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Cost of the Value Chain

Write a 2 page paper addressing the following elements in your paper:

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  • Discuss how the cost of the value chain in a healthcare organization is determined.
  • Discuss the importance of understanding the “walking map” as it relates to the value chain and strategy.

Include a title page and 3-5 references. Only one reference may be from the internet (not Wikipedia). The other references must be from the Grantham University online library. Please adhere to the Publication Manual of the American Psychological Association (APA), (6th ed. 2nd printing) when writing and submitting assignments and papers.


W7 Lecture 1 “The Value Chain”

Healthcare Strategic Management

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The Value Chain

How many of us have recently visited a healthcare provider and had his or her staff call afterwards to assess our satisfaction? Or, have you recently received a survey request in your email (which more than likely ties directly to the NPS we spoke of earlier)? These are all tools through which organizations can increase their value and are but one component of the value chain. Value to whom? Value to the organization, the consumer, and to all stakeholders. Who are the stakeholders? These would be employees, owners/investors, suppliers, the public on both micro and macro levels, and even bigfoot. Just wanted to make sure you were paying attention.

The value chain normally consists of three service delivery areas; pre-servicepoint-of-service, and after-service. As you can imagine, being able to fully understand the value chain requires a complete understanding of one’s organization. Unfortunately, today’s healthcare environments are becoming so complex that this is actually no small feat. As such, what was once the role of one individual has now become the role of many. Nevertheless, the value chain is a key building block in formulating organizational strategy.

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The pre-service area would consist of such things as marketing, branding, pricing, distribution or footprint, promotion, and even scheduling. While the textbook mentions several of the items above, the role of scheduling cannot be ignored. How many times have we been ill and not feeling well only to call our provider and discover that the next available appointment is next month on a Tuesday with a full moon? Through loyalty, which was mentioned in an earlier lecture, we will not abandon our primary care physician, however we will certainly be visiting a clinic that can see us today.

Many organizations use what is referred to as wave scheduling. Scheduling by this method is based on the philosophy that a relatively high number of patients will actually no-call no-show. Wave scheduling places many individuals at the same time and then a few in the hour that follows. In the next hour, the schedule places a high number of individuals and then lulls, similar to waves. This explains why you walk into your provider’s office only to find several others with your same appointment time.

The point-of-service area is where the patient/customer interacts in person with the organization. This is becoming more blurred as well. With many physicians offering online services, the in person component is becoming harder to define. Nevertheless, point-of-service would include the actual organizational operations, the quality of services received, and patient satisfaction with current services. Many healthcare organizations have carefully studied the “walking map” of their facilities. The walking map refers to the path taken by a patient upon first entering the facility to completion of services. Everything from carefully placed awards of distinction, artwork, mission statements, etc, are carefully designed to enhance the patient’s experience.

The final area of the value chain to discuss is that of after-service delivery. As mentioned above, this includes assessing patient satisfaction after the services, billing, and ensuring that the patient receives information and/or reminders about any other follow-up services required. One thing that healthcare organizations, or any organization for that matter, struggle with is gaining enough follow-up data to have it be of value. Human nature is a fickle thing; the more satisfied the patient/consumer is with his or her services the less likely they are to complete a survey. However, if services were less than spectacular, patients/consumers are more than happy to give the organization an ear-full.

W7 Lecture 2 “The Cost of the Value Chain”


Healthcare Strategic Management

The Cost of the Value Chain

As we have mentioned several times, if we had an unlimited supply of money, we would simply have the best healthcare organization. Unfortunately, in reality, the money available is certainly finite. We must have a clear understanding of how much money it costs to move a patient through our value chain. Many physicians who immediately attempt to set up a private practice are shocked by how expensive the value chain can be. In fact, a high number of these providers experience financial ruin in a very short time frame. For the most part, physicians are trained to be physicians not financial managers. There has been a realization of this trend in many medical schools and they are now starting to offer optional management courses in the curriculum.

To explain the importance of the cost of the value chain, let’s examine the expenses through a typical clinic. It will come as no surprise that the number one way for healthcare providers to attract patients/clients is through word-of-mouth referral. The reputation of the provider plays a significant role in just how many referrals will be sent his or her way. The practice of giving providers grades on an A through F scale is gaining popularity. Nevertheless, each and every provider must build up his or her patient base to ultimately be successful.

Returning to the cost of the value chain, the first area in the service delivery is the pre-service component. As mentioned in lecture 1 for this week, the pre-service includes marketing, footprint, etc. Advertising ranges from low-cost such as direct mailers, to high-cost which would include high quality television ads. More and more healthcare providers are turning to the internet to assist in their marketing efforts. Search engines make money on a ranking system or on a per-click basis. Some providers may spend substantial sums of money ensuring that their organization is the first one to “pop-up” on Google or Bing.

Point-of-service is the most costly expense category in the value chain for healthcare delivery. In our clinic example, we would normally expect to encounter a receptionist/greeter upon first entering the facility. Along the “walking map” we would more than likely meet a nurse or medical assistant for vitals before we actually received care from our provider. Depending on the size or volume of the clinic, there may be several nurses or assistants, each commanding a decent salary. In addition to the individuals who provide the care, we also have the brick and mortar costs such as rent, utilities, insurance, property taxes, etc.

In the after-service area, we would have someone responsible for follow-up/scheduling of additional services in addition to the billing department. Again, each one of these individuals has a salary. To determine the cost of the value chain, we need to determine the costs associated with each individual as they move from beginning to end. As you can imagine, this requires that we have enough trending data to make such an analysis. We would certainly need to know the number of patients per month/year and have a firm understanding of all expense categories. The total cost of overhead, salaries, marketing, etcin a given time period is then divided by the number of patients seen. This then gives us the cost per patient.

In order to survive in the field of healthcare, we must ensure that our cost per patient is equal to or lower than our competitors. In essence there are two ways to make certain that our cost per patient is lower than our competitors. The first is that we must do a better job of performing our internal delivery services. The second is that we might have to revamp our value-chain and even eliminate some of the distance in the “walking map.”

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