Patient Satisfaction Survey Companies Keeping a finger on the pulse of patient care

Erin C. Manning Rockhurst University – Helzberg School of Management

EC6300 Competitive Analysis

Due: 25 April 2016

DEFINE STRATEGIC GROUP: PATIENT SATISFACTION SURVEYS

Patient Satisfaction Survey (PSS) companies have grown since 1980. These

companies exist as focused solely on patients or within a broader range of companies

focused on customer satisfaction surveys. For the sake of this paper, discussions will be

built around the major players of companies concentrating their efforts on PSS. The major

players within this strategic group are: The Advisory Board, Press-Ganey, National

Research Corporation, and HealthStream.

The companies within this strategic group provide accurate and timely collection,

measuring, and reporting of data regarding patient satisfaction within not only acute

hospital settings but also clinic and group practices. Companies within this strategic group

are heavily reliant on technical processes to ensure customer satisfaction, by extension

profitability within their firm. PSS companies also are profoundly regulated by

government agencies not only through commercial regulations, but also trade and privacy

acts. This regulation increases in direct proportion to the increasing threats to cyber

security regarding Protected Health Information.

Summary of Marketing Structure

Advisory Board Company (ABCO)

Healthcare and academic focus – strong roots in healthcare Sales: $768,350,000, stock price $31.89 Close of Market 22 April 2016

- Founded in 1979 - Broad-based approach to surveys – market share of healthcare - Acquired a number of physician-focused survey companies

Press Ganey (PGND) Partners with more than 22,000 health care organizations and serves more than

60% of all hospitals in the US.1 Sales: $281,610,000 2, stock price $31.43 COM 22 April 2016

- Founded in 1985, recently went public in 2015 - 44 solutions for Healthcare Organization/providers, including consulting

1Company Profile National Research Corporation. Date accessed 10 April 2016. http://www.hoovers.com/company-information/cs/company-profile.national_research_corporation.74fa3115d7339d7f.html 2 Company Profile Press Ganey. Date accessed 10 April 2016. www.pressganey.com/about/history-mission

National Research Corporation (NRCIA)

Offers performance measurement and analysis services3 Sales: $102,340,000, stock price $14.54 COM 22 April 2016

- Founded in 1981 - Engages with over 50,000 hospitals, health care systems - Reputation monitoring dashboards – feedback to manage online reputation

HealthStream (HSTM)

Healthcare specific, every service and product in focused on care environment 4 Sales: $209,000,000, stock price $23.21 at COM 22 April 2016

- Founded in 1990 - Representing 4.6 million healthcare providers

Analysis of Market Structure

Advisory Board Company

Ranked #39 in Forbes Most Innovative Growth Companies 20145

Press Ganey

Press Ganey intends to invest in additional businesses, technologies, products or assets6

National Research Corporation

No scholarly publications were found in web research. Conversations regarding NRCIA are from company press releases.

HealthStream Listed on Forbes’ 2011 Best-Performing Stocks. 7

Firm Annual Revenue Market Share Market Share Squared

Advisory Board (ABCO) $768,350,000 .35 .1225

Press Ganey (PGND) $318,690,000 .15 .0225

HealthStream (HSTM) $209,000,000 .10 .01

National Research Corporation (NRCIA) $102,340,000 .05 .0025

All other firms $777,920,000 .35 .1225

Total Revenues Strategic Group $2,176,300,000 Herfindahl Index = .28

Analysis of the Herfindahl Index calculated from the market share implies that this

is an oligopolistic market. What the Herfindahl Index does not account for is the unique

approach each firm has taken to position themselves competitively within the PSS market.

3 Company Profile National Research http://nationalresearch.com/about/history 4 Company Profile HealthStream http://www.healthstream.com/about-us 5 Forbes Most Innovative http://www.forbes.com/companies/the-advisory-board-company/ 6 Monegin, Bernie (8 June 2015). “3 Recent Health IT IPOs to Watch”. Retrieved 10 April 2016 from http://www.healthcareitnews.com/news/3-recent-health-it-ipos-watch 7 Herper, Matthew (2012, January 9). “Biotechnology Names Dominated the Stock Market Last Year. Retrieved 10 April 2016, from http://www.forbes.com/sites/matthewherper/2012/01/09/biotechnology-names-dominated-the-stock-market-last-year/#41fba22564ab

The PSS companies reside within an even larger industry of Marketing Research and Public

Opinion Polling.

