How to turn $2 million into $40 million. It’s a matter of choosing your DRGs wisely.
A hospital CEO once challenged us: “So what if you get me an extra $100 million in business? It only contributes about $2 million more to the bottom line.” We responded by demonstrating how, by carefully targeting the DRGs in which that $100 million comes into the hospital, $2 million could become more like $40 million.
In the 1980s, Boston Consulting Group made famous a series of matrixes, which included the Growth-Share Matrix. Borrowing liberally from their model, we can see which DRGs to promote and how to promote them using the Capacity-Profitability Matrix.
On the x-axis, graph your capacity to admit more patients. On the y-axis, chart the profitably of a DRG.
Highly profitable DRGs that have ample staff and facilities to accommodate growth are called Superstars. These are aggressively promoted using the full array of marketing tools – such as broadcast, interactive, highly targeted mail/direct response, physician referral programs, screenings and events.
Highly profitable DRGs that have limited staff and facility are called Cash Cows. These are supported by moderate marketing efforts such as physician referral programs, some targeted screenings/events and highly targeted mail/direct response.
Low profitability DRGs that have an abundance of resources are called Chronic Patients. With operational changes, you can transfer some resources from here into the Cash Cows and Superstars. It’s a delicate balance, but with a little strategic effort, you can give a boost to your profitable DRGs without sacrificing patient care.
The low-profitability, low-capacity service lines are called DOA. Don’t waste any of your limited energy and resources here.
Marketing programs can and should always be extremely targeted. There is no case study in the country that can show a significant change in market share because of a health system branding campaign. All communications need to be highly focused and pragmatic in their approach.
Next time a CEO or CFO asks what they get from their marketing investment, tell them it depends where they invest. With a little applied logic, a 2% contribution can change to a 40% contribution—and marketing can change from an overhead expense to a revenue generator that shows measurable ROI.