organization’s strategy and operation is essential for physician leaders to address on an ongoing basis. Understanding what drives customers in the selection of the services they desire will determine profitability. 

Physician leaders can bring value to their patients by becoming familiar with the tenets of CRM. In the end, this knowledge about the needs and requirements of patients and families allows physician leaders to create experiences and interactions that help sustain organizations, build patient loyalty, mitigate the impact of adverse events, reduce workforce turnover, and create a warm and inviting environment for everyone.

Eugene Fibuch, MD, CPE, CHCQM, FACPE, FABQAURP, was professor emeritus at the School of Medicine and co-director of the physician leadership program at the Henry W. Bloch School of Management at the University of Missouri in Kansas City.  Arif Ahmed, BDS, PhD, MSPH, is an associate professor of health administration in the Henry W. Bloch School of Management, and co-director of the physician leadership program, at the University of Missouri in Kansas City.

REFERENCES

  1. Reddy BK, Acharyulu GVRK. Customer relationship management in the health care sector: A case study on master health check. 2002. Journal of the Academy of Hospital Administration. Vol. 14 (1).
  2. Hung SY, Hung WH, Tsai CA and Jiang SC. Critical factors of hospital adoption on CRM system: Organizational and information system perspectives. 2009. Decision Support Systems, 48; 592-603.
  3. Chang HH. Critical factors and benefits in the implementation of customer relationship management. 2007. Total Quality Management. 18 (5); pp. 483-508.
  4. Parvatiyar A, Sheth JN. Customer relationship management: Emerging practices, processes, and discipline. 2011. J Economic and Social Research, 3(2); pp. 1-34.
  5. Sheth JN, Parvatiyar A. Relationship marketing in consumer markets: Antecedents and consequences. 1995. Journal of the Academy of Marketing Science (fall); pp. 255-271.
  6. Wholey DR, Burns LR. 2003. Understanding health care markets: actors, products, relations. In SS Mick & ME Wyttenbach (Eds.), Advances in health care organization theory; pp. 141–173, San Francisco: Wiley.
  7. Berry LL. Relationship marketing. 2003. In LL Berry, GL Shostack and GD Upah (eds), Perspectives in Services Marketing, American Marketing Association, Chicago.
  8. Payne A., Frow P. A strategic framework for customer relationship management. 2005. Journal of Marketing. 69 (October); pp.167-176.
  9. Rababah K, Mohd H and Ibrahim H. A unified definition of CRM towards the successful adoption and implementation. 2011. Academic Research International. 1 (1), July, pp. 220-228.
  10. Coltman TR. Where are the benefits in CRM technology investment? Proceedings of the 39th Annual Hawaii International Conference on System Sciences, January 2006; pp. 4-7.
  11. Winer RS. A framework for customer relationship management. 2001. California Management Review. Summer 43 (4).
  12. Almotairi M. A framework for successful CRM implementation. European and Mediterranean Conference on Information Systems. July; pp.13-14, 2009.
  13. Kutner S, Cripps J. Managing the customer portfolio of healthcare enterprises. 1997. The Healthcare Forum Journal, 40 (5); pp. 52-54.
  14. Rosenberg L and Czepiel J. A marketing approach to customer retention. 1984. Journal Consumer Marketing. Spring, pp. 45-51.
  15. Reichheld FF. The loyalty effect. 1996. Harvard Business School Press.
  16. Dick AS, Basu K. Customer loyalty: Toward an integrated conceptual framework. 1994. Journal Academy of Marketing Science, 22; pp. 99-113.
  17. Nawaz N, Usman A. What makes customer brand loyal: A study on telecommunication sector of Pakistan. 2011. International Journal of Business and Social Science. Vol. 2 (14) July; pp. 213-221.
  18. Shannahan KLJ, Shannahan RJ. Strategic orientation and customer relationship management: A contingency framework of CRM success. 2010. Journal of Comparative International Management. Vol. 13 (1).
  19. Ryals L, Knox S. Cross-functional issues in the implementation of relationship marketing through customer relationship management. 2001. European Management Journal. 19 (5); pp. 534-42.
  20. Kob HC, Tan G. Data mining applications in healthcare. 2005. Journal of Healthcare Information Management. Vol. 19 (2); pp. 64-72.
  21. Murdoch TB, Detsky AS. The inevitable application of big data to health care. JAMA. 2013. 309; pp. 1351-1352.

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