Measuring ROI:Is It Worth It?In lean times, healthcaremarketing struggles to proveits value.

Interview conducted by Richard K. Thomas

R eturn on investment (ROI) for healthcare marketingis a hot topic among healthcare professionals. It hasbeen discussed olf and on in the past, but recentfinancial developments in healthcare have brought

II [o the forefront. Today, because of financial pressures, alloperational efforts (including marketing) are under mtensescrutiny making the bottom line more important than ever.

For many in healthcare, there's a lack of understanding—or sometimes all-out confusion—concerning the concept ofROI. Its not a concept that most health professionals are com-fortable with, and even those who are often don~t have a clueas to how to measure marketing ROI—or even know whetherthey should try. The discussion presented here attempts toaddress the ROI concept—what it is, how its measured, andwhere it applies and doesn't apply The panel of experts we'veassembled tackles this thorny issue by offering a wide rangeof perspectives on healthcare marketing and diverse views onthe concept of measuring healthcare marketmg ROI,

MHS: What are we really talking about when we say "returnon investment" for healthcare marketing activities?

DM: In simple accounting terms, ROI is a financial meas-ure that looks at the percentage return on the use of specificassets (usually, but not always, money). Two key "formulas"measure ROI at the organizational level and at the specificeffort level. At the organizational level, ROI is the net incomedivided by owners equity At the specific effort level, ROI isthe revenue traceable to the marketing effort divided by theinvestment made.

The first definition is the traditional accounting approach.This definition must be simplified because healthcare organi-zations tHCOs) typically don't have the systems m place formore complex measurement of ROI.

I' I 'What marketing ROI is depends on the organizationand, to a great extent, the sophistication of senior manage-ment. For some institutions, a true ROI means the dollarsthey're spending on marketing are generating some multipleof dollars in gross revenue. Or at the least they want to seeROI m terms of patient volume,

^ ! Defining marketing ROI is tough in any industry andIS particularly a challenge in healthcare, ideally, one wouldlike to be able to correlate marketing expenditures with thesales resulting irom those expenditures. But there are toomany other vanables for this simple approach to work. Onewould also like to be able to think in terms of time-definedresults but, again, this is not easy to do for a lot of healthcaremarketing initiatives. Much of the use of health services isinelastic and, in many other cases, the consumer has limitedchoice, resulting in a need for a different concept of ROI.

CM: At Roska Direct, ROI is very important to us becausewe're direct marketers, and our credibility depends on ourbeing able to measure the results of our promotions. We gotinvolved in the pharmaceutical industry using direct-to-patient relationship marketing to increase patient complianceand persistency on long-term medications almost 12 years agowhen direct-to-consumer marketing (DTC) was not yet wide-spread. As direct marketers we saw an opportunity to increasethe lifetime value of a "customer" for the phanna companiessimply by getting patients to stay on their medications longer.So we're really looking to quantify the income generated bythese incremental prescriptions-measuring the number ofrefills a patient gets above and beyond the normal complianceperiod, and comparing the income from those against the costof the communications that we did to stimulate that income.With the onset of DTC, we extended that concept into the area

MHS Fall 2002

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A CLOSER LOOK:

David Marlowe

David Marlowe is the principal of

Strategic Marketing Concepts, a

Maryland-based healthcare market-

ing consulting firm. He's responsible

for directing engagements involving

the development of strategic market-

ing plans, market research, managed

care marketing, new program development, and Inte-

grated delivery system marketing issues. He is the author

of Healthcare Marketing Plans That Work (Society for

Healthcare Strategy and Market Development, 1999). He

may be reached at dmarlowel@ix.netcom.com.

of patient acquisition, conducting programs to identifyprospective patients, get them to discuss our product wilhtheir physician, and provide an incentive for the first.

MHS: Are there fairly standardized methods of measuringROI, at least in other industries if not healthcare?

