I frequently write about the change that the healthcare industry will undergo over the next 15 years. I have consistently argued that organizations that embrace change, and work to capitalize on market disruption, will thrive.
It now appears that the tides of significant change are beginning to arrive at my front door. It is a bit disconcerting, but after 40 years of using the same business model — a record very few other businesses can claim — the executive search industry, especially in healthcare, will undergo what many argue is a long overdue transformation.
For healthcare, the drivers of change are legislative and economic. Legislatively, the Patient Protection and Affordable Care Act with cuts in Medicare reimbursement and new structures designed to streamline patient care processes, improve accountability and quality, notably the much discussed Accountable Care Organization, have spooked some executives at free-standing community-focus hospitals. In short, more industry consolidation. There is increased talk of new strategic alliances, mergers and asset sales. Then there is the looming U.S. deficit crisis of which Medicare will play a prominent role. Our current annual deficits are not sustainable. Our long-term national debt, which has grown to a shameful $13.8 trillion, must be reduced to more manageable levels. Long-term unfunded liabilities — promises that the U.S. Government has made but for which it has no cash reserves to fund — are more than $53 trillion over the next 60 plus years.
So the healthcare industry we have all known and loved is going to be very different in the future. And that leads me back to my front door.
These transformational changes are driving consolidation of small health systems and independent community hospitals. This consolidation means that more and more of executive and management recruiting will be handled internally. Currently only 30 to 35 percent of all healthcare recruitment is handled by external recruiters. That number will shrink significantly over the next five to 10 years.
When healthcare organizations do turn to outside recruiting resources, they will expect something markedly different from what they have gotten in the past. In short, they will want lower fees, more aggressive expense budget management and increased value — more for less. High overhead firms with multiple offices are at greatest risk. Already many of those firms are reporting year over year reductions in revenue and lower profits. Some long-standing partners in larger search firm are retiring or are being pushed out as their organizations grapple with how to reduce costs and maintain the existing business model as long as possible. Unfortunately, their national footprint that is secured with those multiple offices and related high overhead — will soon become a liability.
Change is uncomfortable. You feel for the support staff members in those larger firms who are beginning to wonder about their job security. It is never pleasant to see colleagues pushed aside. But it is happening, and this change will only accelerate.
Specialized boutique firms like JohnGSelf Associates will face our own set of challenges – expanding market share into geographic areas where we have no physical presence while sustaining existing relationships. The secret to our success will be centered on a formula of lower costs, shared risks and more accountability for our performance and the performance of the candidates we recommend.
Luckily for my firm, we are ahead of the curve. Lower fees and extended placement guarantees with financial penalties tied to client service and satisfaction, are already central to how we relate with our clients.
For the healthcare executive search industry to think that it can continue with business as usual, operating with an industry model that is 40 years old while all of our customers experience yet another in a series of transformations is just not realistic.