17
Mary Jane Griffith
Nicholas Baloff
The complex start-up effect on utilization of
health care services « too often overlooked or
underestimated tsy marketing planners, lead-
ing to a range of negative consequences for
txith the users of services and ttie provider
organization. Start-up analysis allows accurate
estimation of these utilization effects for coordi-
nated strategic planning among marketing, fi-
nance, and operations
Mary Jane Griffith received the Ph D. from
Washington University and is Assstant Profes-
sor of Health AdmimsJration in the Health Ad-
miniSration Program at Washington University
School of Medicine in St. Louis, Missouri. Dr
Griffith's articles have appeared in this purnal
as well as in The Joumal of Ambulatory Care
Management, fi^edical Group Management,
Medical Care and Health Sen/ices Research
Nfchotea B a l ^ received the Ph.D. from Stan-
ford Univeraty. He is Professor of Business
and Public Administration in the Graduate
School of Business Administration at
Washington University in St Loms, Missouri.
Dr. Baloff has authored articles which have
appeared in The Joumal of AmtMlatory Care
Management, Medical Group Management,
hAedical Care, Health Services Research, Dea-
sion Sciences, Operations flesearc/) and Ad-
ministrative Scienoe Quarterly
JoumriofHa
Vol. 4, Ptgu 3 <SiinmMr, 1984), pp. 17-26
START-UP ANALYSIS
FOR MARKETING
STRATEGY*
iNTRODUCTiON
Health care managers and planners have become increasingly so-
phisticated in the application of the analytical tools of marketing (Cooper,
1979; MacStravic, 1977; Rubright and MacDonald, 1981; Mackie and
Decker, 1981; Shouldice and Shouldice, 1978). Notable examples
include the application of such concepts as market segmentation and
targeting, pricing and promotion (Hadelman, 1979; Devita and Pear-
son, 1982; Akaah and Becherer, 1983; MacStravic, 1982). Much work
remains to be done in a variety of important topics, however, such as
demand forecasting and demand management. There appears to be a
need to pay additional attention to the systematic projection of demand
for health care services, along with the matching of capacity arid
"inventories" to meet demand (Kotler, 1983; Hughes, 1973). The ex-
ploration of one important component of this problem related to the
"start-up" effect is a primary objective of this paper.
This "start-up" effect in the utilization of health care services has
received increasing attention recently (Griffith and Baloff, 198t; Baloff
and Griffith, 1982; Dowd and Kralewski, 1982; Sorensen and Wersinger,
1982). It is a phenomenon in which new enrollees in a prepaid health
care plan initially have a high rate of utilization of the plan's services
which tends to decrease over time to a lower rate, or "steady-state" level
of utilization. The evidence generally suggests that this phenomenon
results from a combination of causes involving both the new subscribers
and the health care plan itself. New subscribers tend to utilize services
more frequently as they explore and test the plan's benefits, and un-
dergo diagnosis of and treatment for preexisting illness. The provider
organization contributes to greater utilization generally by encouraging
initial checkups to compile a baseline profile, collecting administrative
information and initiating early patient education. The "steady-state"
lower utilization rate is approached as the members become acquainted
with the plan, providers' baseline data gathering is completed and
illnesses of members are treated.
Although it has received considerable recent attention in the utilization
literature, start-up analysis has not yet been introduced as a planning
tool. Yet, it clearly has important implications for marketing strategy and
•The authors wouW like to thank Medical Care Group of St Louis, the Division of Health Care
Research of the Washington University Sdiool of Medicine, and the Henry J. Kaiser Family
Foundation for the data used in this study.
 18
managerial planning because start-up)s can cause sig-
nificant variability in the demand for services of the
provicjer cxganization as new groups of subscribers
enter the plan. Such variability can result in substantial
and impcirtant imbalance between service dennand
and operating capacity, a subject that has been treated
widely in the marketing literature (Sohewe and Smith,
1983; Hughes, 1973; Kotter, 1983; Chambers et al,,
1974).' Start-up analysis can help health care marketers
develop a plan for growth that vM minimize such imbal-
ances and hence improve organizational effectiveness
and effidency.
START-UP ANALYSIS
To date, the start-up effect has been examined in a
number of health maintenance organizations (HMOs)
(Avnet, 1967; Griffith and Baloff, 1981; Robertson, 1972;
