US hospitals are struggling to meet rising demand. Among health care facilities with at least 300 beds, 90 percent are at or over capacity. Most of them can't finance more beds, because of a low debt rating, and in any case an acute nursing shortfall is constraining their ability to admit more patients. This capacity gap has adversely affected the speed of delivery as well as the availability and duration of appointments with physicians.¹ Yet in every problem lies an opportunity. For US nonprofit hospitals, a new study suggests, the disparity between supply and demand and the attendant decline in service levels have boosted the number of consumers willing to pay more for better service.

Hospitals now have an opportunity to supply target customers with differentiated, "boutique" services that would offer easier access to and greater integration of health care² and enhanced comfort and convenience during hospital stays. Some nonprofit hospitals have already begun to promote these services, but others are holding back, principally for two reasons—one philosophical, the other economic. The philosophical concern is that catering to affluent patients will diminish the quality of care for those unable to pay more.³ In reality, the extra revenues are likely to mean better service for all patients. Here we focus on the economic concern: whether enough customers are willing to pay for boutique services to make it worthwhile for hospitals to offer them.

We conducted a national consumer survey of 2,200 respondents of households with annual incomes of more than $80,000 and tested five types of boutique offerings at different price levels to determine which services customers would purchase. Affluent health care consumers fall into three segments of equal size: pragmatic, moderate, and idealistic. Pragmatists believe that patients should be free to pay for better service. Moderates don't have strong opinions about the matter—until they fall ill, when they become more like pragmatists. Idealists feel that high-quality health care is a right, not a privilege.

While this study is neither exhaustive nor definitive, it may be useful for hospitals that are considering investments in boutique services. Three-quarters of the pragmatists and moderates view health care much as they do the offerings of other service industries: they accept paying a premium for better services. Some 63 percent of the pragmatic consumers declare themselves willing to pay substantially more, on top of their current bills, for health care services that meet their needs for access, integration, and comfort and convenience. This willingness extends even to the idealists, one-quarter of whom would pay more for greater comfort, though they are concerned about paying for services related to access. Overall, integration and comfort not only represent the most lucrative opportunities for a hospital but can also improve its reputation substantially. Facilities that provide patients with quicker access to care for higher fees, by contrast, must find ways to counter the perception that nonaffluent customers will be disadvantaged as a result.

The survey results suggest that the average 600-bed nonprofit hospital, in a city of one million people with average incomes, could generate meaningful incremental revenues by offering boutique services for access, integration, and comfort and convenience. With potential margins from 30 to 55 percent, they could bring an average hospital as much as $6 million in incremental profit annually—not an insignificant amount in an industry where operating-profit margins have eroded by nearly 60 percent over the past four years.

Recognizing a market opportunity is one thing, seizing it quite another. Hospitals that offer boutique services will face stiff challenges (exhibit). To meet them, management must dedicate resources and develop consistent communications strategies to address the powerful emotional and philosophical debates this new approach may provoke within the hospital community.