3 Steps to Determining Patient Value in Your Healthcare Organization

The numbers on healthcare spending in the U.S. prove that understanding patient value has never been more important. According to the CDC, the average American spends just over $11,000 per year on healthcare. With an average lifespan of just under 80 years, most people in the U.S. will spend close to $900,000 on healthcare expenditures in their lifetime. According to data from HealthView Services, healthy couples will spend close to $390,000 in retirement alone.

At the same time, health systems are losing millions of dollars due to impacts of the pandemic and other factors. According to the Healthcare Financial Management Association, net revenues per physician remain flat in 2021, while costs continue to rise. Rural healthcare providers are closing at alarming rates.

With both healthcare spending and provider costs on the rise, calculating the lifetime value of a single patient is critical to improving the bottom line of any healthcare organization. Yet most providers haven’t prioritized patient value as a key metric, in many cases because they still don’t view patients as healthcare consumers, or more importantly, customers.

The primary purpose of healthcare organizations must be to serve their communities, but they can’t do that if they’re not keeping the lights on. Fortunately, organizations in other industries like retail and financial services have developed strong processes for determining the value of their customers, ones that can be adapted for healthcare organizations. Once healthcare organizations understand how to calculate patient lifetime value, they can create smart goals and justifiable budgets around patient experience initiatives.

We know that a strong patient experience translates to more revenue for any healthcare organization. Step zero in your patient experience transformation journey is to determine patient value. What is the value of a single patient now, and over a lifetime?

Determining Single Patient Value

There are several reasons why evaluating the full value of a patient is crucial before beginning your patient experience transformation journey. First and foremost, patient value provides a baseline for any transformation initiatives you may consider putting into practice. Factors like revenue, the average cost of a patient’s care, the average number of patient visits, and even the average number of referrals from a single patient, are just a few of the metrics that can be used to determine patient value.

When we understand the lifetime value of a single patient, we can create a justifiable budget for your patient experience transformation journey and gaining organizational buy-in for transformation becomes that much easier. Patient value can also help prioritize the long-term goals of your organization and drive important metrics of success. Imagine the power of understanding what 1,000 new patients could mean to your organization financially. Or the negative impact of losing 1,000 patients to another provider, for that matter.

Three Steps to Determining Patient Value

Note: While value-based care (and other payment models) continues to gain popularity our experts have based the following steps on a fee-for-service payment model.

Step One: Segmentation

The first step involves identifying specific patient segments, including building detailed personas and groups within each segment. Obviously, the value of a single patient will vary based on each person’s individual health and lifestyle. Those with chronic conditions, or a single life-threatening incident, may spend more on healthcare than others. (A 55-year old woman with diabetes will spend $3000 more on healthcare in a given year.) You may also choose to create patient segments based on the type of care delivered, such as oncology or women’s reproductive services. Certain lifestyle or behavioral segmentations may apply, and you'll want to create distinct personas for smokers of a certain age, or patients with early onset arthritis, as an example.

Step Two: Identify Business Dependencies

Next, it’s critical to determine your business dependencies. As we mentioned earlier, patient value may be different based on the payment or reimbursement models. Other factors could be geographic location (which should also be included in your segmentation description), the business practices and policies of your partners, and government programs. Quality ratings and bonuses within the ACA program could be important to factor in patient value where preventative and wellness programs are concerned.

Step Three: Estimate the Value of a Single Patient

Finally, it’s time to calculate the full value of a single patient. This includes understanding the average cost of serving each patient within the segment, profit and contribution margins for that segment, the average referrals from a single patient, and any other costs or reimbursements that impact the contribution margin. Don’t fail to factor in the costs of acquiring and retaining patients, either. Knowing how many patients leave to see another provider in a given year is an important number in understanding patient value.

Patient value is one of the most important metrics to help improve your patient experience, and your bottom line. Understanding what each patient means to your organization is the key to providing better care and building a stronger business.

After you’ve established the value of a single patient for your organization, it’s time to evaluate your current state experience. The path toward patient experience transformation, may seem like a long, daunting road, but it doesn't have to be. We've developed a patient experience roadmap that is designed to help you make progress at every stage of your journey. Check it out below and download the full roadmap here.