Shragg et al,, 1973; Sparer and Anderson, 1973), and
the effects of start-ups also have been extrapolated to
ambulatory care settings in general (Baloff and Griffith,
1982). The importance of start-up analysis for market-
ing, however, has received little attention.
To illustrate the importance and relevance of the start-
up effect fcx marketing in health care organizations, the
fcjilowing exampte shows the size, duration and perva-
siven^s of the start-up effect in an HMO that is fairty
typical in terms of size, age, location and services p r o
vided.^ Figure 1 shows the start-up effect in relation^ip
to the average quarterty provide" visits ova- five years
from the tinne of enrollnnent for new memtaers. The curve
shown in this figure was determined by regression anal-
'Hospitals, however, are faced with a different situation, since revenues are
based predominantly on costs, lx>spitals are ncK penalized for having slack
capacity, or ""fat," to meet potential surges in demand
Under prospective payment, hospitals are becoming much nnore con-
cerned with issues related to excess operating costs But, to the degree to
which start-up demand is caused by a health plan gathering baseline data
and doing preventive exams on a captive population, and by the enrodee
explonng benefits, they will not be a significant concern for hospitals in
bajanang capacity with demand.
example was drawn from a study of start-ups at the Medical Care
Group of St. LoUs, Missoun (MCGSL), a dosed-pariel prepaid group prac-
tice. The plan began in 1969 and has grown to a current enrollnwnt of
30,000, Plan members normally enroll through their employers wfio contract
witti MCGSL for services. The large number of employers (160) of (Afferent
size and nature (business, governrrterA, education, etc.), has resUtted in a
memberstvp of broad socioeconomic composition.
The utilization data upon wf>ich this study is based were drawn from the
outpatient encounter fHe at MCGSL for the five-year period frcxn 1973 to
1977. This file includes aN outp^iert encourt^s, dagnoss, procedures
pwformed and attendng provider. Other delate of this application and tfie
pr^jaid medical group plan itsetf can be found in Griffith and Baloff, 1981,
ysis of the data according to this start-up model:
U = c -H a/e"
in which " U " is utilization, " t " is tinne,^ " c " is steady-state
utilization, and " a " and " b " are nncxjel parameters.*
The results of fitting the utilization data to the mcxdel
are presented in Tabte 1. The relati\^y large R^ values
indicate the reasonably gocxJ fit, Tabte 1 also shows that
the utilization of provider visits began, in Ouarter 1, at
141 % of the steady-state tevel. By the fourth quarter, this
utilization had decreased to 119% of steady state. By
the end of the secx)nd year, provider visits had dropped
further to 107% of the steady-s*ate level. Figure 1 illus-
trates graphically this pattern.
The utilization of laboratory tests in this example is
even more strongly affected by the start-up phenome-
non. Figure 2 shows the curve of this start-up. As Table 1
indicates, utilization of laboratory tests begins at 2 3 1 %
of the steady-siate value. By the end of the first year,
laboratory tests had dropped to 113% of steady state.
By the end of the seccxicj year it is only 1 % above its
steady-state level.
The start-up analysis in this example has thus far
considered the average effec:ts for the total population.
Different subpopulations in this study, however, exhi-
bited different utilization patterns from one another, Male
and female utilization rates of provider visits are shown
in Figure 3, and those of two different employer groups
are shown in Figure 4. Female utilization began at a
quarterty visit rate abcxjt .2 higher than that of males,
and decreased to a steady-state level about ,3 quarterly
viats higher than that of males. Similarty, plan enrollees
working for Employer I began at a rate about .15 quar-
terty visits higher than that of those with Employer II, and
Employer I enrollees began with a utilization rate doser
to their steady-state \ ^ u e and approac^ied it more
quickly than was the case with Emptoyer II enrollees.
The sex and employer of enrollees are only two of
several variables that have been shown to be important
in determining the extent of the start-up effect. Other
variables shown to affect a start-up indude the enrcdiee's
'Time is measured in querters beginning with the first fuH quarter of memtDer-
ship.
*At t » 0, U = a-»-c, b IS obviously an elemert erf the r ^ of reduction in U. The
siGpe is abe" Suice b is negative in our example, as t becomes l^ge, U
tends toward c, the steady state.
JHCM, VW. 4, No. 3(8uramM-. iflftQ
 19

