1. Use Data to Determine
the Patients to Seek in Your Market
Originally presented February 2010

2. AGENDA
 Background
 Why Blue Ocean Strategy & What Is It?
 Success Stories
 How It Applies To Home Health
 How Bloody is My Ocean
 How Blue is My Ocean
 Underserved Demographic
 Chronic Patients
 Alternative Settings
 Other Blue Ocean Opportunities
 Conclusions

3. SPEAKER BACKGROUND
 Over 20 years in home care
 Over 35 years of marketing & planning experience
 MBA from Mass. Inst. Of Technology Sloan
School
 President, Healthcare Market Resources—a
market intelligence company providing
customized local market research for home health
agencies & hospices

4. INDUSTRIAL HISTORY
 Did these industries exist in a meaningful way?
 150 years: automobiles, music recording,
petrochemicals, aviation, pharmaceuticals &
management consulting
 30 years: mutual funds, cell funds, biotechnology,
discount retailing, express package delivery, coffee bars,
& home videos
THIS IS WHERE FORTUNES ARE MADE

6. WHAT IS BLUE OCEAN STRATEGY?
 Created by Professors W. Chan Kim & Renee Mauborgne,
who are both professors at the INSEAD at Foutainbleau,
France—one of Europe’s top business schools. They
published their findings in a book-Blue Ocean Strategy:
How to Create Uncontested Market Space and Make the
Competition Irrelevant.
 BOS is the result of a decade-long study of 150 strategic
moves spanning more than 30 industries over 100 years.
 The aim of BOS is NOT to out-perform the competition in
your market, but to create new market space or Blue
Ocean, thereby making competition irrelevant.
 BOS is a process with frameworks & tools, covering both
strategy formulation and execution.

7. RED VS. BLUE OCEAN
Red Ocean Strategy Blue Ocean Strategy
Compete in Existing Market Create Uncontested Market
Space Space
Beat the competition Make the competition irrelevant
Exploit existing demand Create & capture new market
demand
Make the value-cost trade-off Break the value-cost trade-off
Align the whole system of Align the whole system of
company’s activities with its company’s activities in pursuit of
strategic choice of differentiation differentiation & low cost
or low cost

8. Cirque du Soliel
 At the time of Cirque du Soliel’s debut, circuses
appealed to children; business was in long-term
decline; lots of other formats, competing for
children’s entertainment $$,- sporting events,
concerts, television & video games
 Circuses featured three types of entertainment:
 High risk acrobatics and “stunts”
 Clowns, primarily engaged in slapstick humor
 Animal acts
 3 ring format had different acts, competing for the
audience’s attention

9. Cirque du Soliel
 Eliminated animal acts-lower costs in
trainers/handlers, support personnel, transport,
maintenance & liability insurance & less issues
with animal rights groups
 Moved to single ring format requiring fewer acts
 Clowns’ humor became more sophisticated, less
slapstick
 Experience became more theatrical with a story
line/theme which ran through the performance

10. Cirque du Soliel
 Event now appealed to adults, which meant that ticket
prices could be higher
 Initially kept tent as performance venue, because of its
traditional circus imagery, but added creature comfort. It
did not need to rent out high cost large indoor event sites,
such as convention centers or sports arenas.
 Did not promote “name” acts, which traditional circuses
had done, which rose costs, but not attendance.
 Positioned the entertainment experience between the fun
& thrill of the circus and the intellectual sophistication &
artistic richness of the theater & ballet
 Cirque du Soliel stripped the product down to only those
elements which enabled it to deliver the entertainment
experience it wanted.

11. CURVES
 Fitness market had two alternatives—home exercise
programs & health clubs
 Home Exercise
 Limited accountability & motivated; many distractions
 Lonely, but private
 Little or no equipment; instruction limited to “star” on video
 Health Clubs
 Significant physical plant – full range of exercise equipment, locker
rooms & showers, juice bar, & possibly swimming pool & racquet
sports
 Co-ed; “lots of beautiful people” spent 1-2 hours per visit
 Classes & instructors
 Monthly fees in the $50-$100; upscale urban market primarily
 Initial investment - $500K-$1MM for 35K-100K sq ft

