Healthcare Facilities

Understanding the lifetime value of your patients

Physician and patient developing a relationship that has patient lifetime value

More than ever, building long-term relationships with patients is vitally important. A positive relationship can make the difference between a one-time visit and a decades-long connection. When you fully understand the lifetime value of your patients, it becomes clear why it’s so important to foster positive patient experiences — and grow your organization’s bottom line.

“Ensuring that patients feel confident that they’re getting the best care, that it is safe, and that they can trust the caregivers and the employees that are seeing them — this has a direct impact on the ongoing profitability of healthcare organizations,” explains Patty Riskind, head of global healthcare for Qualtrics, an experience management platform that helps organizations measure patient experience, as well as employee and provider experience.

Calculating patient lifetime value

You can put an actual number on the lifetime value of your patients, says Riskind. While the total for one year may not look very impressive, when you project five, 10, or 25 years into the future, you begin to see the true lifetime value of each patient.

To determine the lifetime value of a patient, first determine the gross annual profit margin for an average patient by subtracting care and administrative costs from reimbursement utilization. Now, multiply that figure by the number of years of the patient relationship. Finally, subtract any patient acquisition costs.

Patient lifetime value formula

Formula courtesy of Qualtrics (click to expand chart)

Let’s break down the equation to see how each part affects patient lifetime value:

Years of patient relationship

Understandably, the longer a patient has a relationship with your institution, the more value they bring. “From a revenue generation perspective, it’s a big deal,” says Riskind. “Oftentimes, the delivery of a baby is the first encounter that many people have with a healthcare system. That can trigger a 20-plus year relationship, even a 50-year relationship, with an institution.”

Positive experience: Creating a positive experience for patients can build loyalty to the healthcare system, which can in turn lead to increased utilization and word-of-mouth advertising. Riskind says, “You might be having just one initial encounter with this person, but over their lifetime, this person could mean a lot to an organization’s bottom line.”

Patient retention rate: “What percentage of your patients will be using your services next year or 10 years from now?” asks Riskind. “The higher that retention rate, the bigger the impact on your patient’s lifetime value. Measuring the patient retention rate is key because knowing that rate will help you understand how much effort you’ll need to put into improving patient experience.”

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Gross margin per year

Of course, retaining patients is only part of the equation. When it comes to gross margin, “you’re looking at both how much revenue generation can come from repeat or continuous utilization over time, and identification of those areas where there could be cost savings,” says Riskind.

The total gross margin per year can be determined by subtracting care and administrative costs from reimbursement utilization: Reimbursements – (Care + administrative costs) = Total gross margin per year

Equation for finding total gross margin

Revenue: Let’s look at revenue sources first. This money comes from increased utilization – which can come from population or system growth as well as patient loyalty – and reimbursements. Notably, patient satisfaction scores, such as from the HCAHPS survey, can affect reimbursement rates. “So the patience experience piece on the revenue front is really critical,” says Riskind.

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Service costs: Learning about your patients’ experience can help reduce costs, says Riskind. It “uncovers redundancies and bureaucracy and things that would frustrate a patient, which is a way for hospitals to focus on where they can make improvements,” she continues. It could include uncovering bottlenecks or increasing efficiencies.

Cost of acquisition

The final piece of the equation is factoring in costs related to patient acquisition, such as marketing campaigns or community outreach. Again, patient experience impacts this number as well, says Riskind. “A patient tends to tell people if they’ve had a negative experience. They’ll tell many people about a positive experience, but they tell even more people about a negative one,” says Riskind.

How patient experience impacts the bottom line

It’s a simple connection: Positive patient experience leads to longer patient relationships. Additionally, happy patients will spread the word to their family and friends.

“When you look at the lifetime value of a patient, experience makes all the difference in the world,” says Kristin Baird, president, and CEO of The Baird Group, a consulting company that helps make healthcare better for both patients and the people who serve them. “Experience is a retention strategy. When the experience is good, they’re not only going to return, but they’re also going to talk very positively about it. So, you want to make sure that you’re creating an experience that will not just fail to offend people but really wows them into saying, ‘I trust them. I wouldn’t go anywhere else.’”

Measuring patient experience can also reveal opportunities for streamlining care and reducing costs. “In terms of quality and outcomes, the ability to better understand the patient’s perception will ultimately impact how care is delivered,” Riskind explains. “On the cost front, oftentimes patient experience uncovers redundancies and things that would frustrate a patient.”

Patty Riskind quote about patient experience

Focusing on these redundancies and frustrations enables healthcare organizations to address bottlenecks and make throughput more effective and efficient. “You can use this to grow market share, to cut costs, to really have an impact on the viability and profitability of your business,” Riskind says.

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Focus on the digital patient experience

The pandemic greatly accelerated a shift to telehealth appointments for all kinds of patient needs, and while utilization has declined from its peak, many institutions and specialties are still leaning into virtual care. “Almost every hospital or health system right now realizes that virtual care has to be a key part of their ongoing digital strategy going forward,” says Matt Brown, VP of telehealth at CHG Healthcare.

When working to improve the patient experience, organizations need to consider the overall digital experience of their patients as well — everything from email interaction to virtual check-in apps.

“One of the things that gets lost in some of the telehealth dialogue is creating the right type of patient experience so the patients actually want to engage with telehealth,” says Brown. “It’s critical that everyone who is going into the telehealth market take the right steps and look at it from a pure patient perspective.”

Matt Brown quote on telehealth

Maximize patient lifetime value by maximizing patient experience

Patient experience feedback can enable you to make changes in the moment, so the next patient has a better experience. “The intent is to create a mechanism that empowers continuous improvement and continuous change,” Riskind says. For healthcare leaders seeking to strengthen their organizations, it’s critical to double down on measuring and improving patient experience to build long-lasting patient relationships. 

Weatherby Healthcare has the locum tenens physicians and advanced practice providers to help you deliver a great patient experience. Give us a call at 954.343.3050 to request a consultation.

About the author

Heather Stewart

Heather Stewart is a journalist who frequently covers issues and trends in the healthcare industry.