DM: ROI measurement is common in oiher industries, butmost of these lend themselves more easily to measuring thebottom-line contribution of marketing. These traditionalapproaches have limited apphcation in healthcare. And actual-ly in healthcare many CEOs are really talkmg about ROE(return on expenditures) when they say ROI

\M For most HCOs, management doesn't hold marketersto a financial bottom line in marketing, and most oi the meas-ures for ROI are softer measures like goodwill, awareness, orPR coverage. True, HCOs are beginning to look more closelyat ROI measurement techniques, but they have a long way togo in adopting techniques from other industries.

ST: Because of the unique characteristics of healthcare, 1would see ROI in terms of its impact on more global dimen-sions such as brand awareness. If marketing efforts raisebrand awareness (and brand equity) by a certain number ofpercentage points, then you have a rough indicator of ROI.

CM: Generally, we try lo apply the standard direct market-ing methods of calculating return on investment—that is,comparing the cost to acquire a new customer against thevalue of that customer over a specific period of time. It's com-

monly used by catalogers, book and record clubs, financialser\'ice marketers, and other direct marketing organizations.We have also engaged in programs where we've held out aregion as a control and kept our promotions out of that regionso we could measure the incremental sales changes in the pro-motion regions vs. the non-promotion regions. This isn't per-fect, but it allows you to see if the promotions are moving thesales needle.

MHS: Why is the measurement of marketing ROI more of achallenge in healthcare than in other industries?

DM: Other measurements (market share, brand position,preference, etc.) are likely to have more validity (and measur-ability) in the long run than does ROI. Among other factors isthe time delay in the appearance of marketing results and thefact that the use of health services is not likely to be triggeredby marketing, but will be situational. Eurther, many effortstoward marketing health ser\'ices simply don't have a measur-able return. Ultimately, a variety of factors are likely to influ-ence the use of health services.

CM: A number of things make ROI measurement a chal-lenge in healthcare. First, the actual sale of the product isremoved from the pharmaceutical company. It takes place atthe pharmacy alter a physician has specified the product.That's why we developed different transaction-related incen-tives to track sales. Second, many of the pharmaceutical mar-keters don't track the average length ol time a patient stays ontheir product. This information usually has to come fromaggregate data supplied by a pharmacy chain or pharmacybenefits manager (prescription plan),

S F: A major issue is the lack of access to the necessarydata—on both the expense and revenue sides. HCOs typicallycan't accurately isolate the costs associated with a marketinginitiative from other factors. Nor can they precisely determinehow much of incremental revenue can be attributed to a mar-keting mitiativc. How can the role of referrals be accountedfor, and how does the organization account for revenue gener-ated m other areas besides the targeted service line (e.g., inpa-tient admissions resulting from an urgent care center cam-paign)? Even if adequate data systems were in place, there'sthe ethical issue of segmenting patients based on various traitsand subsequently marketing (or de-marketing) lo them.

Dl- There are several reasons why the ROI measurement isa challenge in healthcare. Eirst, marketing is a fairly youngdiscipline in healthcare (at least in provider-related healthcareservices). Second, administrators and senior managementdon't know enough about marketing to ask the right ques-tions. Third, many healthcare marketers don't possess ihe tal-ent (or maybe the interest) for trymg to measure ROI.

M H S Fall 2002

MHS: Are there inherent barriers in healthcare that preventeffective measurement of ROI?

Mt As with any business the purpose of marketing is tospeed up the purchase decision. But healthcare isn't usuailyan impulse buy. So speeding up consumer decision making isdifficult if not impossible (unless it's an optional service likeplastic surgery). Marketing is about dominating share ofmind. Its also something that takes a long time and manyrepeated impressions to be successful. The lead time for ahealthcare decision can be months or years, so the immediateresults are often hard to measure. And healthcare is a compli-cated purchase with lots of factors involved; rarely is market-ing by itself the sole reason someone buys a health service.Healthcare also is not very consumer-driven when you factorin physicians and managed care (and much of healthcaremarketing is consumer marketing). Internal tracking andaccounting systems in most HCOs are terrible and don't pro-vide the right marketmg mformation.

