1. Use Data to Determinethe Patients to Seek in Your MarketOriginally 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 SloanSchool President, Healthcare Market Resourcesamarket intelligence company providingcustomized local market research for home healthagencies & 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 videosTHIS IS WHERE FORTUNES ARE MADE 5. WHAT IS BLUE OCEAN STRATEGY? Created by Professors W. Chan Kim & Renee Mauborgne,who are both professors at the INSEAD at Foutainbleau,Franceone of Europes top business schools. Theypublished their findings in a book-Blue Ocean Strategy:How to Create Uncontested Market Space and Make theCompetition Irrelevant. BOS is the result of a decade-long study of 150 strategicmoves spanning more than 30 industries over 100 years. The aim of BOS is NOT to out-perform the competition inyour market, but to create new market space or BlueOcean, thereby making competition irrelevant. BOS is a process with frameworks & tools, covering bothstrategy formulation and execution. 6. RED VS. BLUE OCEANRed Ocean StrategyBlue Ocean StrategyCompete in Existing MarketCreate Uncontested MarketSpace SpaceBeat the competitionMake the competition irrelevantExploit existing demand Create & capture new marketdemandMake the value-cost trade-off Break the value-cost trade-offAlign the whole system of Align the whole system ofcompanys activities with its companys activities in pursuit ofstrategic choice of differentiation differentiation & low costor low cost 7. Cirque du Soliel At the time of Cirque du Soliels debut, circusesappealed to children; business was in long-termdecline; lots of other formats, competing forchildrens 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 audiences attention 8. Cirque du Soliel Eliminated animal acts-lower costs intrainers/handlers, support personnel, transport,maintenance & liability insurance & less issueswith animal rights groups Moved to single ring format requiring fewer acts Clowns humor became more sophisticated, lessslapstick Experience became more theatrical with a storyline/theme which ran through the performance 9. Cirque du Soliel Event now appealed to adults, which meant that ticketprices could be higher Initially kept tent as performance venue, because of itstraditional circus imagery, but added creature comfort. Itdid 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 circuseshad 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 thoseelements which enabled it to deliver the entertainmentexperience it wanted. 10. CURVES Fitness market had two alternativeshome exerciseprograms & 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, lockerrooms & showers, juice bar, & possibly swimming pool & racquetsports 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 11. CURVES Found niche in-between both markets & tapped intowomen having difficulty keeping in shape through soundfitness These female non-athletes do not eyed by males whileexercising in their leotards Does not want to fiddle with equipment, becausesomeone physically larger and stronger preceded her onit. Less likely to lift weights Increasingly does not have 1-2 hrs. for a fitness routinePlaced equipment towards the middle of the space, notlined up in rows @ health clubs 12. CURVES Its Quickfit training system uses hydraulicexercise, which need no adjustment, are safe,simple to use & nonthreatening. Specificallydesigned 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 theservice that their customers want. 13. 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. innonprime suburban locations Franchises become profitable in a few months,while membership reaches 100. Franchises are now selling in the $100K-$150Krange 14. WHY BLUE OCEAN IN HOME CARE? Home health services are perceived as aCOMMODITY in the eyes of the buyers In some markets, the phrase VNA is used to refer toany home health agency Discharge planners have very little invested in thehome health referral once they leave their facility Are the benefits of switching worth the risk? 15. HOW BLOODY IS MY OCEAN? Competitive Market Metric Agencies/100K Medicare Patients by State 16. MARKET COMPETITIVENESSCALCULATION EXAMPLE There are 7 meaningful home health agencies in a 4county area with 22,000 Medicare patients Competitiveness factor = 7/2.2 or 3.2 There is a moderate level of competition in this market 17. RULE OF THREE Professors Sheth & Sisodia studied over the evolution of 200industries 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 linegeneralists, but weaker results for the specialists UNDERLYING ASSUMPTION: The more concentrated amarket is, the more difficult it is to gain market share 18. HOW BLOODY IS MY OCEAN? Market Concentration Metric based on Rule ofThree It infers prospects for future success. Once referral source have locked in a preference, itrequires a greater degree of differentiation to get theirattention and gain trial Referrals to captive agencies by parent organizationemployees are not a free market situation. 