12. CURVES
 Found niche in-between both markets & tapped into
women having difficulty keeping in shape through sound
fitness
 These female non-athletes do not “eyed” by males while
exercising in their leotards
 Does not want to fiddle with equipment, because
someone physically larger and stronger preceded her on
it. Less likely to lift weights
 Increasingly does not have 1-2 hrs. for a fitness routine
 Placed equipment towards the middle of the space, not
lined up in rows @ health clubs

13. CURVES
 Its Quickfit training system uses hydraulic
exercise, which need no adjustment, are safe,
simple to use & nonthreatening. Specifically
designed for women, they reduce impact stress,
while building muscle & strength
 Environment is social, supportive & non-
judgmental
 Circuit of machines takes 30 minutes
 Prices per month fall to around $30.
 The business focuses on those elements of the
service that their customers want.

14. CURVES
 Start-up investment for a site is $25-$30k,
(excluding $20K franchise fee).
 Variable costs are significantly lower
 Fewer personnel
 Less maintenance
 Reduced rent, since requires only 1500 sq.ft. in
nonprime suburban locations
 Franchises become profitable in a few months,
while membership reaches 100.
 Franchises are now selling in the $100K-$150K
range

15. WHY BLUE OCEAN IN HOME CARE?
 Home health services are perceived as a
COMMODITY in the eyes of the buyers
 In some markets, the phrase “VNA” is used to refer to
any home health agency
 Discharge planners have very little invested in the
home health referral once they leave their facility
 Are the benefits of switching worth the risk?

16. HOW BLOODY IS MY OCEAN?
 Competitive Market Metric
 Agencies/100K Medicare Patients by State

17. MARKET COMPETITIVENESS
CALCULATION EXAMPLE
 There are 7 meaningful home health agencies in a 4
county area with 22,000 Medicare patients
 Competitiveness factor = 7/2.2 or 3.2
 There is a moderate level of competition in this
market

18. RULE OF THREE
 Professors Sheth & Sisodia studied over the evolution of 200
industries and saw the development of 2 types of firms
 Full Line Generalists
 Product/Market Specialists
 Hospital based or local VNA – market specialist
 Ortho agency – product specialist
 Over time, 3 full line generalists grow to 70%-90& of the share
 Increased share results in better performance for the full line
generalists, but weaker results for the specialists
 UNDERLYING ASSUMPTION: The more concentrated a
market is, the more difficult it is to gain market share

19. HOW BLOODY IS MY OCEAN?
 Market Concentration Metric based on “Rule of
Three”
 It infers prospects for future success.
 Once referral source have “locked in” a preference, it
requires a greater degree of differentiation to get their
attention and gain trial
 Referrals to captive agencies by parent organization
employees are not a “free market” situation.

20. MARKET CONCENTRATION CALCULATION
 Segment market between facility-based/affiliated
agencies & freestanding agencies
 Very difficult to take market share away from a facility-
related agency(unless the rules of the game change)
 Focus on freestanding market segment
 Combine market share of three largest freestanding
providers
 If combined market share is above 65-70%, this is a
concentrated market
 This means that referral sources have “locked in” their
agencies and it will be very difficult to get trial, unless the
agency can create a very meaningful difference.

21. MARKET CONCENTRATION
CALCULATION EXAMPLE
Agency Episodes Overall Mkt Freestanding Freestanding
Share Market Mkt Share
Medical Ctr 650 32.5%
Community 350 17.5%
Hospital
Local VNA 275 13.75% 275 27.5%
Nat’l Chain 225 11.25% 225 22.5%
Independent 150 7.5% 125 15.0%
Regional Chain 225 11.25% 225 22.5%
Mom & Pop 125 6.25% 100 10.0%
Overall Market – Unconcentrated(63.8%); Freestanding – Concentrated(72.5%)

22. HOW BLUE IS MY OCEAN
 Relative level of home health utilization can measure
how much growth opportunity there is in a market
 Home health utilization=Medicare Patients Served
Medicare FFS Eligible

23. HOW BLUE IS MY OCEAN
** Unweighted ***Weighted Utilization=Pts Served/Medicare FFS Eligible

24. IF IT HAS NEVER BEEN DONE
IN YOUR SERVICE AREA,
THEN IT IS A
NEW MARKET SPACE

25. BLACK PENETRATION
Black Penetration = % Black Discharges/% Black Population

26. ETHNIC/RACIAL FOCUS
 Compatible ethnic/racial ownership
 Racial/ethnic staff-both clinicians & office staff
 Language fluency
 Familiarity with diet & customs
 Relationship with ethnic/racial MD’s
 Link to visiting MD/NP program
 Medical director
 Informal caregiver support –volunteers/church
groups