1>M. HCOs typically don't have financial accounting sys-tems in place to provide accurate pricing, cost, atid margininformation. Further, the way overhead is allocated in health-care makes it difficult to isolate the effect of an activity like

send you a special promotion if you haven't used youraccount in six months, the pharma company can't know thata specific patient hasn't had his prescription renewed. Thepharmacy chains have compliance programs designed to stim-ulate refills from patients who are late getting their medicationrenewed. These programs usually aren't disease-specific, pro-viding information like, "Here's why you need to have yourcholesterol medication renewed."

MHS\ What types of marketing activities in healthcare lendthemselves best to tracking ROI?

1>M: Most healthcare activities don't readily lend them-selves to this approach but, at the same time, with proper sys-tems in place many activities can be tracked for ROI. Thereare some ser\'ices (e.g., LJ\SIK eye surgery and some otherelective procedures) where ROI measurement makes moresense. Also, marketing efforts that involve a single marketingactivity for a specific service have a better chance of beingmeasurable. But even with something as straightforward aschildbirth, you're looking al up to nine months before youcan see any results. Most healthcare marketing can't be usedto drive short-term volume increases, so marketers must focuson longer-term metrics like awareness levels.

"HCOs are beginning to look more closely at ROI measurement techniques, butthey have a long way to go in adopting techniques

from other industries". -

marketing. Even where systems are in place, healthcare mar-keters seldom have the knowledge of financial measurementand irackmg. In addition, healthcare tracking systems aren'toften geared toward measuring changes in volume or specificusage tied to marketing efforts.

S I A major assumption of RO! measurement is that it'spossible to control tnost of the variance in the equation. But,if you have anything in healthcare, you have unexplainedvariance. Thus, ROI at the service or product level is difficultto measure. Further, the "miscellaneous" item in most health-care budgets is so large as to limit the usefulness of the finan-cial statements in measuring ROI. Another issue has lo dowith adjusting for patients that would have used the serviceanyway. If the patient's health plan dictates the use of a facilityor service, it's not appropriate to attribute that patient to themarketing initiative.

CM: The high importance of protecting patient privacyprevents you from looking at the profit from a particularpatient, the way a cataloger or even a grocery store can. So,while the department store where you have a credit card can

CM: Direct-to-patieni relationship marketing is really themost measurable form of marketing activity because we cantell how many patients received our product as a result of thepromotion, and we can communicate with them directly tohelp them understand why it's important to take their medica-tion. We can put mechanisms in place to measure how longthey take the product. Sometimes we use patient surveys totind out it they're still taking the product and how frequentlythey take it. We have also partnered with pharmacy chains totrack refills among patients who are enrolled in complianceprograms vs, those who are not, and report the data to us inaggregate.

A few activities are more suitable than others. Theseinclude sales efforts, direct-response campaigns (like physi-cian referral or newcomers packets), product line marketingand advertising, and call center operations. In these situa-tions, it's somewhat more feasible to link results to marketingexpenditures.

•̂ i Healthcare marketers are much better off looking atthings they can more easily track and measure, like the num-

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her of new enrollees brought into amanaged care plan as a result of mar-keting. Global indicators seem muchmore suitable than measures of ROI forspecific services.

MHS: Do some new marketing tech-

niques lend themselves better to ROI

measurement than traditional marketing

approaches?

I )f . Some of the new CRM pro-grams are doing a good job of buildingin tracking measures. Certainly thegrowth of call centers and the Internetis supporting better measurement.

Where we see organizations struggleis when they are trying to find one for-mula or one method for accounting fortheir entire marketing program (whichmay consist of dozens or even hun-dreds of different strategies and tactics).The better way to begin measuring ROIis to break everything down into specif-ic product lines or even specific activi-ties and measure each as best as possi-ble. Some will be financially driven,others won't. Then take the sum ofeverything and use it to look at theeffectiveness of marketing overall. It's amore complicated and tedious process(which is why few marketers do it), butit generates much better informationlor the organization.

