The Research Process - Planning a New HMO
The Research Process - Planning a New HMO
To see how a research purpose and a set of research objectives are developed, we join a meeting that took place at the Fraser General Hospital in September 1988.
The five doctors had a dilemma. They had spent a useful morning confirming that their hospital had the resources to operate a Health Maintenance Organization (the concept of an HMO is described in the boxed insert). These resources were substantial, as would be expected in a 1000-bed teaching and research hospital with a strong regional reputation.
<em>
WHAT IS AN HMO?
There are two basic kinds of health coverage. The Health Maintenance Organization (HMO) is the best example of the prepaid group practice type. This involves fixed monthly payments directly to a group of doctors or clinic who are then responsible for all the health needs covered by the plan. The other is the insurance type which involves a company which collects premiums from subscribers who can go to any clinic or doctor they choose. The insurance company pays for the services covered by the policy. In both cases there may be limits to the coverage of such items as hospitalization, drugs and office visits.
The big drawback of the HMO is restriction of the choice of physicians and hospitals to those affiliated with the HMO. Generally, the total annual cost of an HMO to the consumer is lower than for group insurance plans. One reason is that the flat-free formula discourages doctors from hospitalizing patients longer than necessary. Also the emphasis on preventative care produces fewer seriously sick patients.
</em>
The September 10, 1988, meeting was one in a long series of informal talks, investigations, and efforts to build support for the idea within the hospital. These efforts had brought them to a critical point: their problem was how to determine whether there was enough market demand in the region to support another HMO. While each member of the planning group was convinced of the prospective benefits to the community, the hospital
teaching program, and the bed utilization rate, they knew they needed persuasive evidence before the hospital trustees would provide start-up funds. After all, the trustees were even reluctant to approve funds for initial planning. What would it take before they would approve an initial investment in excess of $400,000?
The trustees weren't the only hurdle. Each of the doctors in the HMO planning group knew at least one colleague who was openly skeptical due to the presence of competitive health care programs. There was a well-established HMO about eight miles away, plus several clinics operating on a fee-for-service basis. Many of the clinic doctors had privileges at the Fraser General Hospital.
At lunch the planning group was joined by Herb Ellis, a partner of a local research and consulting firm. He had been invited by one of the doctors who knew him socially. During lunch the doctors enthusiastically described the HMO concept, what it meant for subscribers—especially those on low incomes, and some of the innovations such as consumer inputs to operations and procedures.
After lunch, John Akitt, a surgeon and the originator of the HMO proposal, reviewed some of the tentative decisions that would influence the market analysis. First, they intended to offer fairly comprehensive services from the beginning, including internal medicine, pediatrics, surgery, orthopedics, obstetrics, and gynecology. However, they weren't sure whether they should also offer dentistry and optometry at an additional fee. Such an array of services was felt to be competitively necessary, but when combined with a high doctor-enrollee ratio to ensure a high service level, the result was very high fixed costs.
All the doctors agreed that one way to keep initial costs down was to concentrate on larger employer groups. This meant a two-stage marketing effort would be required—first to get the employer to agree to offer the HMO plan as a subsidized benefit and then to persuade the employees to switch from their present health care plan. The largest employer in the vicinity was the state university, two miles away, with over 13,000 faculty, staff, and married students who could join a health plan. The vice-president of finance of the university appeared committed to offering the HMO plan. There were three other large employers nearby, representing an additional 20,000 possible enrollees. However, they had been much less enthusiastic about offering the Fraser Hospital HMO as a benefit, and implied that they wouldn't consider it until it had been successfully operating for a few months. This was upsetting to the doctors, for a sizable enrollment base had to be generated quickly if the HMO was to achieve its objectives. Still, if significant adoption of the HMO within the university occurred they felt they could get close to the break-even target in the short run.
As the discussion progressed, Ellis realized that the extent and rate of acceptance of the HMO would depend on the marketing effort and the fee level. Marketing was a real problem since solicitation of patients was, strictly speaking, unethical. This probably did not prevent personal selling and other communications efforts to explain the differences between fee-for-service and HMO plans. Pricing seemed to be a big factor; the prepaid feature of the HMO meant the prospective enrollee would see a bigger monthly salary bite, although over the long run total health costs would be lower. Since a large proportion of costs were fixed, a high enrollment target could help to lower fees. Otherwise, to lower fees it would be necessary to reduce services, which would make the HMO less attractive. Without knowledge of the price sensitivity of the market it would be hard to establish a fee structure. But who was the target market? Here the doctors had many conflicting opinions and the meeting became quite heated. Was the HMO concept most attractive to young families, older families with or without children, or enrollees in the competitive HMO? No one was sure just how big an area an HMO could serve. While some existing HMOs attracted only people within a 10-mile radius of the hospital, there was a feeling that convenience and driving time were more important than distance.