27. CHRONIC PATIENTS
Re-cert Rate = (Episodes/Discharges)-1

28. CHRONIC PATIENTS
 Focus on diagnoses with high re-cert rates
 Diabetes
 Wound care
 Stroke
 Mental Health & B12(High LUPA rate)
 Seek out more community-based referrals
 Hospital-based agencies have 20%% lower re-cert rate
than freestanding agencies
 Approach physician offices with disease management
programs
 Offer solutions, such as Anodyne Therapy

29. LOW VISION PROGRAMS
 Program to provide visual training to low-vision patients
along suggestions of equipment & aids to make their
home environment more livable.
 Patient is able to stay independent longer, enjoy better
quality of life and avoid injury
 Identified group of elderly patients with a need that were
previously untapped-”blue ocean of ophthalmology” 12-15
million patients
1. Macular Degeneration 4. Diabetes
2. Retinitis Pigmentosa 5. Glaucoma
3. Neurologic Disorders
 Serve non-homebound patients through Part B billing

30. MEDICARE HOSPITAL DISCHARGES
Top 5 = RI, VT, MA, DE & NH Bottom 5 = PR, HI, WY, SD & MT

31. HOSPITAL REFERRAL OPPORTUNITY
Top Performers to Natl Avg Comparison

32. MEDICARE HOSPITAL DISCHARGE
BY SITE OPPORTUNITY
Supervised = Home Care + Facility Top Performers = Median of 90th Percentile

33. REHAB W/O WALLS
 Program provides clinical resources at home indicative of
inpatient rehab facility
 Added team members could include
neuropsychologist, dietitian & recreational therapist
 Medical leadership could be a physiatrist(rehab
specialist)
 Targeted at managed care organizations, which usually
means younger patients; could be alternative under post-
acute bundling
 National chain has sought out CARF accreditation to gain
credibility

34. NURSING HOME ALTERNATIVE
 What does a nursing home offer?
 Round-the-clock nursing care
 5-6 days per week of therapy
 More medical direction
 Rehab reimbursement in nursing homes changed as of 1/1/10;
therapists cannot bill for multi-person sessions simultaneously
 Why are traditional home care therapy plans for 3X per week?
 Data collection phase of post-acute demonstration project
completed in 2011.
SOLUTION: Front load therapy visit schedule to mirror SNF service
levels

35. HOSPITAL RE-ADMISSIONS
 Hospitals, under Healthcare Reform Act, would
penalized for higher than permitted levels of re-
admissions for their Medicare patients, starting
2013
 Blue Ocean opportunities include
 Lower level of discharges going home
unsupervised—most re-admission vulnerable
population
 Sell telemonitoring program to hospitals for non-
homebound patients

36. OBSERVATIONS
 Differentiating(red ocean) requires a “tweaking” of
operations; blue ocean may require a whole new
way of doing business-more risk for the agency.
 Having a referral source give you a new patient is
less painful for them than giving you someone else’s
patient.
 It is easier to get a referral source’s attention talking
about something new than trying to differentiate
yourself from the pack.

37. RESOURCES
 Check out the following URL’s
 www.blueoceanstrategy.com
 www.filestube.com/aa312b511a928a9903ea/go.html
 www.thenext.ca/files/read-blue-ocean-strategy.pdf

38. ACTION PLAN
 Gain management agreement to assess Blue Ocean
Strategy approach
 Determine if Blue Ocean Strategy opportunity
exists
 Examine individual Blue Ocean Strategy
situations—Plagiarize
 Select approach and modify agency operations to
deliver service
 Identify “buyers” of new service & solicit trial

39. CONCLUSIONS
 Blue Ocean Strategy is an alternative
approach to growing your agency’s revenue.
 It requires a complete commitment, upfront
investment and willingness to take a risk.
 It should only be employed after a thorough
analysis of your market and a careful
development of a well-thought out plan.

40. CONTACT INFORMATION
Rich Chesney
President, Healthcare Market Resources
rchesney@healthmr.com
215.657.7373
215.657.0395(f)
www.healthmr.com