DM: Some approaches such as CRMand DTC marketing lend themselves

A C L O S E R L O O K :

Daniel Fell

Daniel Fell is a partner and marketing consultant with

Daniel+Douglas+Norcross, a Chattanooga-based mar-

keting and communications company he cofounded in

1992. He is a nationally known speaker and writes on

marketing and technology for Marketing Health Services.

HealthLeaders.com, and e-Healthcare Strategy & Trends

newsletter. Fell serves on the board of Society for

Healthcare Strategy and Market Development where he also chairs their

e-SHSMD committee. He may be reached at dfell@ddngroup.com.

better to measurement than more tradi-tional marketmg techniques. Some ofthe Web-based marketing being imple-mented today may also lend itself tobetter measurement with its built-intracking capabilities.

^ I CRM appears to have a lot ofpotential for ROI measurement. CRM isall about understanding customers, andthat should lead to better ability totrack behavior and link it to marketinginvestment. Still, we don't have ade-quate systems in place, and healthcarefaces the segmentation issue mentionedearlier. Limitations on data sharing,which are likely to become more strin-gent, also are a consideration.

CM: Relationship marketing topatients and non-personal promotion tophysicians are emerging as areas whereyou can directly quantify the effects ofpromotional efforts. Traditionally, phar-maceutical companies market to doc-tors through sales representatives. Butrepresentatives can't see every doctor.We have worked with individual physi-cian prescribing data to segment doc-tors who aren't called on by representa-tives. We look at the volume of pre-scriptions that doctors are writing-^sayfor high blood pressure—and howmany of those prescriptions are for ourproduct. We can then customize mes-sages to the doctors who represent the

greatest potential for growing our mar-ket share—those who prescribe a lot ofdrugs in the class but not a lot ot ourproduct. We can customize a differentmessage for the doctors who write a lotof drugs in the class and a lot lor ourproduct. We can then look at the pre-scribing behavior of those same physi-cians who received the promotion insubsequent periods to determine ifwe've increased the number of prescrip-tions written.

MHS: Do some types of HCOs lend

themselves better to ROI measurement

than others?

My experience suggests that sin-gle-purpose organizations and organiza-tions that can isolate activities are muchmore appropriate for such measure-ment. These include specialty facilitieslike rehab centers and drug and alcoholtreatment facilities, urgent care/walk-mcare centers, referral/health informationservices, birthing centers, and specialtyservices like ophthalmology orthopediccenters, plastic surgery. Insurance andrelated services and products alsoappear to he good candidates.

DM: The best candidates appear tobe HCOs with a single focus—likeLA.SIK surgery, occupational health,psychiatric hospitals—or organizationsthat offer unusual services—like sleeplabs, its easier to argue that no onecomes to the sleep lab because theywere at the hospital for some other rea-son and thought they would have asleep pattern evaluation. Ultimately, thetype of service organization may be lessimportant than its support systems.Organizations with good informationsystems make the best candidatesregardless of the type of service provid-ed. For this reason, doctors" offices aretypically the worst candidates,

^ ! At first blush, one would thinksmaller, less complex organizationswould be belter candidates for measur-ing ROI, But this is only true to a point(with physician offices probably beingthe counterexample). Perhaps it's not so

MHS Fall 2002

much the type of organization but itsattributes that make the difference.Organizations that have adequate datasystems in place clearly are better can-didates. Thus, organizations associatedwith managed care plans are likely tohave better data systems and a betterchance of measuring ROI. Also, thoseorganizations vv-here the leadership andkey clinicians buy into the notion ofROI measurement should be candi-dates. If this isn't considered importantby key indi\iduals. then it's not likelylo happen.

