The Creative Destruction of the News Business and Other Weird Stories

Health system CEOs would be well advised to study what newspaper industry leaders did (or perhaps more appropriately, didn’t do) when faced with a dramatic industry change. Turn back the clock 15 years and the following dynamics were present:

  • Newspaper leaders knew full well that dramatic change was underway and even made some tactical investments. However they didn’t fundamentally rethink their model.
  • Newspapers were comfortable as monopoly or oligopoly businesses allowing for plodding decisions. Their IT infrastructure mirrored the plodding pace with expensive and rigid technology architectures.
  • Newspaper companies bought up other newspaper chains and took on huge debt.
  • Owning printing presses was a de facto barrier to entry allowing newspapers unfettered dominance.
  • Depending on one’s perspective, it was the best of times or the worst of times to be a leader of local media enterprise.

Before they knew it, owning massive capital assets and the accompanying crushing debt became unsustainable. The capital barrier to entry transformed into a boat anchor while nimble competition dismissed as ankle-biters created a death-by-a-thousand-paper-cuts dynamic. Competitively, newspaper companies worried only about other media companies or even Microsoft, but their undoing was driven by a combination of craigslist, monster.com, cars.com, eBay, and countless other marketing substitutes for their advertisers. In addition, there were easier ways to get news than newspapers. Generally, the newspaper’s digital groups were either marginalized or unbearably shackled so that the encumbered digital leaders left to join more aggressive competitors. The enabling technology to reinvent local media didn’t come from legacy IT vendors who’d long sold to newspaper companies, but from “no name” technologies such as WordPress, Drupal and the like.

The parallels with health systems today are clear. Consider the present dynamics:

  • Health systems have been aggressively gobbling up other healthcare providers and frequently taking on debt to finance the growth. Concurrently, health systems often have capital project plans that equal their annual revenues even though no expert believes the answer to healthcare’s hyperinflation is building more buildings. Consider the duplicative $430 million being spent in San Diego to build two identical facilities just a few miles apart as Exhibit A of the problem. Studying other countries that shifted from a “sick care” to a “health care” system, more than half of their hospitals closed. They simply weren’t needed or weren’t appropriate.
  • Until recently, complex medical procedures always took place in an acute care hospital setting. Increasingly they are being done more and more in specialty facilities that can do a high volume of particular procedures at a signifiantly lower cost. [See graphic below]
  • Just as newspapers were implementing multimillion dollar IT systems while nimble competitors were using low and no cost software to disrupt the local media landscape, health systems are similarly implementing complex systems to automate the complexity necessary in a multi-faceted system. Meanwhile, disruptive innovators are implementing new models at a fraction of the cost and time. For example, it’s well understood that a healthy primary care system is the key to increasing the health of a population. Imagine if a fraction of the billions being spent by mission-driven, non-profit health systems on automating complexity was redirected towards the reinvigoration of primary care. They’d further their mission and lower their costs. Of course, they’d likely see revenues drop but presumably maximizing revenues isn’t the mission of a non-profit.
  • The plodding pace and scale of innovation at most health systems isn’t up to the enormity of the task. The vast majority of health system innovation teams are constrained by how they have to fit innovation into an existing infrastructure. That approach rarely, if ever, leads to breakthroughs, as its true intent is to make tweaks to a current system rather than a rethink from the ground up.

Compared to newspapers, the scale and importance of the challenge is far greater for health systems so they must aggressively take action or risk their future viability.

Rx for Healthcare From a Newspaper Industry Executive

In the midst of the newspaper industry disaster, there is one notable bright spot from an individual who has gone against the conventional wisdom that newspapers are doomed to fail. His name is John Paton and he’s reinventing local media. Highlighted below are some of what he’s done to turn a bankrupt (creatively and financially) enterprise into a profitable, dynamic and rapidly growing enterprise attracting the all-stars of the industry such as Jim Brady and Steve Buttry.

There has been an expression in traditional media that analog dollars are turning into digital dimes. Rather than lament that, here’s John Paton’s response:

“And it is true that print dollars are becoming digital dimes to which our response at Digital First Media has been – then start stacking the dimes. All of that requires a big culture change. A change that requires an adoption of the Fail Fast mentality and the willingness to let the outside in and partner. Partnering is vital to any media company’s growth whether it is an established media company or start-up. We are going to marry our considerable scale with start-up innovation to build success.”

It’s worth noting that those “digital dimes” are often more profitable than the “analog dollars” of the past because much less overhead is required.

The following is John Paton’s 3-point prescription for reinvention that led to a 5x revenue increase and halving of capital expenses. This resulted in his organization going from bankruptcy to $41 million of profit in two years.

  1. Speed to market: One new product launched per week
  2. Scaling opportunity: Sourced centrally, implemented locally. Ideas can come from all over. Identify the best ideas/people from all over
  3. Leverage partners – Feed the fire hose of ideas from outside.

Unfortunately, before John Paton was able to affect this level of change, scores of newspaper employees lost their jobs while traditional newspaper executives dawdled. It is the rare leader that can create the sense of urgency necessary to affect this scale of change before the enterprise is a hair’s breath from extinction. It might be one of those tough-as-nails nuns running a health system that isn’t concerned about bonuses that refocuses their mission from growth to health. As the old oil filter ad says, “you can pay now or pay later” – of course, the cost is much greater if change is delayed. The only question is whether health system leaders will have the courage to make the change before the inevitable hurricane hits with full force.