TABLE 1
Parameter Estimates and Volume of Start-up Utilization

Percent of Start-up
Dmnand to StMKly-
Parameter Valuee State CflfMcity
Quarter Chiarter Chiarter
a b c 1 4 8
Total Population
107

CD CO
Provider Visits .640 .259 .939 .864 141
Laboratory Tests 3.997 111 .644 .970 231 101

Provider Visits
Female .571 .236 1.095 .786 133 116 106
Male .703 .271 .766 .865 154 124 108

Empbyer I 1.000 .174 .897 .897 179 147 124

Employer II 1.030 .158 .719 .769 204 165 135

income level, age, and education level.= The example
given here is fairly typical in terms of the range and
complexity of the start-up effect.
STRATEGIC IMPLICATIONS OF START-UPS
The large start-up effects illustrated in the preceding
paragraphs can have substantial implications for
marketing strategy. In past experiences, it has been
shown that planners may often ignore or grossly under-
estimate the start-up effect when projecting the demand
for services of a health plan, generally assuming de-
mand levels substantially below t h o ^ that may actually
tDe experienced during the start-up. This will happen, for
instance, when planners base their projections on data
from wdl-estaWished organizations or from govemment
publicaticxis (Boston Ctonsulting Grcxjp, 1973; U.S. De-
partment of Health, Education a r d Welfare, 1973). Be-
cause such cteta usually reflect demands for provider
visits doser to steady-state levels, the estimates of plan-
f a new organizations can be much too low be-
5These cHfefences by employer gro^K and sotaoecononnc characteristics
can, of course, be iniporiant in estimating tfie demand charactenSics for
different subpopUafons to be served. Both ttie amount of services as weH as
the type (gynecologic^, maternity, old-age reteted conditions) coiid be
ar^apated. T}«s andctpation for services, in tum, translates mto specific
needs for the supply of different resources, from persorwid and eqiipment
tofactities.
cause the start-up effects have not been considered.
Such planning errors can result in a variety of conse^
quences for capacity requirements and the financial
needs of the organization. These consequences are
explored in the following section.
To illustrate the magnitude of the errors that can result
from overlooking the start-up effect when projecting
demand levels, one can consider the situation with a
new HMO plan. This new organization wishes to grow
as rapidly as possible and projects the enrollment of four
separate employer groups in its first year. The specific
projections are as follows: A group of 500 enrollees is to
be added on the first of January, a second group of 500
on the first of March, a third group of 200 on the first of
June, and a group of 800 on the first of November, for a
total of 2000 new enrollees during the year. These
numbers, although hypothetical, reflect a pattern of
enrollment similar to several actual instances we YISNB
encountered in practice.
For this illustration, assunne that marteting, service
capacity and financial planning were all based on
published repots of the number of provider visits uti-
lized at, for instance, the Oregon region of the Kaiser
Ran (Luft, 1981) or the very similar numbers seen to
occur in the steady-state level of the earlier example
(see Table 1 and Figure 1). Because of the reliance on
these e^mates, the planners of tfiis new HMO do net
calculate the higher d«nand for provider visits asso-

