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The unexpected impact of patient experience on hospital margins

February 2, 2018

    Improving patient experience is an intrinsically valuable goal—and one providers have pursued because of its direct impact on reimbursement. But the lesser-known truth is that patient experience impacts health system margins beyond an individual facility's HCAHPS score. As more consumers rely on word-of-mouth referrals, their experience determines not just whether an individual returns for care, but whether he or she recommends that provider to friends and family.

    Facing weakening margins and a growing number of competitors, your provider customers need to prioritize attracting and retaining consumers. Regardless of whether your business has historically focused on consumerism, all suppliers and service firms stand to benefit from helping providers improve experience to reap the benefits of consumer referral networks.

    The growing importance of consumer referral networks

    The health system business model was built on the notion that physicians and outpatient care sites could consistently attract and retain patients within a single system. Consumers would visit a PCP, who would then refer them within the system for any subsequent care.

    Now, with more money on the line (more consumers are enrolled in high deductible health plans) and more choices than ever (why wait for an appointment when you can walk into a retail clinic?) consumers are increasingly turning to a new referral source: their peers. For health systems struggling to attract and retain consumers, these unofficial referral networks may represent a path to greater financial stability.

    Experience drives consumer referrals

    Consumer referrals matter. One-third of consumers consult friends and family for referrals and receiving a referral makes a given consumer four times more likely to try a new doctor. Even unsolicited, consumers are eager to share their own care experience on websites such as Facebook or Yelp. On top of that, consider the number of individuals who make care decisions for their children or their parents, all based on their own friends' referrals.

    In practice, this means that a bad care experience can have ripple effects on future volumes. Nearly half of consumers who have a negative care experience will share that with 10 or more people. Sitting in a dirty waiting room or receiving unclear discharge instructions—experiences suppliers and service firms can directly and indirectly influence—impacts the likelihood of not just a single consumer, but also his or her extended network, coming in for care.

    How consumer referral networks can boost volumes

    Now that systems must compete with conveniently-located independent surgery centers and lower cost urgent care clinics, there's no business they can afford to lose. But consumer referral networks don't have to mean a loss of business. Consumers who have a positive experience are also more likely to recommend their physician or hospital to their peers. And data shows that when a consumer is referred by a friend or family member, they're 18% more loyal than a non-referred patient.

    Ultimately, a positive care experience can help drive referrals, referrals can help drive loyalty, and loyalty can boost market share. As consumers bear more cost responsibility and consumer referral networks continue to grow, the return on an investment in consumerism—for providers and suppliers alike—is increasingly high.

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