This larger industry accounts for a large portion of firms, but for the sake of this

analysis focus is brought to those who have focused their efforts specifically to Patient

Satisfaction. Advisory Board, for example, is the largest player in the market; they have

been included, even though they have broadened their subject matter to academic

institutions, because the majority of their annual revenue is still through the PSS. One

could make the case that this is a monopolistic market as the annual revenue from the

leader is equal to the annual revenue of the remaining 15 firms within this market, but the

playing field is leveled to an oligopoly with equally strong competitors in Press Ganey,

HealthStream, and National Research Corporation.

HISTORY

Patient Satisfaction Surveys have existed since the early 1980s. During the 1980s

businesses found customer surveys to be an unequivocal narrative of a customer

experience in the services they received, PSS companies took off of that marketing research

and found that this information could be a valuable tool to providers, hospitals, and

patients in measuring the perception of quality of care.

In 2002, the Centers for Medicare and Medicaid Services (CMS) partnered with the

Agency for Healthcare Research and Quality (AHRQ) 8 to standardize the surveys to

compare perspectives accurately and impartially within the healthcare environment; it was

at this time when the idea of Consumer Assessment of Healthcare Providers and Systems

(CAHPS) was created. Following closely behind Hospital Consumer Assessment of

8 “Development of the Hospital Survey” Retrieved 10 April 2016. https://cahps.ahrq.gov/surveys-guidance/hospital/about/Development-Hospital-Survey.html

Healthcare Providers and Systems (HCAHPS) was the development of CG CAHPS (Clinician

and Group) to measure individual providers and/or clinical groups.

While the PSS market has existed for a number of years, it was not until the

Affordable Care Act (ACA) in 2012 that they became a necessity for hospital systems,

hospitals, and clinic providers. In the new system of healthcare, providers are reimbursed

based on a series of metrics. According to the Centers for Medicare and Medicaid Services

(CMS), these metrics include four domains: clinical process of care, patient experience of

care, outcomes of care, and efficiency of care9. Patient experience of care currently

accounts for 25% of the metrics from which Value-Based Purchasing Programs base their

reimbursements. Furthermore, retention of government contracts and payments rely on

these measurements and valuations.

These surveys hold healthcare organizations and providers accountable for the care

they provide. Technical advances have provided the ability for a closer real-time data

approach to care provided and will be instrumental in changing the landscape of the PSS

market. Patient Satisfaction Survey market is continuously evolving, but originally existed

as a market to obtain, measure, and disseminate quality factors in a healthcare setting. The

size of the market is reported by various sources ranging from $2.3 billion to $3.8 billion,

dependent on what is considered a “patient experience” company. HealthCare IT News

projects this market to multiply two-three times by 2018 to a six billion dollar industry. 10

9 Total Performance Score Information. Retrieved 10 April 2016. https://www.medicare.gov/hospitalcompare/data/total-performance-scores.html 10 Monegin, Bernie “3 Recent Health IT IPOs to Watch”. 8 June 2015. Retrieved 10 April 2016. http://www.healthcareitnews.com/news/3-recent-health-it-ipos-watch

PORTER’S FIVE FORCES

Examining the Patient Satisfaction Survey market in terms of Internal Rivalry, Barriers to

Entry and Exit, Substitute and Complementary products, and Supplier and Buyer Powers

from a higher level rather than focusing on the top-performing firms in the market will

establish the profitability to be gained within this market.

Internal Rivalry – Strong, Decreases Profitability

Patient satisfaction survey companies face strong internal rivalry. Brand awareness

and ever-growing innovation are contributing factors to ensuring competitors stay at bay.

While there remains no shortage of patients to survey (today nearly 8,500 surveys will be

completed by patients daily)11, there is a limited supply of healthcare organizations

nationally to market products. Therefore, stealing competition (or maintaining brand

loyalty) is necessary to remain profitable.

Limited capacity is an issue that can create volatility to the profitability of large

firms. When larger firms can no longer deliver on the services promised, the client can

easily move to a firm who can promise more individualized attention and service. Another

evident issue within this market increasing its competition is the product itself is

undifferentiated. Surveys themselves are not proprietary. For example, ABC Company can

take those questions, create their own survey and sell it to any healthcare organization

(provided they follow trade, privacy, and commercial regulations).

Additionally, switching costs are relatively low; although changing to a new PSS is

time-intensive at the front end, if a client is no longer satisfied with the product, virtually

nothing exists outside annual contracts to prevent the client to switching to another

11 HCAHPS Fact Sheet. April 2015

vendor. Within the four major firms of this market, competition is strong, and will remain

strong unless the firms focus on differentiating their product through innovative

technologies and deliver data that is communicated and standardized in a way healthcare

organizations can easily analyze and compare their data to their competitors.