StHMIpAmlyitofor
 20
PmMer Utiiization Rate
1.50
1.25
rider Visi
I 100
^ • ^
0.75
4 8 12 16 20
Membership Duration (quarters)
dated with start-up, thereby committing a major plan-
ning error.
The magnitude of this potential error f a this new
HMO example is shown in Figure 5, which plots pro-
vider visits over tinne as the four new groups enroll
during the first year of operation. The solid line, indica-
ting the "start-up dennand" for provider visits, begins
high in January and slowly drops until the next group
enrolls in March. It then jumps dramatically before be-
ginning another slow drop, and so on. Compared to this
start-up demand are two estimates of "steady-state
sen/ice capacity," one based on Kaiser Plan values
(dotted line) and the other based on anticipated steady-
state values for this new HMO (dashed line). These two
Ktimates are very similar; f a simplicity in analyzing this
example, we will consider the data f a steady-state val-
ues. TheCTOss-hatchedarea in the figure indicate the
difference between "start-up demand" and the
"steady-state service capadty" and, thus, shows the
magnitude of the planning erra f a this example.
Table 2 gives the values f a the "start-up demand,"
Figure 2
i-aboratory Utiiization Rate
versus iMe»nbership Duration
L
g
Laboratory Tests
. s s s
1 1 1 1 1 1 1 1 1
4 8 12 16 20
Membership Duration (quarters)
the "steady-state service capacity" and the difference,
or "deficit." In January, the start-up demand is 244
visits, compared to the steady-state service capacity
estimate of 156, leading to a deficit of 88 visits in the first
month. Over the first two months, the start-up demand is
a total of 481 visits compared to the estimate of 312
visits, giving a cumulative deficit of 169 provider visits,
which is roughly 50% more than the number estimated.
As Table 2 shows, the cumulative difference between
the start-up demand and the steady-state service ca-
padty continues to increase in absolute numbers
throughout the year, from 331 provider visits by the end
of March to 615 by the end of May, to 1,752 by the end
of December F a the year as a whole, the total start-up
demand is approximately 30% higher than the total
steady-^te service capadty. The cumulative effect of
this planning error is noteworthy and can disrupt
marketing, operations and finandal planning in many
ways.
In addition to this planning erra in provider visits, the
start-up demand also has effects on personnel, equip-
ment and fadlities. To illustrate one of t h ^ e additional
effects. Figure 6 shows the start-up effect on the utiliza-
tion of laboratory tests f a this new HMO example. Here,
the cumulative difference between the start-up demand
JHCM, VM. 4. No. 3 (Summr, 1984)
 21

Figure 3 Figure 4
Utiiization Rate by Sex Utiiization Rate by Empioyer Group
versus tM^nijersiiip [kiration versus iMemberstiip Duration

1.75 •

1.50

1.50
1.25
•
Provider Visi

VovicJer Visits
Female
"

V
\

Cn
k)
\ ^ ^ Emplayar I
Male
1.00
0.75 •

L 4 8 12
1 1

16
1 1

20
^ s , . , ^ Employer I

Membership Duration (quarters)

0.75, • ^ ^ . ,

and the steady-state service capacity is even more
dramatic than with provider visits. During the first month,
the start-up demand for laboratay tests is nearly five
times the steady-state service capacity The demand in
May is nearly three times the capadty value, and by the
end of the year the defidt tests alone were approxi-
mately 6 0 % greater than the total capacity estimated for
the year.
As was seen in the previous section, the start-up
pattern for x-rays is similar to that for laboratory tests;
therefore, a pattern similar to that shown in Figure 6 also
could be expected. Indeed, one would expect that the
start-up demand for most types of personnel and equip-
ment would show the start-up effect in terms of higher
rates of utilization. The size of the effect would probably
vary subSantially amaig different activities, but the en-
tire organization (staff, equipment, the fadlity as a whole)
is likely to be affected to some degree by the start-up. If
planners and marketers do not explicitly recognize and
accurately estimate the extent of the start-up effect,
large errors may oaxjr that lead to important conse-
quence.
4 8 12 16 20
Membership Duration (quarters)
CONSEQUENCES OF iGNORiNG THE
START-UP EFFECT
The consequences resulting from estimating errors
will vary depending on the magnitude of the start-up
effect which will vary among different organizations as
well as on the organizational response to the effect, the
organization's corrective actions taken to reduce the
effect and the timing of these actions. Because of these
factors, it is difficult to generalize about the axise-
quences for all organizations. Based on experience,
however, the authws present several basic types of
consequences that may occur. The following discussion
considers: (1) the consequences that may occur if the
marketing plan of an organization Oike the new HMO
example in the preceding section) fails to antidpate the
start-up effect; (2) a more prudent marketing plan that
attempts to be prepared for the start-up effect but does
not explidtly base estinnates on start-up analysis; and (3)
a plan that acknowledges the start-up effect but rather

