The conversation has changed.
The old conversation: “You cost too much.”
“But we have these sunk costs, patients who can’t pay … ”
“OK, how about a little less then?”
The new conversation: “You cost too much. We will pay half, or a third, of what you are asking. Or we will take our business elsewhere. Starting now.”
“But … but … how?”
Exactly: How will you survive on a lot less money? What are the strategies that turn “impossible” to “not impossible”?
The old conversation arises from the classic U.S. health care model: a fully insured fee-for-service system with zero price transparency, where the true costs of any particular service are unknown even to the provider. The overwhelmingly massive congeries of disjointed pieces that we absurdly call our health care “system” rides on only the loosest general relationship between costs and reimbursements.
It’s a messy system littered with black boxes labeled “Something Happens Here,” full of little hand waves and “These are not the droids you’re looking for.”
With bundling, medical tourism, mandated transparency, consumer price shopping, and reference pricing by employers and health plans, we increasingly are being forced to name a price and compete on it. Suddenly, we must be orders of magnitude more precise about where our money comes from and where it goes: revenues and costs.
We must find ways to discover how each part of the strategy affects others. And we need some ability to forecast how outside forces (new competition, new payment strategies by employers and health plans, new customer handling technologies) will affect our strategy.
Key Strategy Questions
For decades, whenever some path to profit in health care has arisen (in vitro fertilization, urgent care, retail, wellness and the others) most hospitals have said as if by ritual, “That is not the business we are in.” As long as we got paid for waste, few health care organizations got serious about rooting it out.
And most have seemed content with business structures that put many costs and many sources of revenue beyond their control.
In the Next Health Care, the key strategy questions become:
Filed Under: THCB, The Business of Health Care
Tagged: consumer driven health, Costs, Employers, Healthcare organizations, Joe Flower, Reference-based pricing, the business of healthcare, Transparency
Mar 28, 2014
If you are a CEO or COO of a health care organization, and your IT people have been trying to get your attention, it’s time to have a serious sit-down with them.
If they haven’t been trying to get your attention, it’s time to have an more serious sit-down with them, complete with charts and graphs and arrows on fip charts.
Here’s why: Remember in November it was revealed that the Target retail chain’s computer systems were compromised? Some 70 million names, home addresses and phone numbers were stolen (pretty good raw material for identity theft) and 40 million credit card numbers.
It has turned out since then that some two dozen other companies, including Neiman-Marcus, the Michael’s arts-and-crafts chain and the White Lodging Services hotel management firm, have been hacked in similar ways, with the attackers software sitting in the companies’ servers, credit card machines and cash registers often for months before they were detected, sucking down every transaction, every bit of data moved about.
Hey wait, you say, I have every confidence in our computer security. Why we passed a security audit just recently.
Heh. So did Target — just before they discovered the break-in. They got a clean bill of health, and the auditors failed to find the malware installed on every server, every credit card terminal, every cash register.
Why? Because the attackers have gotten way more sophisticated, and they used new techniques and methods of entry. You can now buy ready-made hacking software designed to do this on the Internet for less than $1000.
Here’s the kicker: Target has security guards at the doors, it has those beeper tags on small high-value items so you can’t sneak them out without paying for them, it has burglar alarms — but the perps in the biggest heist in the company’s history entered through the thermostat.
Got that? The thermostat.
Continue reading “Why Healthcare Should Be Worried About the Target Cyber Attacks”
Filed Under: Tech, THCB
Tagged: cyber attacks, HIT, information security, Joe Flower, Target
Feb 11, 2014
The Next Health Care calls for very different strategies and tool sets. Many systems are acting as if they read a manual on how to do it wrong. How many of these critical strategic and tactical mistakes is your system making?
So I was beta testing FutureSearch, this cool new Google add-on app I’m writing with a coder, and I found an article that I wrote in 2025. My first thought was, “Cool! It works!” My second thought was, “I’m still working at the age of 75?” It was only then that I focused on the title of the article: “Fail: The 16 Steps by Which Hospitals Failed in the Post-ACA Risk Environment — An Analysis.”
The article detailed a dispiriting history from 2013 to 2020. More important, it listed the 16 most common mistakes that hospitals and health systems made while trying to navigate the new risk environment of the Next Health Care.
I found this interesting because of course right at this moment much of the health care industry, in many different ways, is trying to move away from the traditional fee-for-service payment system, which has given the whole industry adverse incentives, leading to much higher costs, poorer quality and restricted access. The rubric of the day is “volume to value.” And I see many different institutions and systems across the country making exactly these mistakes already in 2013.
As you read this list, ask yourself in what way you and your institution might be making the wrong decisions, and ask yourself what they will look like looking back from 2025.
Stick with fee-for-service. Though they included various incentives and kickbacks, most accountable care organizations and ACO-like structures built in the 2012–2014 period were based on a payment system that remained stubbornly fee-for-service. Systems continued to make more money if they checked off more items on the list (and more complex items), rather than solving their customers’ problems as well and as efficiently as possible.