Barriers to Entry and Exit – Moderate, Decreases Profitability

Although heavily regulated in terms of the usual commercial and security laws, not

to mention privacy, no regulations exist favoring incumbents within this market. As

previously discussed, there is nothing proprietary to PSS, therefore, many technologically

savvy companies could, with little effort enter this market. Companies focused on data

mining, or customer satisfaction surveys easily translate into a PSS; this decreases the

profitability of firms within this market. While a firm could easily enter and exit the

market, incumbents have discovered tools to remain competitive and have readily bought

out a number of smaller firms. The risk of failure in this market would not preclude an

intense need for survival, sunk costs are low and it is relatively easy to dissolve a PSS firm,

sell a lease, and throw letterhead away.

Substitutes and Complements – Low/Moderate, Increases/Decreases Profitability

In an analysis of the Patient Satisfaction Survey market, very little substitutes exist,

health care organizations could, technically, create an exclusive survey to their health care

needs, following HCAHPS or CG CAHPS guidelines, and while in real life “comparison is the

thief of joy”, economically speaking, it is essential for growth and profitability within

healthcare. As a client to a PSS firm, the healthcare organization can easily compare the

quality of care provided to their competitors. Using exclusive surveys would eliminate this

ability and disconnect the data. Furthermore, data obtained, measured, analyzed, and

distributed by a third party is viewed as more objective and empirically valid.

Substitutions within this market are, therefore, perceived as low and increase the

profitability of the firms within the market.

While substitutions present little to no threats to the market, complements, on the

other hand, pose a moderate risk to PSS firms. Constant innovation and technological

advances in not only data abstraction but also data delivery is essential in this market to

ensure that firms remain profitable. For example, by examining the copious amounts of

data collected over thirty years, a company could market a product that would predict to

healthcare provider’s readmission rate; because high readmission rates have a negative

impact on reimbursements from government contracts, a healthcare system could see this

as a tool in mitigating readmissions therefore increasing profitability.

Truman Medical Centers utilizes a pre-patient satisfaction survey tool; this is yet

another example of a complementary product. Members of the executive team use a

handheld to round on patients asking similar questions to what the patient will receive

once discharged. A healthcare organization can use these pre-PSS to ensure 1) they have

addressed issues before discharge, 2) thereby surveys remain high, and 3) increasing their

reimbursement rates and, of course, ensuring patient satisfaction. Yet another example of

complementary products to this firm is taking the PSS one step further to an employee

satisfaction survey, measuring satisfaction of the providers, the clinicians, the nurses, and

the staff. These answers can predict retention rates and increase profits by reducing

training and onboarding of new staff.

Supplier Power – Low, Increases Profitability

Suppliers hold little power within the Patient Satisfaction Survey market. Firms

primarily require servers to host large amounts of data, Information Technology staff to

ensure the technical aspects run smoothly for their clients, and statisticians to read the

data. Servers are a “dime a dozen”, should Cisco or Oracle raises their rates or no longer

provide quality service to the firm, the firm can easily move to a Lenovo or Dell.

Information Technology staff and statisticians can easily be recruited to create a user-

friendly interface and analyze data for their clients. Low supplier power increases profit

margins within this market.

Buyer Power – Moderate, De/Increases Profitability

Within the Patient Satisfaction Survey market, buyer power can be viewed one of

two ways. For new consumers (buyers), the bargaining power remains high because of not

only the competitive nature of internal rivals, but also because there are so many choices.

Nineteen firms exist in this market vying for a limited (decreasing if one considers

hospitals integrating with clinics, whereby eliminating potential buyers) number of buyers.

Regarding existing consumers, while the aforementioned issues of data migration and

initial startup of using a new survey company pose exhaustive, yet short-lived threats to

firms, those initial costs and short-lived inconveniences establish this as low to moderate

threat.

Summary Table of Five-Force Analysis

Force Overall Strength Overall Effect on Profitability

Internal Rivalry Strong High – decreases profits

Barriers to Entry/Exit Moderate Low – increases profits

Substitutes and Complements Low and moderate Low – increases profits

Supplier Power Low Low – increases profits

Buyer Power Low to moderate Low to moderate – primarily increases

PEST ANALYSIS

Analyzing the external factors which contribute to the increase or decrease of the potential

and/or profitability include: political (regulatory and governmental), economic, social, and

technological; these factors exist externally to the market and by-and-large affect all firms

equally within that market.