At this point Herb Ellis felt he had some understanding of the doctors' marketing problems. Rather than discuss research approaches he asked for another meeting at which specific research purposes and objectives could be discussed. These would be the basis for a research proposal. He already knew that a big constraint on his planning would be the available budget. There was no way that more than $10,000 could be found to finance marketing research, no matter what the economic value of the research information to the hospital.
Prior to a second meeting with the planning committee Herb Ellis had done some background reading on the HMO concept, talked to several doctors in private practice, and informally interviewed four members of the competitive HMO. With this background he was ready to discuss preliminary research purposes and objectives which could be used to guide the design of the study.
During the second meeting with the hospital planning committee, quick agreement was reached that the primary purpose of the study was to address the decision as to whether the proposal for an HMO should be pursued to the point of making major investments in its implementation. The accompanying research objective consists of the research question and a statement of the study scope.
Research
Question: What is the demand for the new HMO?
Scope: Limited to students, staff, and faculty of the University.
The study was limited to University students, staff, and faculty because of several reasons. First, the University administration was disposed toward
the plan, giving it the best chance of success in that environment. If support from that group was not in evidence, then the prospects would be dim in other organizations. Second, the budget limitation made it unlikely that any worthwhile research could be conducted with more than one organization. No geographical limits were placed on the study, as it was thought that distance from the home to the HMO would have only a weak influence on individual interest in the proposed HMO.
Much more time was spent on developing the supporting purposes and objectives, with Ellis constantly challenging the usefulness of each proposed purpose and objective. Because of the tight budget constraint he was fearful that overly ambitious objectives would be difficult to achieve with the alternative research designs he had in mind. Finally, the following set of supporting purposes and objectives was developed:
Purpose: What target market segments should the HMO emphasize?
Objective: Identify the market segments most interested in the proposed HMO. Estimate their probable rate of utilization of medical services from their past medical experience.
Purpose: What services should be provided at what price level?
Objective: Identify the attributes or characteristics of health plans that would have the greatest influence on an individual's choice among alternatives.
During the meeting a number of hypotheses were advanced as to who was the most likely to be interested in the plan. Of course, they would have to express strong interest in the plan as described to them. In addition, good prospects would be those who were dissatisfied with the coverage or quality of their present plan, didn't have a long-standing relationship with a family doctor, had favorable attitudes toward the Fraser General Hospital, and weren't enrolled in other plans through their spouses. At the end of the meeting the chairperson indicated a need for a proposal in time for the trustees' meeting on October 3. If the proposal were approved they would need the results of the study no later than the first week in February.
In the next chapter we will complete our overview of the steps in the research process. Most of the attention will be given to the major research design alternatives; however, each step is important in the development of a proposal.
To see how a research purpose and a set of research objectives are developed, we join a meeting that took place at the Fraser General Hospital in September 1988.
The five doctors had a dilemma. They had spent a useful morning confirming that their hospital had the resources to operate a Health Maintenance Organization (the concept of an HMO is described in the boxed insert). These resources were substantial, as would be expected in a 1000-bed teaching and research hospital with a strong regional reputation.
<em>
WHAT IS AN HMO?
There are two basic kinds of health coverage. The Health Maintenance Organization (HMO) is the best example of the prepaid group practice type. This involves fixed monthly payments directly to a group of doctors or clinic who are then responsible for all the health needs covered by the plan. The other is the insurance type which involves a company which collects premiums from subscribers who can go to any clinic or doctor they choose. The insurance company pays for the services covered by the policy. In both cases there may be limits to the coverage of such items as hospitalization, drugs and office visits.
The big drawback of the HMO is restriction of the choice of physicians and hospitals to those affiliated with the HMO. Generally, the total annual cost of an HMO to the consumer is lower than for group insurance plans. One reason is that the flat-free formula discourages doctors from hospitalizing patients longer than necessary. Also the emphasis on preventative care produces fewer seriously sick patients.
</em>
The September 10, 1988, meeting was one in a long series of informal talks, investigations, and efforts to build support for the idea within the hospital. These efforts had brought them to a critical point: their problem was how to determine whether there was enough market demand in the region to support another HMO. While each member of the planning group was convinced of the prospective benefits to the community, the hospital
teaching program, and the bed utilization rate, they knew they needed persuasive evidence before the hospital trustees would provide start-up funds. After all, the trustees were even reluctant to approve funds for initial planning. What would it take before they would approve an initial investment in excess of $400,000?
The trustees weren't the only hurdle. Each of the doctors in the HMO planning group knew at least one colleague who was openly skeptical due to the presence of competitive health care programs. There was a well-established HMO about eight miles away, plus several clinics operating on a fee-for-service basis. Many of the clinic doctors had privileges at the Fraser General Hospital.
At lunch the planning group was joined by Herb Ellis, a partner of a local research and consulting firm. He had been invited by one of the doctors who knew him socially. During lunch the doctors enthusiastically described the HMO concept, what it meant for subscribers—especially those on low incomes, and some of the innovations such as consumer inputs to operations and procedures.
