Use Data to Determine

the Patients to Seek in Your Market

Originally presented February 2010

AGENDA

Background Why Blue Ocean Strategy & What Is It? Success Stories How It Applies To Home Health How Bloody is My Ocean How Blue is My Ocean Underserved Demographic Chronic Patients Alternative Settings Other Blue Ocean Opportunities Conclusions

SPEAKER BACKGROUND

Over 20 years in home care

Over 35 years of marketing & planning experience

MBA from Mass. Inst. Of Technology Sloan School

President, Healthcare Market Resourcesa market intelligence company providing customized local market research for home health agencies & hospices

INDUSTRIAL HISTORY Did these industries exist in a meaningful way?

150 years: automobiles, music recording, petrochemicals, aviation, pharmaceuticals & management consulting

30 years: mutual funds, cell funds, biotechnology, discount retailing, express package delivery, coffee bars, & home videos

THIS IS WHERE FORTUNES ARE MADE

WHAT IS BLUE OCEAN STRATEGY? Created by Professors W. Chan Kim & Renee Mauborgne,

who are both professors at the INSEAD at Foutainbleau, Franceone of Europes top business schools. They published their findings in a book-Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.

BOS is the result of a decade-long study of 150 strategic moves spanning more than 30 industries over 100 years.

The aim of BOS is NOT to out-perform the competition in your market, but to create new market space or Blue Ocean, thereby making competition irrelevant.

BOS is a process with frameworks & tools, covering both strategy formulation and execution.

Red Ocean Strategy Blue Ocean Strategy

Compete in Existing Market

Space

Create Uncontested Market

Space

Beat the competition Make the competition irrelevant

Exploit existing demand Create & capture new market

demand

Make the value-cost trade-off Break the value-cost trade-off

Align the whole system of

companys activities with its strategic choice of differentiation

or low cost

Align the whole system of

companys activities in pursuit of differentiation & low cost

RED VS. BLUE OCEAN

Cirque du Soliel At the time of Cirque du Soliels debut, circuses

appealed to children; business was in long-term decline; lots of other formats, competing for childrens entertainment $$,- sporting events, concerts, television & video games

Circuses featured three types of entertainment: High risk acrobatics and stunts Clowns, primarily engaged in slapstick humor Animal acts

3 ring format had different acts, competing for the audiences attention

Cirque du Soliel Eliminated animal acts-lower costs in

trainers/handlers, support personnel, transport, maintenance & liability insurance & less issues with animal rights groups

Moved to single ring format requiring fewer acts

Clowns humor became more sophisticated, less slapstick

Experience became more theatrical with a story line/theme which ran through the performance

Cirque du Soliel Event now appealed to adults, which meant that ticket

prices could be higher Initially kept tent as performance venue, because of its

traditional circus imagery, but added creature comfort. It did not need to rent out high cost large indoor event sites, such as convention centers or sports arenas.

Did not promote name acts, which traditional circuses had done, which rose costs, but not attendance.

Positioned the entertainment experience between the fun & thrill of the circus and the intellectual sophistication & artistic richness of the theater & ballet

Cirque du Soliel stripped the product down to only those elements which enabled it to deliver the entertainment experience it wanted.

CURVES Fitness market had two alternativeshome exercise

programs & health clubs Home Exercise

Limited accountability & motivated; many distractions Lonely, but private Little or no equipment; instruction limited to star on video

Health Clubs Significant physical plant full range of exercise equipment, locker

rooms & showers, juice bar, & possibly swimming pool & racquet sports

Co-ed; lots of beautiful people spent 1-2 hours per visit Classes & instructors Monthly fees in the $50-$100; upscale urban market primarily Initial investment - $500K-$1MM for 35K-100K sq ft

CURVES Found niche in-between both markets & tapped into

women having difficulty keeping in shape through sound fitness

These female non-athletes do not eyed by males while exercising in their leotards

Does not want to fiddle with equipment, because someone physically larger and stronger preceded her on it. Less likely to lift weights

Increasingly does not have 1-2 hrs. for a fitness routine

Placed equipment towards the middle of the space, not lined up in rows @ health clubs

CURVES Its Quickfit training system uses hydraulic

exercise, which need no adjustment, are safe, simple to use & nonthreatening. Specifically designed for women, they reduce impact stress, while building muscle & strength

Environment is social, supportive & non-judgmental

Circuit of machines takes 30 minutes Prices per month fall to around $30. The business focuses on those elements of the

service that their customers want.

