Senior Living Business: Benefits of a ‘Blue Ocean Strategy’--
“Don’t compete with rivals — make them irrelevant,” propose W. Chan Kim and Renée Mauborgne in Blue Ocean Strategy: How to Create Uncontested Market Space and Make Competition Irrelevant (Harvard Business School Press: 2005), their convincing guide to a novel, practical, winning business strategy for the 21st century. Competing head on, they say, results in a “bloody red ocean of rivals fighting over a shrinking profit pool.” Their blue ocean strategy, on the other hand, provides a systematic, creative approach to making the competition “irrelevant.” Pretty powerful stuff.
Discovering the “Blue Ocean”
Eli Feldman, CEO of Metropolitan Jewish Health System (MJHS), first came upon this enlightening concept when reading a book review of Blue Ocean Strategy shortly after its publication. He bought the book, read it, and then ordered several additional copies to give to colleagues. Even though the examples presented in the book don’t directly relate to health care per se, the applications very directly relate to the business of health care. “We [in the business] are killing each other by competing for the same people in the same markets,” says Feldman, “whether that’s an attempt to fill beds or to find people to populate our programs. And we’re all in the same boat. As government cuts back on reimbursements, we look for ways to increase revenue to support the good things that we want to do.”
MJHS is a not-for-profit, integrated health care system that manages about a dozen participating agencies and programs operating in and around the Greater New York Metropolitan Area. “The different agencies are independently operated but have overlapping boards,” says Feldman, who is CEO of each of the agencies, as well as of the entire system.
Feldman describes himself as a “social entrepreneur” — someone who recognizes a social problem, creates programs that provide solutions, and delivers good services to people...but also makes money. “If there’s no margin, there’s no mission,” he says.
“We consider the 40,000 people that we care for annually in the community and in our facilities as our shareholders,” he explains. “As a not-for-profit organization, they are the ones to whom we’re responsible. If they don’t like our services, they’ll react with their feet. So we invest our money either to support areas that government doesn’t fully reimburse or to acquire programs — that is, dive into a blue ocean.”
In the beginning...
MJHS began in 1907 as a single home for the aged in Brooklyn. Thirty years later, a new seven-story hospital was added, enabling the facility to provide acute and long-term care. The hospital division was dropped in 1974 and replaced with a medically focused, sub-acute skilled nursing operation. “Our in-patient facilities still have board-certified physicians on premises 24 hours a day, seven days a week,” says Feldman. “So while we now provide long-term care, we do significant amounts of work in sub-acute care, as well.”
MJHS is celebrating its 100th anniversary this year. Feldman has been with the organization for 40 years and its CEO since 1979. “We were 100 percent bricks and mortar at that time, with an annual operating budget of about $17 or $18 million,” he says. “Today, we’re about a $750 million operation, 52 percent of which is Medicare- and Medicaid-managed care, 30 percent is home care and continuing care services such as hospice and day care, and only 18 percent — 1,100 beds today in the system in three locations – is driven by in-patient operations.
“We’ve done a 180-degree turn in terms of where we were and where we are,” he adds. “Some of that can be attributed to the fact that I don’t believe in bricks and mortar as the best place to take care of people. I think that people should be cared for where they want to get care. And in most instances, at least for seniors and other people who are chronically impaired, that’s at home.”
Some of that change can also be attributed to blue ocean strategies. For example, MJHS acquired New York Presbyterian Hospital’s home care program a while back, which broadened the Brooklyn-based organization’s scope to an eight-county operation that provided access to 20 percent of the post-acute discharges in New York City — a rather deep blue ocean, indeed.
Redefining the market
The late Bernice Neugarten, a well-respected gerontologist, described aging as beginning at the moment of conception. When Feldman joined MJHS in 1967, the organization focused exclusively on people over age 65. Embracing Neugarten’s concept, he questioned the different services that distinguish the various needs of people in an “aging” situation. He determined that the distinctions lie in chronic disability and chronic impairment. Looking at the statistics, he also realized that 50 percent of the people in the United States who are chronically impaired — people with MS, MD, stroke, and so forth — are under age 65.
“By redefining your market as part of a blue ocean strategy,” he says, “a much bigger market becomes available to you. It also means redefining your mission, of course, but you don’t want to be a buggy whip manufacturer. Each component of our program stands on its own, but each one also interfaces with the others.”
