One of the tough questions for any entrepreneurial healthcare executive today is when will the transformation of the current business model begin and when he or she should break from the pack with the cutting-edge business innovations that will position their organization as a successful provider of high quality, lower-cost care.
I return to this theme after reviewing the latest healthcare cost data report at HealthLeaders.com, which disclosed that the average per capita cost of healthcare services grew at more than three times the rate of overall inflation for the 12-month period that ended in June. While we have seen some fluctuations in the past, we all know which way the overall trends point: higher costs.
There are two global strategies now circulating in the trade press: the first is to get bigger or, absent the resources, join a larger system. The argument for this option is that only vertically integrated systems can accomplish the high quality, lower-cost goal. The other strategy is to strengthen the balance sheet, get help from medical billing companies, enhance the clinical service lines, empower the employees, strategically align with payor sources and be nimble. Smaller is better, this thinking asserts because being flexible and nimble will be essential in a rapidly changing environment where the business model rules have yet to be defined.
Large systems that choose the wrong strategy too soon will face tough sledding. The apostles of this view point to the disastrous results for the early adopters of vertical integration in the late 1980s to mid-1990s. The former Harris Methodist Health System in Fort Worth, now part of Texas Health Resources, is a prime example, they say.
The concept of population health management-focusing on the health and wellness of those people formerly known as patients, not sick care, which is the cornerstone of the existing hospital business model-implies, by an early-stage definition of the concept, that healthcare executives will turn their attention to managing the health of populations and therefore be paid for keeping people out of the hospital, not filling beds. This approach suggests that scale will matter-more financial resources, more clinical providers, more locations-to attract beneficiaries, many of whom may be paying for health benefits with tax-exempt allowances provided by their employers. In a transformed healthcare marketplace, these consumers will be more concerned with the downstream financial risks of unhealthy lifestyles and therefore the importance of preventative care and the value of services such as home care (read: care in the home) and disease management.
The healthcare entrepreneurs see this longer range opportunity. They, too, will be players, independently providing services to address these needs.
The big problem will be that it is unlikely that Congress or traditional “free market” forces will drive the kind of change necessary to significantly reduce healthcare spending. Market forces may shape the final outcome, but the starting point will be the big hand of government as the payor who can no longer afford the cost of their promises, the partisan spin dancing of our elected politicians notwithstanding. It will happen, the question is when.
For those who scoff at the notion of upheaval in the big healthcare systems-investor-owned and not-for-profit-I only ask, does anyone remember the day when Humana was one of the largest, most successful of the hospital management companies?
2012 John Gregory Self