CM: Tbe ability to work with phar-macy benefii managers and managedcare organization (MCO) claims data-bases provides a great opportunity tolook at the effects of communicatingilirecUy with patients about how tomanage their condition and create bct-icr outcomes. Paiients who understandhow to take care ol themselves arehealthier and end up costing the MCOless money This is particularly true inareas like diabetes and cardiovasculardisease where the cost of hospitaliza-tion can be very expensive to a healthplan. Educating the patient about tak-ing their medication and leading ahealthy lifestyle creates a win-win-winsituation—for the patient, the pharma-ceutical company and the health plan.

MHS: How can ROI be applied tolong-term objectives such as brandbuilding and image enhancement?

Good marketing ROI not onlyattempts to account for direct revenuefrom specific marketing efforts, but alsoincorporates the psychology of market-ing that drives consumer behavior overa period of time. In other words, weknow from almost every industry thatmarketing—and specifically advertis-ing—drives purchases. And that mar-keting starts at the point of awarenessand continues through to brand differ-entiation, brand loyalty etc. What'salways been the most difficult to meas-ure is how much and when that mar-keting is most effective. Marketing effi-ciency is more difficult to measure than

A CLOSER LOOK:

Sheb L. True

Sheb L True is an associate professor of marketing at

Kennesaw State University in Kennesaw, Georgia, teach-

ing exclusively in the KSU Executive MBA and Physician

Executive programs. He has served as the director of sev-

eral international programs and previously held academ-

ic positions at Loyola Marymount University and the University of West

Florida. He is currently the editor of tht Journal of Executive Education. He

may be reached at strue@coles2.kennesaw.edu.

effectiveness. We know marketing Iseffective. What we really want to knowis how to be more efficient with ourmarketing spending so we waste lessand get more for our money.

DM; This is really the place wherethe concept can be best applied andmeasured. Few healthcare marketinginitiatives drive short-term gains, butare more long-term in iheir orientation.The benefits of marketing should bemeasured in terms of how many con-sumers demonstrate top-of-mindawareness or how many legislators arewilling to support the organization onimportant issues.

CM: We have a saymg in our mar-keting agency that sales equals aware-ness. If we make someone aware ofyour product, that doesn't mean they'regoing to buy it. But if we can get some-one to buy it, we can guarantee they'reaware of it. Thus, marketing efforts thatencourage consumers to try a productor service should be given prece-dence—then, ihe awareness buildingcan proceed. Remember, we're lookingbeyond short-term gain to the lifetimevalue of the customer.

s I: As I noted above, these types ofoutcomes should be what are used tomeasure ROI in healthcare. There arejust too few situations where micro-level measurement makes sense. Butbrand building, image enhancement.

and top-of-mind awareness are resultsthat can be measured. Again, you havethe challenge of linkmg expenditures tothese results, but at least you can meas-ure one component of the equation,

MHS: Are there reasons why ROI onmarketing might not be the ultimatemeasure of marketing success in health-care?

it depends on how you defineROI again. If you limit it to the firstdefinition (dollars gained for dollarsspent), it may be a frustrating exercisewith little to shovi.' at the end of the day.If you broaden the discussion to sayROI mean5 a number of things (fromdirect revenue generation to brandbuilding), then ROI becomes moremeaningful,

DM In healthcare, marketingshould be seen as more akin to publicrelations than to the marketing thaicharacterizes consumer goods andother more tangible products. It's hardto measure ihe benefits of PR in dollarsand cents, and the same is true ofmuch healthcare marketing. However,what may be even more important—and less measurable—is the downsideof not impletnenting the marketingcampaign,

CM: Sometimes short-term ROI is abad measure of success. Building adatabase of prospects who are potentialcustomers for your products requires

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38

knowing who your customers andprospective customers are and thendelivering the right message to the rightperson at the right time. Sometimesthat doesn't pay out in a single quarteror even a single year. But, ultimately,marketers who know who their cus-tomers are and how to communicatewith them will be the winners over time,

ST: Given that most of the ROImeasurement assumptions don'i holdtrue in healthcare, traditional methodsfor ROI measurement aren't particularlyrelevant. Health professionals need lodetermine what factors are meaningfulto measure and then develop the sup-port systems for measuring them.Ultimately, these are going to be moreglobal indicators than service-specificmeasures.