Continue reading “How to Fail at the Next Health Care”
Filed Under: OP-ED, The Business of Health Care
Tagged: ACOs, Costs, Fee-for-service, Hospitals, Joe Flower, The ACA, the business of healthcare
Jun 11, 2013
The progeny of the iPhone and the iPad will change the shape of your institution — and your balance sheet.
One of the more striking images, to me, out of the online spew in the last few months was from the inauguration. It was a wide view of an inaugural ball. There was the president waltzing with the first lady, and a crowd of several hundred watching them. What was striking about that image was that the several hundred people held several hundred small glowing rectangles in their hands. Practically every member of the crowd was carrying a smartphone and was photographing or videotaping the moment.
The scene was commonplace in its moment, remarkable only in the perspective of history — but such a short history. We could not have imagined so many people carrying smartphones at Obama’s first inaugural only four years ago. Four years before that, we could not have imagined any. The iPhone had not been invented.
There had been attempts at smartphones before the iPhone, and devices like tablets before the iPad. But the rampant success of iOS devices did far more than establish two profitable niche. It changed our relationship with the world.
Continue reading “The Ghost of Steve Jobs and Your Bottom Line”
Filed Under: THCB
Tagged: Apple, Apps, Doctors, Eric Topol, FutureMed, Joe Flower, Mobile health, Patients, Steve Jobs
Mar 19, 2013
Rapid change is engulfing health care across the United States, but the strategic responses of organizations to these changes are sharply divided. In the shift that has been broadly shorthanded “from volume to value,” many organizations across the country are deeply engaged in moving toward “value” by building new partnerships, affiliations, capacities and economic structures, striving to bring better health and health care to more people for less money.
At the same time, some organizations are using the chaos and fluidity of the moment to double down on the old way, aggressively seeking greater volume reimbursed at higher rates. For now, within their regions, some of these organizations appear to be “winning” at the game, building greater market share and margin and increasing their budgets. But is this in fact the wisest strategy to follow in the long run, not only for their institutions but for the good of their missions and the people they serve?
Moving toward Value
Virtually all serious attempts to answer the question, “Why do we pay so much more for health care in the United States?” have pointed to the competition for reimbursements under a commodified, insurance-supported fee-for-service system. If what you pay for is items off of a list, what you will get is lots of items, especially the more profitable ones. That’s how we end up with a system in which waste (stuff we could simply do without) is pegged by repeated studies at one-third or higher.
Continue reading “Divided Health Care Nation”
Filed Under: THCB, The Business of Health Care
Tagged: ACOs, Consolidation, For-profit Medicine, Joe Flower, Leadership, Value Based reimbusements
Feb 17, 2013
Costs and revenue: This is the oxygen of any business, any organization. What are your revenue streams? How much does it cost you to produce them? Life is not just about breathing, but, if you don’t get that in-out equation right, there is nothing else life can be about.
Right now this enormous sector is turning itself inside out. It has turned the “transmogrification” setting to “warp.” Why? It’s all about the in-out. It’s all about increasingly desperate attempts to get that right — and the clear fact that we cannot know if we are getting it right.
Let’s do some school on the two sides of this equation. Let’s just go over the new weirdness, and the implications for you and your organization. Revenue first.
Hunting for True Revenue
In traditional health care (the way we did business until about five minutes ago) the revenue side was complicated in detail, but simple in concept: You do various procedures and tests and services, and you bill for them. You bill each item according to a code. You bill different payers; each has its own schedule of payments that you negotiate (or just get handed) every year. There are complications, such as people on Medicare with supplemental insurance, dual eligibles on Medicare and Medicaid, and self-pay patients who may or may not pay.
That’s the basic job: aggregating enough services that reimburse more than their real cost so that you can cover the costs of services that don’t reimburse well. This is cost-shifted, fee-for-service management. Cut back on those low-reimbursement services; pump up the high-reimbursement ones. Corral the docs you need to provide the services, provide the infrastructure and allocate costs across the system.
The incentives all point in the same direction. The revenue streams are all additive. The more you do of the moneymaking items on the list, the more money you make.
Continue reading “Why Health Care Is Reshaping Itself”
Filed Under: THCB, The Business of Health Care
Tagged: Capitation, Fee-for-service, health care cost, health care revenue, internal costs, Joe Flower, M&A, Medicare, reimbursements, the Next Health Care
Nov 30, 2012
This year at Health 2.0′s Annual Conference, two speakers split stage time during the opening keynote. Joe Flower, a health futurist, and Mark Bertolini, CEO of health insurer Aetna, don’t have a whole lot in common professionally. But in their talks they both made clear that they hold two beliefs in common: the United States health care system needs to react to the country’s cost crisis, and efforts to address health care costs will happen independently from federal reform.
Flower spoke first, laying out the tenets of what he calls the Next Health Care. For such an optimistic speech, it was filled with negatives. Flower went through step by step, talking about what the nation isn’t doing right now, who’s not invested in better care, and why all health care systems can’t just become Kaisers.
Though the talk certainly wasn’t meant to praise health care for all it does right, it was meant to point out the promise that the health care system could be on the brink of.
“Health care is undergoing fundamental economic changes,” Flower said. “These changes are driving us to what may well be better and cheaper health care for everyone.”
