How to Fail at the Next Health Care

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.

Step-by-Step Instructions

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.

Eventually, some systems, pushed by payers and employers, edged into bundled payments, various per-patient-per-month payments, warranties, on-site medical home clinics and various types of risk contracts. But many systems resisted any such movement. Anything that smacked of “capitation” remained the butt of jokes through much of the industry, despite its very successful implementation by some of the largest systems in health care.

Over time, though, the systems that remained more pure fee-for-service also remained the higher-priced outliers. In a market increasingly dominated by price-sensitive members of high-deductible plans and price-sensitive, self-insured employers, the strictly fee-for-service systems rapidly lost market share across most of health care.

Assume the outcome. Entering the ACO era, many systems based their ACO plans on the assumption that the model would work — that a higher level of coordination and hitting their quality marks for patient contact and satisfaction would automatically result in overall lower costs in which they could then share. Though those assumptions proved generally sound for many ACOs, there was nothing automatic about them. A successful experience depended on vigorous and skillful implementation — and on actually cutting the costs that better coordination allowed them to cut.

Do prevention with no business model. Many systems engaged in serious prevention efforts without constructing a solid business model based on scenarios planning and statistical modeling of contingencies. To the extent that systems were good at preventing unnecessary tests, surgeries and hospitalizations, they succeeded in throttling their own revenue streams — without strong, predictable new revenue streams to ease the transition, or serious programs to cut back the now unneeded acute capacity.

Misconstrue the new product. All business consists of acquiring or producing a product, then selling it to someone else for more than your total cost of ownership. The product changes when the way you are paid changes. In health care, the product has always been the answer to the demand: “Fix me. Do whatever it takes.” When you find yourself at risk for the outcomes, when you make more money if people don’t need so much expensive care, the product is different. It is “Help me stay healthy. Help me manage my health. Fix me when that doesn’t work.”

Fail to build a different business. The new product requires different skills, different organizations and different ways of thinking. The new product line puts you in a different business. Buy the hottest Indy car, take it down to Baja California, enter it in the Baja 300 off-road desert classic, send it ripping up the arroyo between the cows and the cactus, and it won’t make it past the first turn. It’s a different race, messier, more contingent. You can’t get there from here by doubling down on the old ways. In the post–Affordable Care Act (ACA) era, many systems failed to note this fact and attempted to construct the new business using old production models and existing skills.

Diminish the trust factor. The least understood and most mishandled concept in the entire new landscape also seemed simplest: trust. In the computer security world, a computer that accepts data from another directly, without any firewall or other barrier, is said to “trust” its source. Similarly, in human connections we only accept information that we can act on from sources we trust. The more important to us and the more intimate the information and required action is, the more deeply trusted the source must be.

Many studies published in 2012 and 2013 concluded that “disease management” programs simply did not work. But most of the programs studied cut costs by simply assigning nurses or less qualified personnel in call centers to attempt to change patient behavior over the phone, often by working from scripts. What is needed in helping the patient navigate chronic disease in ways that will lower their cost to the system and improve their health is behavior change: better compliance, different diet, different physical regimen. Do you change the way you live because someone calls you up on the phone and tells you to? Do you trust someone who represents the insurance company?

The best studies, clinical experience and the record of such programs as Nurse-Family Partnerships show that people trust someone

  • whom they believe is on their side;
  • who knows them and has a relationship with them; and
  • has the credentials (for instance, an R.N., an N.P. or an M.D. after their name) to know what they are talking about.

Over time, effort to short-circuit such trusted relationships proved both expensive and fruitless. Real change in patient behavior happens only in the context of trusted relationships.

Fail to target top spenders. In a fee-for-service system, patients who continue to incur high costs over time are not a business problem; in fact, if the costs are reimbursable, such patients could be thought of as your best customers. If the costs are unrecoverable, or if you are at risk for the costs and outcomes of a population (as in a capitated contract, or a “mini-cap” per-patient-per-month payment for diabetes care or back care, for instance), the situation inverts completely: Those high costs become your costs, and the high-cost patients are a distinct business problem.