19. MARKET CONCENTRATION CALCULATION Segment market between facility-based/affiliatedagencies & 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 freestandingproviders If combined market share is above 65-70%, this is aconcentrated market This means that referral sources have locked in theiragencies and it will be very difficult to get trial, unless theagency can create a very meaningful difference. 20. MARKET CONCENTRATIONCALCULATION EXAMPLEAgency Episodes Overall MktFreestanding FreestandingShareMarket Mkt ShareMedical Ctr65032.5%Community35017.5%HospitalLocal VNA27513.75% 27527.5%Natl Chain22511.25% 22522.5%Independent1507.5% 12515.0%Regional Chain 22511.25% 22522.5% Mom & Pop 1256.25%10010.0%Overall Market Unconcentrated(63.8%); Freestanding Concentrated(72.5%) 21. HOW BLUE IS MY OCEAN Relative level of home health utilization can measurehow much growth opportunity there is in a market Home health utilization=Medicare Patients Served Medicare FFS Eligible 22. HOW BLUE IS MY OCEAN** Unweighted ***Weighted Utilization=Pts Served/Medicare FFS Eligible 23. IF IT HAS NEVER BEEN DONE IN YOUR SERVICE AREA,THEN IT IS A NEW MARKET SPACE 24. BLACK PENETRATION Black Penetration = % Black Discharges/% Black Population 25. ETHNIC/RACIAL FOCUS Compatible ethnic/racial ownership Racial/ethnic staff-both clinicians & office staff Language fluency Familiarity with diet & customs Relationship with ethnic/racial MDs Link to visiting MD/NP program Medical director Informal caregiver support volunteers/church groups 26. CHRONIC PATIENTSRe-cert Rate = (Episodes/Discharges)-1 27. 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 28. LOW VISION PROGRAMS Program to provide visual training to low-vision patientsalong suggestions of equipment & aids to make theirhome environment more livable. Patient is able to stay independent longer, enjoy betterquality of life and avoid injury Identified group of elderly patients with a need that werepreviously untapped-blue ocean of ophthalmology 12-15million patients 1. Macular Degeneration 4. Diabetes 2. Retinitis Pigmentosa 5. Glaucoma 3. Neurologic Disorders Serve non-homebound patients through Part B billing 29. MEDICARE HOSPITAL DISCHARGES Top 5 = RI, VT, MA, DE & NH Bottom 5 = PR, HI, WY, SD & MT 30. HOSPITAL REFERRAL OPPORTUNITY Top Performers to Natl Avg Comparison 31. MEDICARE HOSPITAL DISCHARGEBY SITE OPPORTUNITYSupervised = Home Care + Facility Top Performers = Median of 90th Percentile 32. REHAB W/O WALLS Program provides clinical resources at home indicative ofinpatient 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 usuallymeans younger patients; could be alternative under post-acute bundling National chain has sought out CARF accreditation to gaincredibility 33. 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 projectcompleted in 2011.SOLUTION: Front load therapy visit schedule to mirror SNF servicelevels 34. HOSPITAL RE-ADMISSIONS Hospitals, under Healthcare Reform Act, wouldpenalized for higher than permitted levels of re-admissions for their Medicare patients, starting2013 Blue Ocean opportunities include Lower level of discharges going home unsupervisedmost re-admission vulnerable population Sell telemonitoring program to hospitals for non- homebound patients 35. OBSERVATIONS Differentiating(red ocean) requires a tweaking ofoperations; blue ocean may require a whole newway of doing business-more risk for the agency. Having a referral source give you a new patient isless painful for them than giving you someone elsespatient. It is easier to get a referral sources attention talkingabout something new than trying to differentiateyourself from the pack. 36. RESOURCES Check out the following URLs www.blueoceanstrategy.com www.filestube.com/aa312b511a928a9903ea/go.html www.thenext.ca/files/read-blue-ocean-strategy.pdf 37. ACTION PLAN Gain management agreement to assess Blue OceanStrategy approach Determine if Blue Ocean Strategy opportunityexists Examine individual Blue Ocean StrategysituationsPlagiarize Select approach and modify agency operations todeliver service Identify buyers of new service & solicit trial 38. CONCLUSIONS Blue Ocean Strategy is an alternativeapproach to growing your agencys revenue. It requires a complete commitment, upfrontinvestment and willingness to take a risk. It should only be employed after a thoroughanalysis of your market and a carefuldevelopment of a well-thought out plan. 39. CONTACT INFORMATIONRich ChesneyPresident, Healthcare Market Resourcesrchesney@healthmr.com215.657.7373215.657.0395(f)www.healthmr.com