More Road Trip Experience

I have spent 5 more days, and will continue over the next two weeks, visiting a variety of hospitals. I tried to focus my efforts on those that already have a coffee and gift shop offering.

The trend of having the "coffee stand" / vending operated by either a third party from outside of the system, or by the food services provider (Sodexo, Aramark, etc) under a total outsourcing umbrella seemed to be the overriding trend. In every case it was painfully obvious that these are not the core business interests for these folks. Some major flaws that speak directly to opportunity (REVENUES) lost would be.......

Vending:

• An average of 40% empty slots on the vending machines. These are items that are the best sellers, obviously if they are out of stock, so we can't sell what is not there. If this were to occur on a regular basis, it could cost the hospital substantial revenue over a given year.
• An average age of machinery that seemed to be over 20 years. Not to mention that the cleanliness of the equipment as a whole was NOT hospital standards by any means. I watched as people approached the machines and were turned away by the "look" of them. I know this because I was taking some quick surveys. More lost sales.

Coffee Shop:

• Without exaggeration I witnessed, in every location, coffee offerings that were substandard compared to what the various systems have spent on the surrounding spaces. They were so contradictory, that they stood out for the wrong reasons.
• They were not well kept in the least. They looked disorganized and unclean. Coffee stains on the front counters, the "back of house" (in full view) had cups, coffee dispensers and supplies scattered like there was a fire drill just moments ago and it was all left as is.
• Most did not offer anything more than a basic coffee product by a third party brewer like Starbucks, Paramount or Douwe Egberts. This screams of high cost of goods by the way. No espresso, lattes or smoothies.
• The worst violation of maximizing revenues was the fact that most of these offerings only operated on limited hours Monday-Friday and were closed weekends. A few only operated from 8a.m.-1:30p.m. At one such location I was standing in the gorgeous lobby, with 25-30 other people sitting in the comfortable chairs (these don't make money either) at 3:30 p.m. This was within 10 feet of the closed, filthy coffee cart.

I need to point out that the approach in offering such things needs to be campus specific and the need for hours may vary accordingly, but it does not take much to figure out when to be open.

The credibility for this initiative grows with every hospital I visit, as does my passion for capturing these badly needed revenues for the advancement of quality patient care.

Weighing The Options

As I continue to travel throughout the country, although it is just as obvious in my own backyard of Michigan, I become more and more concerned as to the loss of revenue opportunities for healthcare. I feel compelled to urge the collective healthcare community to "stop the madness" of giving away these revenues that are benefiting, so lopsidedly, the third party retailers.

I am watching as the quality efforts, and millions of dollars, that each of these systems have spent to communicate their mission of care and "branding" of their offerings, in their given communities, benefit those that have not contributed a dime to that fund. I compare this, very loosely, to the Walton family spending the past 50 years building their retail empire and mass traffic flow via extensive investment in technology, marketing and services. Then they say to Procter & Gamble, "we are going to give you prime real estate in our lobby, before the visitors even get into the core of what we offer, and after you cover YOUR cost for being there we will take a small lease rate and an even smaller % of sales".

I am not suggesting that there be an adversarial relationship with the vendor community, just that there be a transparent mindset of sharing for the greater good. I am listing below actual information that shows this type of comparison in real numbers. This information compares what one particular hospital campus agreed to with a third party to what they could have done. The scary aspect to this information is that I am under cutting the annual sales number, to be ultra conservative, when I know that it is more likely that they are generating far more than this. This third party group was given control over the coffee shop, lobby cafe, gift shop and ATM's! Let me know your thoughts. Am I crazy for thinking this way?!




Third Party financials


Annual Revenue: $850,000.00
Square feet 1,250
Annual Lease: $45,000.00 @ $36 PSF/nnn

Annual % of Sales* Given back to hospital: $4,500.00
Total Annual Return for hospital: $49,500.00 / 5.80%



*Based on 3% payback to hospital for any revenue AFTER the first $700,000.00 is realized by third party owner. This is an actual contract structure.