Over any given span of time for any given population, some 20 percent of the patients generate 80 percent of the costs, 5 percent generate 50 percent of the costs and 1 percent generate 20 percent. Of those high-cost 1 percent and 5 percent of patients, some may have just gotten hit by a bus and severely injured, or may have been diagnosed with pancreatic cancer; in a year they likely will have passed through the acute phase one way or another, and will no longer be high-cost patients. But a significant percentage stay high-cost patients month after month, even year after year, coming into emergency departments and occupying hospital rooms over and over again. These are largely people with poorly treated chronic conditions. For many of them, more constant attention and proper treatment would significantly improve their health status while lowering costs.

Numerous programs using long-term trusted relationships with real health professionals working in teams have proven the cost-effectiveness of such targeted care, including the Boeing Intensive Outpatient Care Program, the Camden Coalition of Healthcare Providers and the Atlantic City Special Care Center. The consistent results across similar programs showed a 20 percent to 25 percent drop in costs for the targeted populations, including the cost of the more intensive care program. Since they generate 50 percent of the total costs, dropping costs for the high-cost target populations by 20 percent to 25 percent should result in overall drops of 10 percent to 12.5 percent for the whole population.

Health systems that put themselves at risk for the costs of populations in the post-ACA era but failed to target the high-cost populations for extra help (even and especially the uninsured, whose costs would end up on the system’s books anyway) had significantly greater difficulty getting their systemic costs down as reimbursements fell.

Fail to engage physicians. At-risk payment structures require significant behavior change from physicians — changes in prescribing patterns, working in true teams, collaboration between specialists, rapid and constant exchange of information. Yet many systems set out on new payment structures without vigorously engaging their hired or networked physicians with new incentives, training or significant workflow help.

Some systems, in fact, merely disrupted their physicians’ work lives and customer patterns with greater reporting requirements and more complicated payment structures, without offering them clear direction, incentives or assistance. As it is largely physicians’ actions that create or control costs and outcomes, such systems vividly failed to achieve their goals.

Fail to engage patients. Similarly, most such at-risk structures required and even assumed new behaviors from patients — yet many built in no specific elements to generate or encourage such changes either through premium incentives or through constantly working the relationships. Many systems found themselves at risk for the health behavior of patients who could take their care wherever they wished, and even with whom they had no regular contact.

Stay techno-shy. As early as 2013, a wide variety of inexpensive smartphone and tablet apps and devices emerged that could be used to track, engage with and even treat chronically ill or at-risk patients wherever they were in their lives — simplifying, streamlining and lowering the cost of the constant close engagement such patients need.

So effective did these apps and devices prove, and so popular with patients, that as early as 2014 large market gaps emerged between providers who made full use of them and providers who resisted their use. The market opportunity offered by the ability to effectively manage the health of populations less expensively and more conveniently using apps and small devices meant that many markets saw completely new competitors emerge and take over significant portions of the primary, chronic and long-term care markets.

Similarly, wide market gaps emerged between organizations whose leaders who treated digitizing as a requirement to earn incentive payments from the government, and those who viewed it as a strategic opportunity to use data to drive their strategic choices, tactical decisions and process improvements.

Choose the wrong partners. During the 2013–2014 “gold rush” of consolidation and affiliation, many organizations took on partners just to stake claims in different market segments and to deny market share to their rivals, rather than to fulfill a clear strategic need. Many of these affiliations later had to be unwound or the acquisitions shut down, at great and sometimes fatal cost, as real strategic needs became clearer in the 2015–2018 period.

Use the wrong metrics. Even organizations with clear strategies often failed to correctly identify and acquire the metrics that would help them track success or dictate mid-course corrections. They might, for instance, affiliate with a lab that could charge less for blood tests, or get their surgeons to specify a lower-cost knee replacement implant without realizing that the correct metric is not the price but the “total cost of ownership,” which includes such externalities as the extra guidance to patient, the risk of failure of the less-expensive device or test, or the administrative costs of handling the outsourcing. Organizations using the wrong metrics had little ability to see their true costs as their structures and payment systems changed.

Go light on cost analysis. Traditionally, health care organizations did little true cost analysis. How much it cost to produce, say, a cholecystectomy or a total hip, was of little importance because almost no one got paid a lump sum for the product — they got reimbursed for the individual items (such as scans, anesthetic services or implants) that went into the product. Most costs were the costs of whole departments, supply streams and overhead categories that were simply allocated to specific operations, tests and other chargeable items.