Applying Reinvention Lessons into Healthcare

Listed below are some ideas and examples of how this approach can be applied to tackle the enormous challenge facing health system leaders. The wave of disruptive innovation is building with pioneers such as WhiteGlove Health and Qliance forging new territory and then others putting their own twist on it.

[Disclosure: The company where I’m CEO, Avado, provides enabling technology for some of the organizations mentioned which is why I have a view into their projects.]

Fresh, Outside Perspective is Imperative
As John Paton brought in outside advisors such as Jeff Jarvis and Jay Rosen, health systems would be well-advised to do the same. They can go a step further and partner with innovators driving new models. They can be project managers or partners. Examples follow:

  • Dr. Samir Qamar founded MedLion as a mass-market version of concierge medicine. MedLion works with healthcare providers to transition from a “do more, bill more” model to a patient-centric, accountable model that is affordable yet produces impressive outcomes and a dramatically better bottom-line than a standard primary care practice.
  • Ken Erickson is the CEO of Employer Direct Healthcare. He’s working with providers to deploy bundled case rates. That is, rather than getting scores of bills from various providers and the accompanying morass, they enable a single, transparent cost for procedures such as a knee replacement. Their approach also enables healthcare providers to tap new distribution models for their services.
  • Mike Berkowitz has been a pioneer in telehealth including running his own business, Telehealthcare.com. Large and small healthcare providers are tapping his deep experience to develop and implement their telehealth programs.

The Most Important Medical Instrument of the Future is Communication

John Paton has demonstrated radically transparent communication to redefine the culture of his organization. This approach has set the tone for his organization. Imagine if that same tone was set by healthcare leaders for their organizations. I have heard it said that between 80% and 90% of what a doctor says to a patient is forgotten. In a world where provider reimbursement is based on outcome, rather than activity, this is a recipe for reimbursement disaster. Communications is the antidote to that avoidable disaster. There are leaders in healthcare pursuing a similar approach such as Dr. David Pate (link to his blog) of the St. Luke’s Health System in Boise, Idaho. St. Luke’s was featured in a piece entitled Healthcare Field of Dreams In Idaho: Health System Opens Innovation Center.

Like local media executives in the late 90’s, healthcare leaders can view the present time period as either the best or worst time to be in their role. The health system leaders who believe it’s the best of times would do well to ask themselves “What Would John Do?” John Paton demonstrates how a strong leader can reinvent and reinvigorate a lumbering giant turning it into a dynamic organization.

Dave Chase is the CEO of Avado.com, a Patient Relationship Management company. Previously he was a management consultant for Accenture’s healthcare practice consulting to 25 hospitals and was the founder of Microsoft’s Health business. You can follow him on Twitter @chasedave.

8 replies »

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  3. The cost concern is certainly valid for so-called “concierge medicine” but like airbags & anti-locks breaks that started with the well-heeled, retainer based medicine has gone mass market. Typical monthly charges are $50-70/mth which is less than many people pay for cable. The DPC practices I’ve seen typically have 1/3 of their patients who are uninsured. Example one MD gave me: His patient, due to tough economic times, lives in a storage unit yet happily pays him $50/mth to help her deal with multiple chronic conditions. This is less than she was paying in co-pays at the public health facility which isn’t nearly as pleasant of experience. Another example: MedLion opening a clinic in a farming community to cater to farm workers — very affordable, yet also a much better lifestyle/income for the PCP. What’s not to like?

    Providing high quality care at a very affordable price is entirely possible if you have a low overhead model. Whereas an insurance-centric PCP can easily have 3 or more administrative staff to deal with billing, scheduling, etc. for every MD, many DPC practices have one or fewer (many have zero!) per MD. While this may sound “new” it’s really turning back the clock to the Marcus Welby days. I call it “two parts Marcus Welby, one part Steve Jobs” and it’s working. Email me and I can show a broad-based study (3,000+ patients) where downstream costs were reduced 40-80%. An ounce of prevention is worth a pound of cure.

  4. I really enjoyed this article. However, newspapers did not have the ablility to go to the government to protect them and quash innovation. Incumbent providers in health care do, and this has gotten worse under PPACA, which is leading to consolidation amongst both providers and payers.

    So, while I am excited about all the entrepreneurship in the Health 2.0 space, I fear that the government-imposed, oligopolistic nature of the U.S. health system will really blunt its effects.

    Under PPACA, both payers and providers become, effectively, public utilities, which will earn a more-or-less guaranteed rate of return if they are favored by the government. Creative destruction, as happened in the media business, is unlikely to take place to the necessary degree.

  5. Great analogy. I’d like to hear what Joe Flower, JD Kleinke, and others have to say about this.

    UCSD has bought the now bankrupt Nevada Cancer Institute (my office roomie used to work at NVCI). In part (beyond the bargain price) because of the patient turf competition in the San Diego area.

  6. There is a necessary dramatic shift needed in primary care but it will come through payments methods with more emphasis on the services that PCPs provide vs. specialists.

    Can we please stop though with concierge models/medicine that rely upon a cash payment or annual retainer being touted though as a panacea to the myriad access & cost issues that plague the US healthcare system? Their not.

    For a minority segment of the population that have readily available cash which they are willing to train time for convenience to treat moderate issues or for more affluent patients willing to pay an annual retainer, it works great. For huge numbers of patients including patients with multiple chronic diseases or those who don’t have readily available cash to purchase these services, it isn’t an answer and that population is in the tens of millions of Americans.