Political

Governing bodies, laws, and regulations can strongly affect the performance of a

market. Specifically within Patient Satisfaction Surveys, firms are not only subject to

commercial and trade laws of the Securities Exchange Commission, Dodd Frank, Private

Securities Litigation reform Act, and Health Insurance Portability and Accountability Act,

but also privacy regulations associated with Protected Health Information. As discussed

previously, it was the Affordable Care Act of 2012 which really increased firms’ profitability

within this market. Election cycles can easily change the environment in which companies

thrive or fail with new administration. The future of Affordable Care Act of 2012 and

changes within legislation linked to reimbursement could drastically affect PSS firms.

Economic

Political impacts directly affect economic changes in a market. With the Affordable

Care Act, hospitals and clinics are encouraged to integrate to streamline processes and

patient data. While the market is based from patients (a limitless supply), PSS has a

growing decrease of potential customers because of clinical integration. A pay for

performance model has a huge impact on providers and health systems, incentivizing

clinicians and health systems to deliver greater quality of care. The economic implications

of this model can increase or decrease the profits within healthcare. Patient Satisfaction

Surveys can mitigate the risks of malpractice suits, tying into both a political and economic

impact to this market.

Social

Due to the sensitivity of data retrieved, measured, and distributed, this market faces

a number of social factors affecting firm’s position within the market. Some markets exist

as a “trend”, whereas Patient Satisfaction Surveys do not appear to be a trend, quite the

opposite with the expansion of medical accessibility it is a growing market; social trends

within this market are few. The demographics within the market include a wide variety of

patients from the cradle to the grave, ambulatory to inpatient, health care systems and

standalones. Consumer (patient or general public) attitudes and opinions towards this

market only affect the firms if there is a refusal to submit a resume. A large number of

patients would need to boycott taking and submitting these surveys for the firms to truly

be impacted.

Clinicians have expressed concern about the validity of these surveys as they are

based on patient or guardian perceptions of the care they received and this can be very

subjective, skewing empirical data. Growing concerns of cyber-attacks can severely

damage the brand and reputation of not only the firm, but the market. Patients need to feel

protected and safe in reporting this incredibly personal and sensitive health information to

a third party, therefore this market needs to remain increasingly aware of and proactive to

potential threats to the health data they obtain, store, and disseminate.

Discriminating against specific populations is another social impact to this market.

The current tools for capturing data are mail, phone, and web. Some could say that mail is

discriminatory against those with no permanent addresses, those who are illiterate, or

those who do not speak/read English. In tandem with those concerns would be contact via

telephone as firms typically do not have a wide variety of languages of which to pull from to

access patients with primary languages other than English. The validity, then, of the data

received could be questioned as critics could say they are targeting specific populations

and not remaining unbiased.

Firms are subject to consumer buying pattern changes, referring back to

competitors existing within the market. Multi-year contracts typically exist to create a

contractual obligation and ability to forecast future revenues, but securing these contracts

beyond commitment is incumbent on remaining innovative in the products offered and

therefore staying competitive.

Technological

Social aspects of remaining competitive directly relate to technological advances

affecting this market due to the nature of the services and products provided. Entrants to

the market, as previously addressed, is particularly easy for companies with existing

technical platform/database capabilities. Electronic Medical Record (EMR) companies, for

example, could easily enter this market with their broad amount of data and existing

platforms. Furthermore, unlike some markets, this market is heavily impacted by

technological advances and replacement technology and solutions to the products

provided. Technology must continue to mature in not only data security and integrity, but

also the aforementioned complements to the products in innovation. Innovation potential

is limitless within this market; as the healthcare field constantly evolves and changes,

opportunities expand for this market to continue to provide additional services to

healthcare systems. Technology access as an interference could be seen as both a blessing

and a curse to this market as many could create a similar platform, there remains

opportunities to increase innovation and additional products. Intellectual property issues

exist and protecting data is problematic when the information is not necessarily

proprietary to any particular firm within the Patient Satisfaction Survey market.

SCALE, SCOPE, AND FIRM BOUNDARIES

Technology is the output of Patient Satisfaction Surveys; because of this the input

costs are low. Once the Learning input, techniques and organizational inputs have been

established, firms within this market can focus on expanding their product lines to

consultative products, complementary technologies, and streamlined processes. The most

costly measure regarding Economies of Scale are in research and development, advertising

their firms and products, organizational structure and development and, of course, the cost

of the aforementioned labor – Information technology gurus and product line specialization

labor.

Firms focusing on bigger being better, must demonstrate to stakeholders that

expanded markets, product lines, and growth is truly to the benefit of the firm not only

short term but long term. When discussing whether the firm should expand

geographically, considerations should be given to the capabilities of labor to expand from a

west coast to east coast client, employing labor locally could be an enormous risk and

expense to that firm, likewise – travel and man hours spent building a local base may not

yield initial return on investments. When Patient Satisfaction Survey companies are

deciding if purchasing a competitor will increase their market share they must consider

whether bigger truly is better.