CURVES Start-up investment for a site is $25-$30k,

(excluding $20K franchise fee). Variable costs are significantly lower

Fewer personnel Less maintenance Reduced rent, since requires only 1500 sq.ft. in

nonprime suburban locations

Franchises become profitable in a few months, while membership reaches 100.

Franchises are now selling in the $100K-$150K range

WHY BLUE OCEAN IN HOME CARE? Home health services are perceived as a

COMMODITY in the eyes of the buyers

In some markets, the phrase VNA is used to refer to any home health agency

Discharge planners have very little invested in the home health referral once they leave their facility

Are the benefits of switching worth the risk?

HOW BLOODY IS MY OCEAN? Competitive Market Metric

Agencies/100K Medicare Patients by State

MARKET COMPETITIVENESS CALCULATION EXAMPLE

There are 7 meaningful home health agencies in a 4 county area with 22,000 Medicare patients

Competitiveness factor = 7/2.2 or 3.2

There is a moderate level of competition in this market

RULE OF THREE Professors Sheth & Sisodia studied over the evolution of 200

industries and saw the development of 2 types of firms Full Line Generalists

Product/Market Specialists Hospital based or local VNA market specialist

Ortho agency product specialist

Over time, 3 full line generalists grow to 70%-90& of the share

Increased share results in better performance for the full line generalists, but weaker results for the specialists

UNDERLYING ASSUMPTION: The more concentrated a market is, the more difficult it is to gain market share

HOW BLOODY IS MY OCEAN? Market Concentration Metric based on Rule of

Three

It infers prospects for future success.

Once referral source have locked in a preference, it requires a greater degree of differentiation to get their attention and gain trial

Referrals to captive agencies by parent organization employees are not a free market situation.

MARKET CONCENTRATION CALCULATION Segment market between facility-based/affiliated

agencies & freestanding agencies Very difficult to take market share away from a facility-

related agency(unless the rules of the game change) Focus on freestanding market segment Combine market share of three largest freestanding

providers If combined market share is above 65-70%, this is a

concentrated market This means that referral sources have locked in their

agencies and it will be very difficult to get trial, unless the agency can create a very meaningful difference.

MARKET CONCENTRATION CALCULATION EXAMPLE Agency Episodes Overall Mkt

Share Freestanding Market

Freestanding Mkt Share

Medical Ctr 650 32.5%

Community Hospital

350 17.5%

Local VNA 275 13.75% 275 27.5%

Natl Chain 225 11.25% 225 22.5%

Independent 150 7.5% 125 15.0%

Regional Chain 225 11.25% 225 22.5%

Mom & Pop 125 6.25% 100 10.0%

Overall Market Unconcentrated(63.8%); Freestanding Concentrated(72.5%)

HOW BLUE IS MY OCEAN

Relative level of home health utilization can measure how much growth opportunity there is in a market

Home health utilization=Medicare Patients Served

Medicare FFS Eligible

HOW BLUE IS MY OCEAN

** Unweighted ***Weighted Utilization=Pts Served/Medicare FFS Eligible

IF IT HAS NEVER BEEN DONE IN YOUR SERVICE AREA,

THEN IT IS A

NEW MARKET SPACE

BLACK PENETRATION

Black Penetration = % Black Discharges/% Black Population

ETHNIC/RACIAL FOCUS Compatible ethnic/racial ownership

Racial/ethnic staff-both clinicians & office staff

Language fluency

Familiarity with diet & customs

Relationship with ethnic/racial MDs

Link to visiting MD/NP program

Medical director

Informal caregiver support volunteers/church groups

CHRONIC PATIENTS

Re-cert Rate = (Episodes/Discharges)-1

CHRONIC PATIENTS Focus on diagnoses with high re-cert rates

Diabetes

Wound care

Stroke

Mental Health & B12(High LUPA rate)