When the way you are paid changes, suddenly it matters very much how much it costs you to produce a given outcome. In the post-ACA risk-bounded world, health care organizations that developed a robust analysis of their real costs at the case and practice-unit level proved much more competitive than those that took cost analysis lightly.

Overlook process controls. Health care at all levels is a series of processes. And processes can be engineered; in fact, they must be. Most processes in traditional health care were never engineered. They had not been thought through, tested, tried, results compared, refined, tested again. Rather, they had been thrown together out of bits and pieces to fit the convenience of the practitioners as well as the needs of the accountants and compliance officers.

As unnecessary cost came to the fore as a problem in 2010 and afterward, it became obvious that all health care processes need to be engineered with one goal in mind: bringing the highest quality and the lowest cost to the product, which is health, for the customer — the patient, the patient’s family, the patient’s caregivers, the patient’s community. Health care lacked the infrastructure to do serious advanced process engineering. Those organizations that failed to take the challenge seriously fell behind those that did in the later part of the decade.

Keep prices high. The major reason this market gap developed was as follows: Organizations that did not do robust cost analysis and process re-engineering in response to the new pressures found that they could not lower their prices. They had no evidence on which they could base such a decision. Some organizations had used the turmoil of the times to reinforce their market position, using their monopoly or semi-monopoly status to raise prices and increase volume. When new competitors arose to challenge the monopoly on pieces of their market, they had no room to maneuver.

Misunderstand cash flow. The new structures and payment regimes often involved significant new revenue streams. Even organizations that had pieced together sound development strategies that budgeted out often failed to notice how different those new revenue streams looked on a cash-flow basis.

Revenue streams that are dependent on meeting quality targets are less predictable than traditional volume-based, fee-for-service streams. (For example, what if you miss a target or the payer quibbles with your data?) They are also delayed: If you invest funds today in hopes of earning incentive payments, you may not see a return on that investment for 18 months or more. Finally, the claims on these revenue streams are significantly more complex if you are earning them through a network of affiliations and partnerships. The proper allocation of costs and revenues not only across the network but across time can help or doom an emerging organization.

Believing Our Own PowerPoints

Remember Dorothy’s response to the command, “Pay no attention to that man behind the curtain”? She opened the curtain and confronted the Great and Powerful Wizard of Oz. She called him a “very bad man” for confusing and misleading her and her companions — and demanded real answers.

Don’t believe your own PowerPoints with all the circles and arrows and phrases like “patient engagement” and “physician alignment.” Get in there and study the plumbing, the actual payment and incentive structures that you are building, the true lines of trust and loyalties and cash flow, and ask the hard questions. Ask yourself whether and how your organization is making each of these mistakes, how resilient your solutions truly are, and how you will know whether you need to do a mid-course correction.

The important thing to know about the future is the most obvious of all: It hasn’t happened yet. Which means that we can change it. I made a few adjustments to the search assumptions in my FutureSearch app, and the article I had found before was not there. In its place was one called “The Great Transformation: 2013–2020.”

With nearly 30 years’ experience, Joe Flower has emerged as a premier observer on the deep forces changing healthcare in the United States and around the world. As a healthcare speaker, writer, and consultant, he has explored the future of healthcare with clients ranging from the World Health Organization, the Global Business Network, and the U.K. National Health Service, to the majority of state hospital associations in the U.S. You can find more of Joe’s work at his website, imaginewhatif. This article first published in Hospitals and Health Networks (H&HN) Daily on May 28, 2013.

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13 replies »

  1. Great analysis especially with the failing to engage patients and staying techno-shy points. It’s perplexing to me that many physicians have yet to embrace social media platforms and mobile technology to communicate with their patients. These technological tools are supposed to enhance the engagement between the physician and the patient. Also, the presence of EMR systems should reflect this interaction. A proper EMR system will give patients more control over their healthcare; providing more convenience for them.

  2. Well, Peter, it’s true that they will be facing some cuts. But I have to say $7.8 billion over a decade is not an impressive amount. That’s $780 million per year. An average urban or suburban system (2-3 hospitals, other services, lots of practices) has a budget in the $5-10 billion range per year. The hospital sector in the US runs an average of about $500 billion per year, so $5 trillion over a decade.

    What they don’t want the public and payers to realize is how incredible soft hospital charges are. According to figures from the International Federation of Health Plans (in dollars actually paid, not the phantom charge-master numbers) the 95th percentile on hospital per-day room charges is $12,537. The 25th percentile is $1514 — 88% less. You can find this spread of prices often within the same market, sometimes within the same facility for different payers.