Hospital Ownership w/third party management assist
Annual revenue: $850,000.00
Cost of goods*: $255,000.00
Cost of labor via TMS**: $297,500.00
Total annual return for hospital: $297,500.00 / 35%



*includes all aspects of product and supplies (30%)
**based on a 35% allocation for all labor costs including benefits, taxes, etc.

Need For New Revenue

In a recent article Detroit Free Press Medical Writer Patricia Anstett cited many statistics related healthcare and the impact of the national economic condition. This provides more fuel to the need for a retail initiative and its potential revenues.



Economy has Michigan hospitals hurting, association warns
BY PATRICIA ANSTETT • FREE PRESS MEDICAL WRITER • February 6


The worst economy in decades is crippling Michigan hospitals, causing large financial losses, layoffs and cuts in programs and construction, the state's hospital association warned in a report Thursday.
"The health care safety net is in dire straits unless there's a new infusion of money," said Lori Latham, spokeswoman for the Michigan Health and Hospital Association.
The report found that:
• Michigan hospitals on average posted a negative 2.9% margin, or losses, in the third quarter of 2008, down from a positive 2.2% margin, or earnings, the same period in 2007.
• Losses from providing free care, picking up unreimbursed costs for people with government programs and bad debt reached a record $2 billion last year.
Hospitals reported an 8% increase in uncompensated care in the third quarter of last year, compared with the same period the year before.
• Fifteen of the state's 144 nonprofit hospitals were forced to lay off at least 1,320 workers last year, and more layoffs are expected.
The report does not list the number of employees the 144 hospitals have.
• Between 1999 and 2007, the number of Michigan residents covered by private insurance plummeted by 727,000 people.
• More people rely on costly emergency department care. In 2007, the most recent data available, Michigan hospitals recorded 4.5 million emergency visits, a 3% increase from 2006.
• Michigan's Medicaid program, which reimburses hospitals for care at the lowest rates for any health insurer, hit a record 1.6 million recipients in 2008 and is projected to rise another 3% this year.
The association went to the unusual step of releasing information about hospital losses in last year's third quarter to alert the Legislature that hospitals need help, Latham said.
One possible source could be new federal Medicaid money the state expects to get in President Barack Obama's economic-stimulus legislation. It awaits U.S. Senate action.
To see the report, go to http://www.mha.org/ and click on the newsroom menu's Reports and Publications folder. Contact PATRICIA ANSTETT at panstett@freepress.com.

Road Trip

I had the opportunity to make a road trip with a Service Line leader for a major health system this past Saturday. We spent almost 5 hours visiting various campuses, both in his system and outside of it, to get a feel for what was happening in the world of retail.

It did not take long for him to become "ill" as to the level of opportunity that was being missed. This was just as apparent to him at his own locations as it was the "competition". One such example was that of a coffee shop occupying a newly remodeled area of the hospital. The appeal of the space was extremely contradictory to the rest of the beautifully appointed finishes and elevations. It appeared to be assembled with recycled components from elsewhere on campus. As we inspected further we realized that the shop was serving basic food service quality coffee, served in gas station style cups and did not offer espresso, cappuccino or any specialty drinks. In addition we were watching as a very good amount of foot traffic passed by a coffee shop that was closed. This was due to the fact that the volunteers that operate most of the schedule do not work weekends.

The Gift Shop's were no less disheartening. When we approached the receptionist to ask where the Gift Shop was located, she pointed behind us about 30 feet to a small door. The signage was definitely too small and the windowless, single door was the only view into what they had to offer. I asked if it was a temporary space and she stated that it was the newly remodeled space. In this case the shop was owned by a third party, and it was painfully obvious in their product offerings.

We made visits to 5 or 6 locations in a large coverage area. In every case we were able to identify vast opportunities, many could be capture with some very simple, lower cost changes.

It is very important that any campus that has the slightest interest in developing such opportunities do so in a "phases" process. There is much time and careful planning needed in order to create the energy and opportunity. It can be very costly to jump in and over build offerings. Campus and system appropriateness must be a big part of consideration. The initial planning and information gathering could have made better use of what these other campuses are offering. The initiative for this type of retail needs to be practical and purposeful.