Sunday, January 18, 2015

If hospitals had a golden age, then what does the future hold?

That assumes of course that hospitals had a golden age, which could probably be defined as the period from the introduction of Medicare and Medicaid, the explosive growth of employer sponsored healthcare and Hill-Burton.  I can remember the days when hospitals were paid 100 percent and even in some cases as not-for-profit hospitals received an additional 5 percent. Then came DRGs in 1983 and the world changed overnight. All followed by various attempts at changes in payment methodologies, new forms of insurance (think HMO etc.), programmatic pilots and on and on.

As with all things once the payment system was figured out, equilibrium was achieved and things went back more or less to how they were, abet at with lower revenues and profit margins for sure but a balance was achieved.  And really the incentives continued to drive the production of care and for marketing operations to make things “look pretty” and “put heads in the beds”.

Now the market has flipped like never before. Explosive disruption, innovation, entrants of nontraditional providers, legislation, regulation, payment models, technology, genetics, pharmaceuticals MHealth and the new healthcare consumer to name a few, creates a market environment that hospitals have never ever existed in.

ACA is the fundamental underlying driver for all of today's changes in the industry and markets. As an unintended consequence, healthcare markets are moving in a semi retail, consumeristic direction focused on accountability for price and quality. Directly or indirectly, these changes bring the healthcare consumer into the discussion, by the economic force of the market resulting in the healthcare consumer being accountable for a growing signification portion of the cost of care. With the healthcare consumer now paying more out of pocket, the result is a consumer engaging in shopping behavior on price, whether it is for insurance or care. Quality as of yet is not a determining factor, For years healthcare providers have all touted high quality care without the attendant proof points, that a consumer could use to judge these statements as being true or not.  Hence, healthcare providers are seen as equal in the provision of quality, even when the case may not be true due to lack of transparency. As more and more information is released as a result of the market movement encouraged by ACA, the healthcare consumer will begin to engage in more sophisticated shopping behaviors.

ACA has opened the door for disruptive innovation that focuses the light of attention on the healthcare consumer and meeting their needs.   Meeting their needs in the most convenient, accessible, effective and price efficient manner possible. 

At some point in the future, the hospital will flip from being a revenue center to a cost center. When that happens things will get really interesting, considering the billions of dollars in debt on the balance sheets of hospitals today. Lots of debt service out there. Could that be the next financial crisis?

So where does that take the hospital of today?

Not anyplace pretty but that doesn’t mean all hope is lost. Unless of course the hospital, instead of circling the wagons engaging in strategic planning and marketing like they always have, changes focus from an internal perspective of siege and “it’s all about us”, to an external market focus that embraces innovation, retail medicine, meaningful engagement and the growing power of the healthcare consumer. Look externally not internally for answers.

Let me be clear, the hospital is not going to go away but may in all likelihood be relegated to the setting of the place of treatment of last resort. The consumer with all the information now available on price and quality is pulling the curtain back on the wizard and they are not happy. The market reality is healthcare that is affordable, innovative, and accessible when and where they want it, conveniently delivered on their terms, efficient, effective and is “all about them” is the new business model.

It is a massive undertaking to shed years of cultural attitudes and organizational arrogance to change a slow moving organization into a nimble, consumer-centric, effective and efficient, innovative healthcare enterprise. But with some hard work, grit and determination along with changes in the prioritization and deployment of capital both human and financial within a hospital, it is possible. These steps are not all inclusive but represent movement in the direction.

1.     Start with an honest data driven market assessment of the brand and brand architecture, brand perceptions, brand promises, awareness etc,  market share, competitors, pricing, outcomes, in and out service migration, consumer attitudes, preferences and needs.  Move the discussion from I think, which when the discussion is around “I think”, everybody is right because its opinion, to a data driven discussion.

2.     Decide what the healthcare enterprise position in the market is and what it should be.  There are only three market positions one can take superior, equivalent or inferior.  And there is only one of three sub positions you can take to dominate. The healthcare enterprise is the low cost leader (think Walmart), the service leader (think Disney) or the quality leader (think Mayo or the Cleveland Clinic). Pick one, set meaningful benchmarks for the other two, but focus the healthcare enterprise on one. The days are over where the healthcare enterprise can be all things to all people.  The result of that thinking and behavior leads to too much diffusion of organizational resources which is inefficient and ineffective. It also represents the thinking and actions of the past.

3.     Stop marketing from making things look pretty and turn it into revenue driven operation, which is resourced appropriately in terms of capital and human. Hold marketing accountable for driving growth.  Elevate marketing to the senior table and position within the organization. From healthcare consumer to patient engagement, program development and launch to organizational strategic, financial and business planning, marketing needs to be in every discussion and bring the viewpoint of the market, the healthcare consumer and patient with them.

4.     Embrace retail medicine and innovation. Look critically at all the healthcare enterprise does and ask one simple question, what is it that I do today, that can be done more efficiently and effectively, is priced lower, more convenient and accessible for consumers and provides better quality and engagement by nontraditional entrants into the market. Assume that everything the healthcare enterprise does can be replaced by someone or something else. Doesn’t matter if the replacement is MHealth, pharmacological, care innovation, or technological to name a few. Figure it out and start looking for directions to move in.

5.     Change the team. The skills and leadership needed to compete in today’s market to not only survive but grow, may not exist in the healthcare enterprise. From Soichiro Honda, Founder of the Honda Motor Company is this wisdom, “If you hire only those people you understand, the company will never get people better than you are. Always remember that you often find outstanding people among those you don’t particularly like.”  Stop hiring people to do the same things the healthcare enterprise has always done. Start hiring people who have experiences in other industries that are transferable or have the breadth of experience across different healthcare verticals that look in on the hospital industry.  One may be surprised how their view of what the healthcare enterprise does and how it’s perceived can be eye opening. It can lead to innovation and change.

6.     Be flexible, adaptable, driven by change and the needs of the healthcare consumer.

Focus externally, not internally and the healthcare enterprise will find that world is full of exciting possibilities and growth.

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