Start4lp Anriysia for Itarfothig Kralagy

 22
New HMO Example: Pmvider Visit Start-up
Demand versus Capacities
800
.?600 Slarl-up Demond
Jon
I 1 1—I 1—I 1 1
Ftb Mof April Mar June July Aug S*pl Ocl Nov Dec
than explicitly analyzing it simply adds ^ack resources
throughout the organization to avoid all possible short-
ages.
In the first case, assume that the marketing plan
provides little or no slack above steady-state service
capacity in terms of staff, equipment, or facilities. Such a
situation might result if the organization's financial re-
sources are inadequate to provide slack, if staff is in
short supply, or if management simply does not plan
operations carefully In this case, the organization will
experience the full brunt of the planning errors illustrated
in the previous section. The demand for many, or all,
aspects of care for new enrollees will be subdantially
greater than the organization's ability to provide it from
the first nnonth of operation onward. And, the cumulative
"unmet demand" will increase rapidly and steadily un-
less axrective action is taken. This cumulative effect can
be seen in Figure 7.
Because of the failure in planning, the aganization in
question is forced t y the immediate situation to tate an
expedient approach to ccxrective action. Generally
such approaches involve tactics in three areas: (1) re-
^riction of demarxj; (2) short-run increases in service
capadty; and (3) cancellation or postponement of
marketing plans to bring in new enrdlees.
Thefirstexpedient is simply to ctefer demarKi through
administrative procedures such as »«iting periods ior
New HMO Exampto: L^ioratory Test Start-up
Demand and Steady-State Capacity
1
m
Steady Stol* Gipocity
I . I .1. I I. I—I——I—h
Jo<i Feb Mac April May Jime J.lr Aug Sept Ocl N o . Dec
Months
appointments or postponing initial health checkups for
preventive care and baseline data gathering. Such tac-
tics, if aggressively used, can indeed defer or even
permanently reduce demand for services, but only
along with negative ccMisequences. An obvious conse-
quence is consumer dissatisfaction which can have an
obvious long-range effect on the plan's reputation. A
second consequence is a lowering of the overall quality
of care, including increasing the risks associated with
postponing the treatment of illness that would othenwse
have been diagnosed earlier and treated with the initial
checkup. A third consequence is the compromising of
the plan's basic preventive care objective.
Consumer dissatisfaction, in additicxi to threatening
the plan's reputation, is wid^y believed to lead to higher
than necessary rates of disenrdlment fran health ii^ns.
For a new cwganization that is struggling to inaease its
nnembership, disenrollment can have serious conse-
quences. Each member lost because of dissatisfaction
has to be repiaced with a new member, and if there are
too many dissattsfi^ enrollees, an entire employer
group may leavettieplan. FurthwrTK)re, the true costs of
(jsenrollment are g^ierally urKJerestvng^ed because
they are considered to be merely the aAnir^ratiw arxj
marketing coste of replacing the pa-son. Such costs are
an understalaTtent of the true cost, howev^, because
JHCM. VW. 4, No. 3 (

Figure 7
New HMO Exampie: Cumulative Start-up
Demand and Steady-State Capacity
6000
0*^—I—I—^ i 1
F*b Mar April MOT JWW July Aug S«>t Oct
Months
each new replacennent goes through a start-up and the
plan must absab the higher c o ^ of a second start-up.
In another study, it is demonstrated that this start-up
expense can be over $100 f a the first year f a each
member (Baloff and Griffith, 1984). Thus, the aganiza-
tion could incur an additional opaating expense of as
much as $10,000 by repladng 100 nnembers. In all, the
tactic of pc»tpOTiing a deferring demand can have
serious caisequenc^ f a the health status of the mem-
bers and f a the operating expenses and basic objec-
tives of the plan.
The second expedient, a tempaary i n a e a ^ in the
aganizabon's service capadty usually involves \he reg-
ular staff working overtime, an expanded workweek,
adding part-time personnel, subcontracting sane serv-
ices and other such means. In additiai to the increased
cc^ts, th^e are other caisequerKses which must be
consictered. First, even with i n o ^ s ^ servk^e capadty,
it is rardy pebble to SK^hieve suffka^Tt (xip»3ty to make
up f a the size of tfw d^dts se&^ earfia- in the HMO
example, and the prcAtem, to an extent, ranans. Sec-
ond, effats such ^ these to exparxj the plan's capadty
23
tend to ha\« a denrraralizing effect on professional staff,
which can lead to lower performance and lower quality
health care f a the members as well as higher operating
costs. Danaalizatiai can also lead to inaeased em-
ployee turnover which can further inaease the service
capadty problem, lessen cost-effidency, and threaten
the prfan's reputation.
The third expedient is to nrKxJify the aganization's
aiginal marketing plan, usually by deferring the enroll-
ment of new groups of members. This approach can
also have obvious detrinr^ntal consequence. First, em-
ployer groups whose enrollments have been delayed
may simply choose to join a different plan rather than
wait. In such a case, marketing efforts would have to be
duplicated at a considerable cost in both finandal re-
sources and maale, ard the reputation of the plan in
the community may suffer permanently Second, this
approach may prove finandaJly infeasiWe because the
aganization's finandal plans necessitate a certain pro-
ject revenue, making it difficult a impossible to post-
pone new enrollment.
Clearly, correction of any of the above three expe-
dients is not a desirable action to take in an effort to
1 1-
f4ev D« carect the mistake of having overlooked the start-up
effect in initial planning estimates. Even if such expe-
dients are used, not many new plans could absab all
the possible consequences and survive.
In the second type of situation, a mae prudent
marketing plan might attempt to avoid the needs f a
such expedients by induding sane slack capadty
during periods of rapid enrollment. In other wads, even
though planners have not explidtly analyzed the start-
up effect, they implidtly acknowledge it and provide
some capadty slack as a means to deal with it. Rardy,
however, is this an effective solution simprfy because
management in such cases is unable to knew how
much slack is enough, how much of what particular
resources require slack (e.g., the number of phyadans,
x-ray tedinidans, and administrative staff and the
anrraunt of equipment and fadlities) and how the in-
creased demand will vary from maith to month. Without
e^mates provided by start-up analyas, management
mu^ amply guess the extent of additional resource
needed throughout the entire plan over time. Not only
will there most lik^y be shortages in sonro areas, and
excesses in others, but the extent and location of both
shortages and excesses may change over time as new
groups are added, a as other groups move down their
start-up curves. Moreover, because, with such gtess-
work, shortages are likdy in some areas, management
 24