For example, if Press Ganey decides to produce a complementary product such as a

Physician Satisfaction Survey, the average cost of producing both Patient and Physician

would be lower because the necessary inputs are relevant to both products. This average

cost of production would in turn increase profits to achieve an economy of scope. Should

the government no longer require CAHPS as a component of reimbursement, Press Ganey

now has an opportunity to flex on their new product line to remain competitive. By

extension of leveraging on already existing products and competencies, Press Ganey now

competes on capabilities of switching products at low-cost and can exploit this economy of

scope.

Diseconomies of scale can arise within these firms when the aforementioned growth

occurs beyond a geographical boundary of being able to commit to the attention, necessary

customer service to clients due to location. Creating that expansion across the country can

lead to reduced attention to existing clients and decreased satisfaction from service level.

CORE COMPETENCIES OF FIRMS WITHIN THE STRATEGIC GROUP

Core competencies of these firms are one of the components of exploiting this

economy of scale. As a review of the four biggest firms within this market, the below table

illustrates the competencies of each market, whether the competency lies in the ability to

market their tenure in the group or the number of solutions provided to their customers,

each have set themselves apart competitively, in unique ways, within the Patient

Satisfaction Survey market.

ABCO Oldest firm within the market Diversified customers between Healthcare and Higher Education

PGND 44 solutions for Healthcare Organization/providers, including consulting 7 years has acquired and integrated 8 new business to support growth

NRCIA Engages with over 50,000 hospitals, health care systems Reputation monitoring dashboards – feedback to manage online reputation

HSTM Healthcare specific, every service and product in focused on care environment Representing 4.6 million healthcare providers

HORIZONTAL AND VERTICAL MERGERS

Firms within this market are continually merging and acquiring to expand on the

products and core competencies of other firms. Press Ganey, for example, expressed in

their first published annual report that they have not only acquired but successfully

integrated eight new businesses in less than ten years to support the mission and growth of

their expanding digital products and consumer base12. These acquisitions are certainly

impressive, but not necessarily unique among the top leaders in this firm.

GROWTH OPPORTUNITIES AND STRATEGY IMPLEMENTATION

In order to remain competitive in an ever-changing market serving an ever-

changing client base of clinical groups, hospitals, and health systems the growth

opportunities are endless. Technologies continue to give rise to new products to market to

health system customers and could potentially expand to consumers as a customer. By

utilizing data collected for decades, companies, like Press Ganey, could use data to predict

readmission rates, use data collected for patients to self-assess their compliance to

healthcare orders and predict lower spending on healthcare needs down the road.

Opportunities exist to merge and acquire companies focused on employment satisfaction

surveys to ensure attrition with healthcare’s most valuable assets: physicians and nurses.

12 Press Ganey Holdings, inc. Annual Report, 2016. 10 May 2016. http://investors.pressganey.com/investor-relations/sec-filings/sec-filings-details/default.aspx?FilingId=11228231

Physicians and nurses are assets whose value are not easily quantified, so when it becomes

necessary to replace and recruit them because of inability to satisfy their needs, it poses

costly issues within the organizational structure of a company. Through employee

satisfaction tools built from existing patient satisfaction surveys, executives could forecast

issues before these assets resign. Many possibilities exist under an umbrella of technology

and by extension opportunities to market consultative products to ensure patients,

employees, and stakeholders are satisfied within a health system.

Strategies surrounding implications of changes in healthcare laws and regulations

would keep Patient Satisfaction Survey companies ahead of the curve. Currently, the model

of reimbursement is 25% related to patient satisfaction, if that number should change in

the future, by diversifying products, firms within this market will remain competitive and

profitable. Through ensuring safe and secure practices, these firms will maintain data

integrity, by extension, remain intact in a world of ever-growing cyber-security threats.

Guaranteeing a competitive edge with regard to intellectual property is an additional

function of growth and strategy. As aforementioned, the surveys themselves hold no

intellectual property value, but the vehicles in which these surveys are administered,

collected, measured, and distributed hold huge value. By creating and securing proprietary

technology, firms within this market control significant access and advantage.

Firms within this market forecast additional growth and competition as healthcare

relies on a significant amount of feedback not only from health outcomes, but from

education and quality. While the market has existed for over three decades, continuous

growth and expansion is predicted. Firms within this market are providing a similar

product, therefore solutions must continuously be monitored and implemented to ensure

competitive and profitable. Product differentiation, unique clinical and quality solutions,

executive and provider engagement solutions, and cyber protection of Protected Health

Information are all vital to the continued success of firms within the Patient Satisfaction

Survey market.