Yield Management – Just What the Doctor Ordered

Yield Management – Just What the Doctor Ordered

I once asked a doctor to imagine what the airline industry would be like without yield management practices. He quickly replied, “It’d be healthcare.”

Do you remember what booking a flight used to be like before Travelocity? I do. It was inefficient, ineffective, unreliable, and more costly. Kind of like scheduling a doctor’s appointment can be today, resulting in inefficient practices, frustrated providers, and ever decreasing revenue.

In a previous white paper from ThinkWell Consulting, we saw how American Airlines used yield management strategies to solve the out-of-control, post-deregulation airline industry of the 1980s and 90s and turn their own company around. Since then, hoteliers, car rental companies, cruise lines, and other inventory and data-dependent industries have followed their lead. The same can be done with healthcare.

Yield Management – the American Way

In the mid 1980s the airline industry was in a mess. Due to the federal government’s inability to properly manage the massive increase in commercial air travel that jet travel created, the industry was fraught with scheduling issues, production inefficiencies, high barriers for new airlines, monopolistic practices, and high ticket prices.

So the industry was deregulated in 1978, opening up a wide range of opportunities and challenges as more than 150 airlines came and went, unable to keep up with the competition and free market frenzy that ensued as well as manage their data, inventory, and revenue.

Robert Crandall, CEO and chairman of American Airlines, changed all that with his yield management strategy. It’s what he called “the single most important technical development in transportation management since we entered deregulation.” In essence, his goal was to sell the right seat to the right customer at the right price as a method of controlling and managing inventory in a way that maximized company profitability

And it worked. The year after American introduced Ultra Super Saver, revenue increased 14.5% and its profits were up 47.8%. Efficiency also increased as American’s yield management strategies accounted for inventory spoilage – unfilled seats – of only 3%, compared to industry averages of over 15%. By the mid-1990s, virtually all major airlines, rental car companies, hotels, and cruise lines had implemented revenue management practices to predict customer demand and optimize revenue.

Yield Management Goes to the Doctor

Now, I know waiting rooms aren’t airline terminal lobbies and pilots aren’t physicians, but there are similarities in both industries that make healthcare a perfect candidate for yield management application – especially on the scheduling side of things, which drives the train in this business.

First of all, both industries deal with a perishable product, whether it’s an airline seat or a block of time for a doctor appointment. So the challenge of eliminating “spoilage” is a priority. Once a flight has been flown or block of time has expired, there’s no retrieving it.

Both industries are also heavily data driven. Airline schedulers have to deal with times, dates, and destinations. Doctor office schedulers have the same issues with time, procedure types and priorities, and personnel. If this key data is mismanaged, so is your time, resources, and revenue.

The reason why this is so near and dear to me is that I used to work in the airline industry, where I held a variety of senior leadership roles in marketing, business strategy, and technology management at United Airlines and Sabre Holdings. I’m very familiar with yield management strategies and practices as I’ve seen them work effectively and efficiently on a first-hand basis.

In fact, that’s the philosophy that my business partner, Dr. Aaron Lloyd, and I used to start Opargo, LLC, a healthcare scheduling optimization company that uses yield management principles to help our customers realize as much as 25% operational cost savings while driving incremental revenue increase and putting physicians back in control of their practices.

By identifying appointment types, times, and tendencies and then booking them based on office priorities, practices can improve efficiency, maximize staff and resources, accelerate revenue, and provide patients greater quality care. Delivering solutions at the beginning of the process – at scheduling – allows greater control for providers in their practices and wider accessibility and improved care for patients.

This way, the right patient is seen by the right physician at the right time. Kind of like how Robert Crandall envisioned American Airlines handling flights.

In the 1980s, the airlines rose to the challenge that deregulation posed and adapted yield management practices to right a wayward industry which is now flying smoothly. Healthcare can do the same today.

 

 

Posted in: Business Practices