TABLE 2
NewHiMO Exampie: Effects of Start-ups Over the Rrst Year of Operation

Total Steady-State Cumuiative

Number of Start-up Servl^ Deficit Deficit
Month Enrollees Demand Capacitv Visits Visits
Provider Visits

Jan 500 244 156 88 88

Feb 500 237 156 81 169
Mar 1000 475 313 162 331
Apr 1000 461 313 148 479
May 1000 449 313 136 615
June 1200 535 376 159 774
July 1200 522 376 146 920
Aug 1200 509 376 133 1053
Sept 1200 498 376 122 1175
Oct 1200 488 376 112 1287
Nov 2000 869 626 243 1530
Dec 2000 848 626 222 1752

Laboratory Tests

Jan 500 504 107 397 397

Feb 500 414 107 307 704
Mar 1000 848 215 633 1337
Apr 1000 703 215 488 1825
May 1000 592 215 377 2202
June 1200 708 244 464 2666
July 1200 605 244 361 3027
Aug 1200 526 244 282 3309
Sept 1200 464 244 220 3529
Oct 1200 417 244 173 3702
Nov 2000 1188 429 759 4461
Dec 2000 1015 429 586 5047

is still faced with some immediate needs f a corrective
action and may have to use one or more of the expe-
dients discussed above.
In the third and final type of situation, some planners
may foresee shortages and. without significant start-up
estimates, may simply add sufficient slack resources in
all areas of capadty to ensure avoiding all cxjnceivable
shortages. In such a case, the likely result is a substan-
tial amount of unused resources and therefae in-
creased operating costs. Some staff will be busy while
others will not; a^ne parts of the fadlity and some
ec|uipment will be idle. The resulting degree of ineffi-
ciency depends, of course, on management's ability to
guess how much increased capadty will be required in
all phases of the operation and to adjust this capacity
continually over time. Obviously, however, the potential
for error in this kind of guesswork is great because of the
dynamic complexity of start-ups and the number of
variables involved, as seen in the earlier examples.
In all three of the above scenarios, not planning for the
start-up effect or simply guessing its effects can lead to
significant consequences in one or more key functions:
marketing, operations and finance. As these scenarios
show, once the en^as have already led to a defidt
between start-up demand and capadty levels, none of
the expedients for corrective action is either desirable or
likely to be truly effective.