MHS: Finally, what advice or directionwould you offer healthcare marketerstrying to measure ROI?

First, decide what you want toknow and how you plan to use theinformation. Measuring ROI for the sakeof measuring it isn't a good enough rea-son. The additional knowledge shouldbe used to improve marketing efforts,educate the organization, etc.

Engage senior management to deter-mine their concept of ROI, marketingeffectiveness, and marketing invest-

tnents. Also get them to specify whatthe real tangible goals for marketing arein their minds and what is it theywant/need to accomplish from a busi-ness perspective.

A lot of marketing plans are a laun-dry list of everything the organizationcan afford to do promotion wise—instead of a targeted list of activitiesmatched up with specific businessobjectives. The more aligned these are,the easier it will be to measure market-ings impact.

Get in the habit ol building trackingand measurement into every campaignor marketing activity in the planningstages before you actually implement.Ask how the activity will be tracked,what data you might need to measure,and what you'd do with the informa-tion if you had it.

Look at other healthcare facilitiesand note how they have measured cam-paigns and marketing efforts. Thisinformation is available through tradepublications, associations, award pro-grams, agencies and other consultants,and your own network ol prolessionals.

Build ROI reviews into your calen-dar so a couple of times a year youcarve out time specifically to discussmarketing ROI with olhers in theorganization, thereby making it part olyour priorities. Gonsider pay-for-per-formance models where you have an

A CLOSER LOOK:

Chuck McLeester

Chuck McLeester is responsible for strategic planning

and analysis for all Roska Direct pharmaceutical clients

including Pfizer, Procters Gamble Pharmaceuticals, Lilly,

BMS, Novo Nordisk, Aventis, and AstraZeneca, A 20-year

marketing veteran, he has developed measurement tools

and ROI models for online and offline marketing initia-

tives. McLeester is a frequent presenter for the Direct

Marketing Association, the Association for Interactive Marketing, and the

Philadelphia Direct Marketing Association. He may be reached at

cmcleester@roskadirect.com.

incentive to achieve some measurablegoals for marketing.

DM: Marketers should measure ROIfor single, specific efforts and situationswhere the measurement systems are rel-atively good and are up to the chal-lenge. We really need to think in termsof "global" ROI (for the total organiza-tion) in terms of awareness levels, pref-erence levels, image ratings, marketshare, referral volumes and sources,and patient satisfaction—all importantrneasures of the healthcare brand. All oithis should be thought through inadvance, and questions of how to trackresults, what time period is reasonable,whether to count mdirect as well asdirect impact, etc., should be addressedon the front end.

CM: In the pharmaceutical industryand much of healthcare, the investmentis relatively easy to measure. Us therevenue that's hard to measure. Itbecomes imperative to build in on thefront end the procedures for identifyingand quantifying revenue attributable tothe marketing effort. The closer one canget to the individual consumer (who'sbuying what and how much of it") thebetter the ability to measure ROI. On-line marketing holds great promise forthis approach.

•̂ !: Organizations ihai want to try tomeasure marketing ROI should put sys-tems into place to track the data need-ed to calculate ROI. They should alsoidentify the market segments they wantto impact and develop means of track-ing them.

It's also important to develop mecha-nisms for isolating the results from mar-keting efforts, whether in terms of dol-lars or more subjective measures such asimage. Marketers should take a longitu-dinal, meta-analysis approach thatallows the marketer to examine resultsover a period of time, isolate confound-ing variables, examine ROI from a mul-tidimensional perspective, and coordi-nate data collection efforts with otherdepartments and organizations. MHS

MHS Fall 2002