    So 25% of the market is making do at that lower level. I am sure that big teaching hospitals, trauma centers, and such have truly unavoidably higher costs. But nine times the cost, on everything? I don’t think the data exist to support that claim.

    When they say that they don’t know how they would survive with lower payments, I am sure that is true. They don’t know how. But somebody does know how, and in a time or real transparency and buyers making cost-conscious choices, that’s who is going to get the business.

  3. “Non-profit” is mostly a meaningless marketing ploy where hospitals are concerned. Just pick one at random and look at the C-suite compensation packages.

  4. You do have to wonder what is the point of running such ads, since the ACA is the law of the land, the state will have an exchange whether the state does it or the feds do it, there will be new competitors in the insurance market who will be tougher on the hospitals because they have to compete in the exchanges and keep their rates down, private exchanges will soon be taking up about 1/4 of the private market to much the same effect, new transparency coupled with a lot more people with high-deductible plans and self-funded employers means a serious new price sensitivity in the market even for fee-for-service care, and on and on. It’s happening. Expensive whining on TV is a waste of money and attention, and will not help any institution survive in any way.

    They may well believe what the ads say, because the people running the hospital systems have never done it differently, and so don’t know how to. Seriously, they are beginners at their own industry. This is a huge learning moment — and if they resist it might and main, instead of trying to learn new ways, they will not learn and they will fail.

    • Joe, the NCHA wants you to believe that it’s members are touchy feely “community” hospitals but when I looked at their member list it comprised all the hospitals in NC, private and so called “non-profit”. The association is just a trade association protecting itself. It includes Duke, that financially strapped and begging for money institution serving the community.

      Here’s their “Healthy Communities – Healthy Hospitals” campaign statement:

      “The facts are clear: because of the Patient Affordable Care Act and other policy decisions, payments to hospitals will be cut by $7.8 billion over the next decade. These cuts are real. Let’s look at the facts facing our hospitals as we look down the road.”


      Notice the .org, it’s not a .com

      They urge you to call your legislator to stop these “destructive” policies.

  5. Here at least in NC, TV ads claim doom and gloom for hospitals, forced it seems, to restructure to a new reality. People are going to die says the ad, if you take away our proven ways of making money off suffering patients and an entrenched system.

    Joe, their reality is much different than yours.

  6. Well, here’s one tried and true way to fail as you try to reform the health care system —

    1. Don’t explain what you’re doing. Assume the confusion will “take care of itself.” It won’t.

    2. Leave out doctors. One of the key stakeholders groups you’ll need support from to make your great experiment work as you push through your reform package.

    3. Use magical thinking. Assume that technology will solve all of your problems. Don’t stop to consider the possibility that technology will create new problems that you’ll one day have to fix. These will not be small problems.

    3 (a.) Use more magical thinking. Ignore the cheap web-based technologies (Look up. They’re everywhere around you) that could really help in favor of massively expensive health care systems that are basically healthcare defense systems on crack.

    4. Underestimate the political opposition. Don’t stop to consider the possibility that your agenda may give your political enemies (you have quite a few at this point) a new lease on life. Okay, so they’re probably not going to support your attempt to recreate the healthcare system anyway. But you can make it politically painful for them to attack you by pointing out that this is about saving lives, ending pain and suffering, doing the right thing, saving little kids, making America great again. That’s what its about, isn’t it? Or isn’t it?

    5. Use Zombie economic theories. Saying that the market will lower prices will not in and of itself somehow magically lower prices. You’ll need to come up with a better approach than “we’ll build a web site and it will be cool.”

  7. Nails it! Bonus points for the “Great & Powerful Oz” metaphor, which I myself have been using for years to describe what’s wrong w/US healthcare.

    Forget “patient engagement” – until healthcare starts treating patients like full participants in the system, that will remain a shiny happy marketing ploy with no change-weight whatsoever. Patients will remain “the product” – meat puppets – as long as any fee-for-service/pay-per-slice stays embedded in healthcare.

    Wanna *really* start a revolution? End employer-backed group insurance as a requirement.

  8. “Believing Our Own Powerpoints”

    Honorable Mention, Best Subhead – Business writing ..

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