JHCM, Vol. 4, No. 3 (Siminwr, 1984)


USING START-UP ANALYSIS
FOR STRATEGIC PLANNING
Rather than guesswork, the use of start-up analysis is
recommended as the basis for coordinated strategic
planning among marketing, finance and operations.
Start-up analysis, based on the start-up model, can
provide a more accurate estimate of the actual demand
over time as new enrollee groups are added and move
through their individual start-ups. Start-up analysis can
provide estimates of the demand for the full range of
services, and these estimates can then be translated
into the needed supply of various resources including all
categories of personnel, types of equipment and facility
requirements. Start-up analysis can also indicate how
the demand for different types of services can vary in
volume according to the variables in the different so-
cioeconomic status of enrollees. On the basis of these
data, marketers can evaluate the volumes and types of
services demanded that might be associated with dif-
ferent employer groups having different socioeconomic
profiles.
Therefore, start-up estimates are a logical and practi-
cal basis for beginning the integrated and dynamic
planning among marketing, operations and finance that
most organizations require. Using these estimates, plan-
ners can develop alternate ways of balancing supply
with demand for planned services and can begin evalu-
ating the consequences of each of the potential solu-
tions over time. This planning process usually involves a
careful balancing of alternative marketing enrollment
strategies against possible capadty expansion alterna-
tives. For example, marketing may be asked to develop
alternative enrollment strategies directed towards
achieving different patterns of enrolling new groups
according to variations in the size of groups as well as
perhaps their socioeconomic composition. On the other
hand, operations may be challenged to develop alterna-
tive capacity expansion plans that can accommodate
different patterns of enrollment over time. All of these
alternative planning approaches will have to be evalu-
ated in terms of the costs of providing care, the conse-
quences f a the members' health care, any possible
resulting consumer dissatisfaction, the health plan's
competition and a host of other factors.
Because of the number of variables involved, it is
impossible to judge how such decisions should be
made from plan to plan. In most cases, however, it is
believed that start-up analysis will demonstrate the prob-
lems inherent in the too rapid and haphazard addition of
new groups, and thus avoid the need for carective
» a r t 4 ^ Anirtysls tor Mwtiating Siratagy
25
action which has been necessary for a number of new
plans (Harrison and Kimbehy, 1982). In some of these
cases, new groups of enrollees were added on top of
one another over relatively short periods of time with little
planning to cope with the cumulative capacity problems
of start-ups (as demonstrated in the new HMO example
earlier). Such compounding of start-up curves for dif-
ferent groups could easily result in periods of intense
over-capadty demands on operations, followed by pe-
riods of excessive slack and inefficient resource use.
Thus far, this pafDer has addressed the start-up effect
as a potential cause of problems for new and rapidly
growing plans. Yet, start-ups are agnificant also for older
and more stable plans, though their impact may be
much less dramatic than was seen with new organiza-
tions. The start-up effect on major areas such as market-
ing and financial planning may be blunted through the
natural "averaging" of new enrollee groups, with the
existing membership which is at steady-state utilization
rates. But, start-ups still can significantly infiuence the
utilization of specific resources more heavily employed
with new enrollees, such as x-rays, laboratory tests and
administrative procedures in ways that should be esti-
mated and addressed by marketing and resource plan-
ners. Differences in the sodoeconomic composition of
new groups may also affect the use of specific services.
For example, if a group of young members is brought
into an older, more stable health plan, there may be
large increases in the demand for such services as
maternity and pediatric care that previously had a low
steady-state utilization. Marketers should evaluate a
number of such potential relationships between the
sodoeconomic composition of new groups and the
types of services they might use. In addition, the types
of services demanded by new enrollees, such as pre-
ventive care services, are typically different from those
used by older enrollees, possibly with an unforeseen
impact on capadty and staffing dedsions relating to
such resources. If start-up analysis is not used for plan-
ning in such cases, new enrollees may face long delays
in obtaining these services, leading to dissatisfaction
and disenrollment. Therefore, for even the largest and
oldest organizations, start-up analysis can be an impor-
tant tod.
CONCLUSIONS
Start-up analysis helps planners avoid the negative
consequences of ignoring or merely guessing the ef-
fects of start-ups. In using start-up analysis, however,
market planners shcxjid avoid the temptation to use
 26
gross a "avwage" e ^ m a t ^ of the start-up phenome-
non. Ranners might be tenprted, f a example, to follow
the results reported here and simply assunne that on the
average any group will have a 30% higher utilization of
services during its first year of enrollment. The prec«j-
ing explication of the types of erras that can result from
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