After lunch, John Akitt, a surgeon and the originator of the HMO proposal, reviewed some of the tentative decisions that would influence the market analysis. First, they intended to offer fairly comprehensive services from the beginning, including internal medicine, pediatrics, surgery, orthopedics, obstetrics, and gynecology. However, they weren't sure whether they should also offer dentistry and optometry at an additional fee. Such an array of services was felt to be competitively necessary, but when combined with a high doctor-enrollee ratio to ensure a high service level, the result was very high fixed costs.
All the doctors agreed that one way to keep initial costs down was to concentrate on larger employer groups. This meant a two-stage marketing effort would be required—first to get the employer to agree to offer the HMO plan as a subsidized benefit and then to persuade the employees to switch from their present health care plan. The largest employer in the vicinity was the state university, two miles away, with over 13,000 faculty, staff, and married students who could join a health plan. The vice-president of finance of the university appeared committed to offering the HMO plan. There were three other large employers nearby, representing an additional 20,000 possible enrollees. However, they had been much less enthusiastic about offering the Fraser Hospital HMO as a benefit, and implied that they wouldn't consider it until it had been successfully operating for a few months. This was upsetting to the doctors, for a sizable enrollment base had to be generated quickly if the HMO was to achieve its objectives. Still, if significant adoption of the HMO within the university occurred they felt they could get close to the break-even target in the short run.
As the discussion progressed, Ellis realized that the extent and rate of acceptance of the HMO would depend on the marketing effort and the fee level. Marketing was a real problem since solicitation of patients was, strictly speaking, unethical. This probably did not prevent personal selling and other communications efforts to explain the differences between fee-for-service and HMO plans. Pricing seemed to be a big factor; the prepaid feature of the HMO meant the prospective enrollee would see a bigger monthly salary bite, although over the long run total health costs would be lower. Since a large proportion of costs were fixed, a high enrollment target could help to lower fees. Otherwise, to lower fees it would be necessary to reduce services, which would make the HMO less attractive. Without knowledge of the price sensitivity of the market it would be hard to establish a fee structure. But who was the target market? Here the doctors had many conflicting opinions and the meeting became quite heated. Was the HMO concept most attractive to young families, older families with or without children, or enrollees in the competitive HMO? No one was sure just how big an area an HMO could serve. While some existing HMOs attracted only people within a 10-mile radius of the hospital, there was a feeling that convenience and driving time were more important than distance.
At this point Herb Ellis felt he had some understanding of the doctors' marketing problems. Rather than discuss research approaches he asked for another meeting at which specific research purposes and objectives could be discussed. These would be the basis for a research proposal. He already knew that a big constraint on his planning would be the available budget. There was no way that more than $10,000 could be found to finance marketing research, no matter what the economic value of the research information to the hospital.
Prior to a second meeting with the planning committee Herb Ellis had done some background reading on the HMO concept, talked to several doctors in private practice, and informally interviewed four members of the competitive HMO. With this background he was ready to discuss preliminary research purposes and objectives which could be used to guide the design of the study.
During the second meeting with the hospital planning committee, quick agreement was reached that the primary purpose of the study was to address the decision as to whether the proposal for an HMO should be pursued to the point of making major investments in its implementation. The accompanying research objective consists of the research question and a statement of the study scope.
Research
Question: What is the demand for the new HMO?
Scope: Limited to students, staff, and faculty of the University.
The study was limited to University students, staff, and faculty because of several reasons. First, the University administration was disposed toward
the plan, giving it the best chance of success in that environment. If support from that group was not in evidence, then the prospects would be dim in other organizations. Second, the budget limitation made it unlikely that any worthwhile research could be conducted with more than one organization. No geographical limits were placed on the study, as it was thought that distance from the home to the HMO would have only a weak influence on individual interest in the proposed HMO.
Much more time was spent on developing the supporting purposes and objectives, with Ellis constantly challenging the usefulness of each proposed purpose and objective. Because of the tight budget constraint he was fearful that overly ambitious objectives would be difficult to achieve with the alternative research designs he had in mind. Finally, the following set of supporting purposes and objectives was developed:
Purpose: What target market segments should the HMO emphasize?
Objective: Identify the market segments most interested in the proposed HMO. Estimate their probable rate of utilization of medical services from their past medical experience.
Purpose: What services should be provided at what price level?
Objective: Identify the attributes or characteristics of health plans that would have the greatest influence on an individual's choice among alternatives.
During the meeting a number of hypotheses were advanced as to who was the most likely to be interested in the plan. Of course, they would have to express strong interest in the plan as described to them. In addition, good prospects would be those who were dissatisfied with the coverage or quality of their present plan, didn't have a long-standing relationship with a family doctor, had favorable attitudes toward the Fraser General Hospital, and weren't enrolled in other plans through their spouses. At the end of the meeting the chairperson indicated a need for a proposal in time for the trustees' meeting on October 3. If the proposal were approved they would need the results of the study no later than the first week in February.
In the next chapter we will complete our overview of the steps in the research process. Most of the attention will be given to the major research design alternatives; however, each step is important in the development of a proposal.
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