BASIC MARKETING 18th Edition by Jerome McCarthy William Perreault, Joseph Cannon

Exercise 14

Domicile Health Providers, Inc. (DHP)
Connie Seagrove, executive director of Domicile Health Providers, Inc., is trying to clarify her strategies. She's sure some changes are needed, but she's less sure about how much change is needed and/or whether it can be handled by her people.
Domicile Health Providers, Inc. (DHP), is a nonprofit organization that has been operating-with varying degrees of success-for 25 years, offering nursing services in clients' homes. Some of its funding comes from the local United Way-to provide emergency nursing services for those who can't afford to pay. The balance of the revenues-about 90 percent of the $2.2 million annual budget-comes from charges made directly to the client or to third-party payers, including insurance companies, health maintenance organizations (HMOs), and the federal government, for Medicare or Medicaid services.
Connie has been executive director of DHP for two years. She has developed a well-functioning organization able to meet most requests for service that come from local doctors and from the discharge officers at local hospitals. Some business also comes by self-referral-the client finds the DHP name in the Yellow Pages of the local phone directory.
The last two years have been a rebuilding time-because the previous director had personnel problems. This led to a weakening of the agency's image with the local referring agencies. Now the image is more positive. But Connie is not completely satisfied with the situation. By definition, Domicile Health Providers is a nonprofit organization. But it still must cover all its costs: payroll, rent payments, phone expenses, and so on, including Connie's own salary. She can see that while DHP is growing slightly and is now breaking even, it doesn't have much of a cash cushion to fall back on if (1) the demand for DHP nursing services declines, (2) the government changes its rules about paying for DHP's kind of nursing services, either cutting back what it will pay for or reducing the amount it will pay for specific services, or (3) new competitors enter the market. In fact, the last possibility concerns Connie greatly. Some hospitals, squeezed for revenue, are expanding into home health care-especially nursing services as patients are being released earlier from hospitals because of payment limits set by government guidelines. For-profit organizations (e.g., Kelly Home Care Services) are expanding around the country to provide a complete line of home health care services, including nursing services of the kind offered by DHP. These for-profit organizations appear to be efficiently run, offering good service at competitive and sometimes even lower prices than some nonprofit organizations. And they seem to be doing this at a profit, which suggests that it would be possible for these for-profit companies to lower their prices if nonprofit organizations try to compete on price.
Connie is considering whether she should ask her board of directors to let her offer a complete line of home health care services-that is, move beyond just nursing services into what she calls "care and comfort" services.
Currently, DHP is primarily concerned with providing professional nursing care in the home. But DHP nurses are much too expensive for routine home health care activities- helping fix meals, bathing and dressing patients, and other care and comfort activities. The full cost of a nurse to DHP, including benefits and overhead, is about $65 per hour. But a registered nurse is not needed for care and comfort services. All that is required is someone who is honest, can get along with all kinds of people, and is willing to do this kind of work. Generally, any mature person can be trained fairly quickly to do the job-following the instructions and under the general supervision of a physician, a nurse, or family members. The full cost of aides is $9 to $16 per hour for short visits and as low as $75 per 24 hours for a live-in aide who has room and board supplied by the client.
The demand for all kinds of home health care services seems to be growing. With more dual-career families and more single-parent households, there isn't anyone in the family to take over home health care when the need arises-due to emergencies or long-term disabilities. Further, hospitals send patients home earlier than in the past. And with people living longer, there are more single-survivor family situations where there is no one nearby to take care of the needs of these older people. But often some family members-or third-party payers such as the government or insurers-are willing to pay for some home health care services. Connie now occasionally recommends other agencies or suggests one or another of three women who have been doing care and comfort work on their own, part-time. But with growing demand, Connie wonders if DHP should get into this business, hiring aides as needed.
Connie is concerned that a new, full-service home health care organization may come into her market and be a single source for both nursing services and less-skilled home care and comfort services. This has happened already in two nearby but somewhat larger cities. Connie fears that this might be more appealing than DHP to the local hospitals and other referrers. In other words, she can see the possibility of losing nursing service business if DHP does not begin to offer a complete home health care service. This would cause real problems for DHP-because overhead costs are more or less fixed. A loss in revenue of as little as 10 percent would require some cutbacks-perhaps laying off some nurses or secretaries, giving up part of the office, and so on.
Another reason for expanding beyond nursing services- using paraprofessionals and relatively unskilled personnel-is to offer a better service to present customers and make more effective use of the computer systems and organization structure that she has developed over the last two years. Connie estimates that the administrative and office capabilities could handle twice as many clients without straining the system. It would be necessary to add some clerical help-if the expansion were quite large. But this increase in overhead would be minor compared to the present proportion of total revenue that goes to covering overhead. In other words, additional clients or more work for some current clients could increase revenue and ensure the survival of DHP, provide a cushion to cover the normal fluctuations in demand, and ensure more job security for the administrative personnel.
Further, Connie thinks that if DHP were successful in expanding its services-and therefore could generate some surplus-it could extend services to those who aren't now able to pay. Connie says one of the worst parts of her job is refusing service to clients whose third-party benefits have run out or for whatever reason can no longer afford to pay. She is uncomfortable about having to cut off service, but she must schedule her nurses to provide revenue-producing services if she's going to meet the payroll every two weeks. By expanding to provide more services, she might be able to keep serving more of these nonpaying clients. This possibility excites Connie because her nurse's training has instilled a deep desire to serve people in need, whether they can pay or not. This continual pressure to cut off service because people can't pay has been at the root of many disagreements and even arguments between the nurses serving the clients and Connie, as executive director and representative of the board of directors.
Connie knows that expanding into care and comfort services won't be easy. Some decisions would be needed about relative pay levels for nurses, paraprofessionals, and aides. DHP would also have to set prices for these different services and tell current customers and referral agencies about the expanded services.
These problems aren't bothering Connie too much, however-she thinks she can handle them. She is sure that care and comfort services are in demand and could be supplied at competitive prices.
Her primary concern is whether this is the right thing for Domicile Health Providers-basically a nursing organization- to do. DHP's whole history has been oriented to supplying nurses' services. Nurses are dedicated professionals who bring high standards to any job they undertake. The question is whether DHP should offer less-professional services. Inevitably, some of the aides will not be as dedicated as the nurses might like them to be. And this could reflect unfavorably on the nurse image. At a minimum, she would need to set up some sort of training program for the aides. As Connie worries about the future of DHP, and her own future, it seems that there are no easy answers.
Evaluate DHP's present strategy. What should Connie Seagrove do? Explain.