The Affordable Care Act isn’t what’s propelling those changes, according to Flower. It’s other factors including an aging population, the sheer cost of care in the U.S., and technological capability that we’ve never seen until now.
Chronic disease accounts for 70 to 75% of all health care costs, Flower said. And as many Americans know, obesity is a huge contributor to those costs. The maps looked at the projection of obesity rates in the U.S. over time, and as the slides passed it looked like the country was being eaten by the disease.
“Now, some of the best hopes for that future, honestly, we see right here at Health 2.0. But we are not there yet,” Flower said.
Continue reading “A Tale of Two Keynotes: Futurist Joe Flower and Aetna’s Mark Bertolini”
Filed Under: THCB
Tagged: 6th Health 2.0 Annual Conference, Aetna, Health 2.0, Health 2.0 Conference Keynote, Joe Flower, Laura Montini, Mark Bertolini
Oct 9, 2012
In Healthcare Beyond Reform: Doing it Right For Half The Cost I lay out the five strategies that healthcare must adopt, and is adopting in various ways and places, to make healthcare better and cheaper at the same time.
Strategy Five is “Rebuild Every Process.” It’s about “lean manufacturing,” smart standardization, measurement, “big data,” evidence-based design, teaching the innovation, all the detailed, rigorous, hard attention to intelligent process re-design that healthcare is so obviously lacking — and that is absolutely necessary if healthcare is to improve its abysmal cost/benefit ratio.
Now in The New Yorker writer/surgeon Atul Gawande has done a brilliant turn on this theme, by diving into, of all things, the processes of a restaurant chain, comparing them to the duplicative, chaotic, mistake-prone processes of traditional healthcare, and finally to some examples of smart, rebuilt healthcare processes that drive down costs while killing fewer people.
Gawande shows how The Cheesecake Factory manages to deliver 308 dinner menu items and 124 beverage choices to exacting standards, on time, from fresh ingredients, with only 2.5% wastage, in a linen-napkin and silverware environment, at lower cost, then compares that with the disconnected, uncoordinated, messy environment that is most of US healthcare. He details several examples of how new drives toward standardization and control of processes in the operating room and the emergency department, for instance, are making a difference, lowering costs and improving not only outcomes but the patient experience, all at the same time.
Continue reading “What Healthcare Must Learn — from a Chain Restaurant”
Filed Under: Uncategorized
Tagged: Atul Gawande, cookbook medicine, Customization, Joe Flower, The Cheesecake Factory, Waste
Aug 14, 2012
It was some doctor show on cable: Nurse McCarthy bustles into the hospital room, says “Good morning!” brightly, and crosses the brilliantly polished linoleum floor to the window. Humming to herself, she sweeps open the curtains to the view of the brick wall across the airshaft, then goes to the patient on the right and checks his dressing, clucking and offering encouragement. After a few moments she does the same with the patient on the left, makes a note on his chart, and leaves. She’s probably been there less than 10 seconds, and I’m thinking, She just killed two patients.
Consider this: During the remainder of this decade, health care providers will be building thousands of structures — building, re-building, re-purposing, infilling, for new and rapidly shifting purposes. Details matter.
Despite its continued use as a political bludgeon, health care reform will likely be implemented, at least in its broad outlines. The truly deep changes that are transforming us into the Next Health Care are proceeding apace in any case, with different business models and revenue streams, which means new physical settings.
Continue reading “Building the Buildings of the Next Health Care”
Filed Under: Uncategorized
Tagged: architecture, Center for Health Design, Designing the 21st Century Hospital Project, Joe Flower, Nurse McCarthy, the Next Health Care
Jul 25, 2012
What a cliffhanger! It is an historic decision, found on the narrowest possible grounds, with a majority agreeing on the result, but not broadly on the reasoning.
Effects: The principal effects of the finding, from the point of view of the system: They have just avoided enormous chaos over the coming years. The system is chaotic enough already, at a tipping point into an unclear future, with the huge shift in underlying economic factors. These factors include especially the various ways of shifting some economic risk from the payers and employers to the providers and the patients/customers.
Stabilizing: The Supreme Court finding stabilizes the future of the system. The affirmation, combined with the fact that a gridlocked polity in Washington is unlikely to come up with any major change or repeal of the law, and that the major parts of the law are self-funding, means that everyone now knows at least the general outline of what the rules are for the foreseeable future.
Permanent: The law is now likely permanent. To overturn it, you would need President Romney with a filibuster-proof majority in the Senate and a majority in the House. The major parts of the law are self-funding and not dependent on Congressional outlays. By 2016, most people will have experienced the results of the law, and found its benefits far outweigh its costs. Business owners will find that it is not as burdensome as some have feared. It will have become obvious that the experience of the actual law is far different and more benign than the fears that have been drummed up about it politically. Once people experience its benefits for themselves, it will be very hard to gin up a campaign to take it away from them.
Continue reading “The Beginning of the Next Healthcare”
Filed Under: THCB
Tagged: ACOs, Future of Healthcare, Joe Flower, The ACA, The Supreme Court Challenge
Jun 29, 2012