Basically, the intention is to broaden the services that people want and need and ensure that they’ll get those services without the facility having to cut something else. “We make investments in order to serve the people for whom we care, but we do need to make money in order to do that,” Feldman adds. “A lot of the changes we’ve made occurred only after very long struggles and strong arguments as to whether we should or shouldn’t do one thing or another. In the end, the board is very happy with the changes, because we’ve become a much more diversified organization. That is also part of a blue ocean strategy. If the balloon gets squeezed too much on one side, at least it doesn’t come out too badly on the other.”
Care management of the future
This year, MJHS will be implementing a redefined care management program comprised of physicians and nurse practitioners. “The longer people live and the greater the number of people with chronic disabilities, the better we need to manage the care for those individuals,” he says. Those individuals often end up in the emergency room, because there’s no one available to help them at home. That represents a whole new opportunity for us.”
In the new program, participating physicians will make home visits — even in the middle of the night, if required. “We’ll pay them $350 to make the house call, and they’ll work with the individual’s primary care doctor. Of course, they don’t replace the primary care doctor. Basically, the physicians will be responsible for managing a number of people whom we’ve identified as ‘high flyers’ in terms of their care. We believe this program will result in a better outcome for the individual, a better outcome in terms of the cost of caring for the individual, and better feedback to the primary care doctor in terms of the patient’s medical issues.”
The nurse practitioner part of the program will have a different characteristic. The participating nurse will also manage and profile a number of high-risk individuals and, once a year, accompany the patient to the doctor’s office. Many HMO doctors are limited to five or ten minutes with each patient, and elderly people often need longer to explain fully their issues and problems. Since these cases represent patients with multiple, complex problems, the nurse practitioner — who has been managing the care for these individuals — will be able to articulate the medications they’re using, their care needs, and their problem issues. They’ll listen to what the doctor says and, once the individual is back home, take the time to explain what the person needs to do — and then follow up later on.
“We’ll definitely be doing this with our own HMO,” says Feldman. “And if it works the way we expect, we’ll spin it off as a stand-alone program and offer to manage the cases of other HMOs. It’s a more efficient way to provide better care with reduced time and lower cost...and another blue ocean strategy!”
Urban development as a blue ocean
Part of a blue ocean strategy is thinking big. With that in mind, MJHS is looking to develop urban retirement cluster housing in New York City — basically, a program that acquires rent-controlled and rent-stabilized buildings that are often in disrepair, because the landlord doesn’t bring in enough rent revenue to properly maintain the property, and make them viable housing alternatives for seniors and others.
“I’d like to acquire 1,000 to 2,000 units in different areas of the city,” says Feldman. “I’m looking for buildings with, perhaps, 40-50 percent seniors, along with young and middle-aged people as part of the population.”
MJHS is working with a small consortium that is seeking developers that are willing to get involved in the project and tax credits from the city for rebuilding the properties as high-end housing.
“By putting tax abatements on the property,” says Feldman, “the buildings remain on the tax rolls. But since taxes are reduced, rents can also be lowered without reducing services in order to help support the elderly residents who are currently entitled to stabilized or controlled rents for as long as they live in the building.”
“We would deliver insurance and services to elderly residents in the building to help keep them at home and out of a nursing home. We will also develop a service credit program, similar to airline mileage credits, where residents of the building or of the immediate community can earn credits for providing volunteer services to help support the residents. The credits could be converted to, say, child care or similar types of services or benefits.”
The ultimate intention of the consortium is not to keep the buildings permanently. In the 12- to 15-year period until the tax abatements expire or are close to expiring, the original elderly residents will have died or moved on. New tenants will have moved into those apartments at market-rate rentals. And the developers will be allowed to sell the building and use the proceeds to do the same thing with other buildings in other locations.
It’s advantageous to the city, to the senior with the rent-controlled apartment, and even to other residents, because a social compact will develop among the people in that community as part of the service arrangements and support that helps seniors help themselves. As service providers, MJHS plays its part. And, at the end of the day, the developers are happy.
“Everybody’s happy,” says Feldman. “It’s a unique play that doesn’t compete with anybody, because nobody’s doing anything like it. And it will bring all of our programs and services into the new setting and make us the lead organization in terms of management expertise and coordination and delivery of services.” It’s a win-win for everyone. It’s a blue ocean strategy.
“Blue ocean strategies are great ideas,” Feldman concludes. “And if they become mainstream, you could be like Johnny Appleseed — planting orchards all over the United States.”
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