Seek out more community-based referrals

Hospital-based agencies have 20%% lower re-cert rate than freestanding agencies

Approach physician offices with disease management programs

Offer solutions, such as Anodyne Therapy

LOW VISION PROGRAMS Program to provide visual training to low-vision patients

along suggestions of equipment & aids to make their home environment more livable.

Patient is able to stay independent longer, enjoy better quality of life and avoid injury

Identified group of elderly patients with a need that were previously untapped-blue ocean of ophthalmology 12-15 million patients

1. Macular Degeneration 4. Diabetes

2. Retinitis Pigmentosa 5. Glaucoma

3. Neurologic Disorders

Serve non-homebound patients through Part B billing

MEDICARE HOSPITAL DISCHARGES

Top 5 = RI, VT, MA, DE & NH Bottom 5 = PR, HI, WY, SD & MT

HOSPITAL REFERRAL OPPORTUNITY

Top Performers to Natl Avg Comparison

MEDICARE HOSPITAL DISCHARGE BY SITE OPPORTUNITY

Supervised = Home Care + Facility Top Performers = Median of 90th Percentile

REHAB W/O WALLS Program provides clinical resources at home indicative of

inpatient rehab facility

Added team members could include neuropsychologist, dietitian & recreational therapist

Medical leadership could be a physiatrist(rehab specialist)

Targeted at managed care organizations, which usually means younger patients; could be alternative under post-acute bundling

National chain has sought out CARF accreditation to gain credibility

NURSING HOME ALTERNATIVE What does a nursing home offer?

Round-the-clock nursing care

5-6 days per week of therapy

More medical direction

Rehab reimbursement in nursing homes changed as of 1/1/10; therapists cannot bill for multi-person sessions simultaneously

Why are traditional home care therapy plans for 3X per week?

Data collection phase of post-acute demonstration project completed in 2011.

SOLUTION: Front load therapy visit schedule to mirror SNF service

levels

HOSPITAL RE-ADMISSIONS Hospitals, under Healthcare Reform Act, would

penalized for higher than permitted levels of re-admissions for their Medicare patients, starting 2013

Blue Ocean opportunities include

Lower level of discharges going home unsupervisedmost re-admission vulnerable population

Sell telemonitoring program to hospitals for non-homebound patients

OBSERVATIONS Differentiating(red ocean) requires a tweaking of

operations; blue ocean may require a whole new way of doing business-more risk for the agency.

Having a referral source give you a new patient is less painful for them than giving you someone elses patient.

It is easier to get a referral sources attention talking about something new than trying to differentiate yourself from the pack.

RESOURCES Check out the following URLs

www.blueoceanstrategy.com

www.filestube.com/aa312b511a928a9903ea/go.html

www.thenext.ca/files/read-blue-ocean-strategy.pdf

ACTION PLAN Gain management agreement to assess Blue Ocean

Strategy approach

Determine if Blue Ocean Strategy opportunity exists

Examine individual Blue Ocean Strategy situationsPlagiarize

Select approach and modify agency operations to deliver service

Identify buyers of new service & solicit trial

CONCLUSIONS Blue Ocean Strategy is an alternative

approach to growing your agencys revenue.

It requires a complete commitment, upfront investment and willingness to take a risk.

It should only be employed after a thorough analysis of your market and a careful development of a well-thought out plan.

CONTACT INFORMATION Rich Chesney

President, Healthcare Market Resources

rchesney@healthmr.com

215.657.7373

215.657.0395(f)

www.healthmr.com