In 1980, industry healthcare planners imagined a system where the centerpiece was a hospital in every community and a complement of physicians. Demand forecasting was fairly straightforward: based on the population’s growth and age, the need was 4 beds per thousand and 140 docs per 100,000, give or take a few.
In 1996, the Dartmouth Center for the Evaluative Clinical Sciences published the Dartmouth Atlas on Health Care quantifying variability in the intensity of services provided Medicare enrollees in each U.S. zip code. They defined 306 hospital referral regions (HRRs) that remain today as the basis for regulation of our healthcare system.
In the same timeframe (1980-2000), the ratio of doctors per 100,000 doubled as the number of medical schools increased from 75 to 126 leading health planners (Graduate Medical Education National Advisory Council) to predict a surplus of 70,000. Meanwhile, demand for hospital beds edged down slightly to 3.5/1000—the result of managed care efforts in certain parts of the country.
Today, we operate 2.4 beds per thousand and have 265 physicians per 100,000. But the bigger story is the widespread variability in the volume, costs and quality of care across our communities. Across the 306 HRRs, bed supply ranges almost 250%; physician supply even more and costs as much as 400%.
For almost 40 years, we’ve operated the U.S. health system based on an underlying assumption that all healthcare is local. We’ve presumed that except in rare circumstances, patients stayed home for the care they need. But that’s changing.
Three trends are converging that are changing how we think of the markets we serve:
Virtual care: Goldman Sachs forecasts virtual care will be a $20 billion industry by 2020 as employers and insurers adopt lower cost options to local medicine. Investor-funded companies (American Well, Teladoc, 2nd.MD, Carena, Health Integrated, MD Live, et al) offer distance medicine that is convenient and less costly. 78% of consumers say they would be receptive to receiving care virtually (Carenet Healthcare Services) though only 14% of hospitals offer digital tools and only 23% offer telemedicine (Kaufman Hall). And funding for digital health is robust: per RockHealth, start-ups have attracted $18 billion in the last four years, with most applications targeting mechanisms whereby consumers can make better choices about the care they receive, where, from whom and at what cost.
Destination Hubs: Historically, individuals left their community when facing a complex diagnosis based on a referral from a trusted local clinician. For cancer, Hutchinson, Dana Farber, Memorial Sloan Kettering, Mayo, MD Anderson, Moffit and others were prominent. For hearts, Cleveland Clinic, New York Presbyterian, Mayo, Mass General, Duke, Northwestern, Brigham and Women’s and others attracted referrals. Most of these set-up referral management programs to accommodate out of town patients, offering lodging and other forms of assistance. But destination hubs have expanded beyond those that cater to physician referrals. Each of these is a business model that makes a big bet that consumers will leave their community for care elsewhere:
Founded in 1988, Cancer Treatment Centers of America (CTSA) operates inpatient and outpatient facilities in 5 markets. Its national ads promote its integrative clinical model and patient-friendly approach to diagnosing and treating the full continuum of cancers. On its website, patient satisfaction scores for each patient cohort are reported with scores averaging above 95%.
Founded in 2005, Laser Spine Institute operates surgery centers in 7 markets and advertises nationally. It offers a free MRI and requires candidates for their minimally invasive procedures to stay within 15 miles of their surgery center one day after the procedure for post-op follow-up. Per its website, the company has performed 75,000 procedures: 60% for patients who live outside its markets.
Large employers like Boeing, Wal-Mart, Lowe’s, Whole Foods are contracting directly with hospitals out of their local markets. Though only 3% of employers contract directly today, the National Business Group on Health estimates activity will increase as health costs escalate in coming years.
And medical tourism remains a factor: According to Patients beyond Borders, 1.4 million U.S. adults traveled outside the U.S. for medical care last year. The Joint Commission International accredits 458 hospitals off-shore that perform elective surgical procedures as 30% of the
So, destination hubs are no longer limited to tertiary care providers in urban settings.
Affordability: One in five Americans under the age of 65 say they are having problems paying their medical bills and 2 million will declare bankruptcy due to medical debt this year (Nerd Wallet). As prices charged by U.S. providers. Reported by the Federal Reserve last November, household debt hit an all-time high last year increasing 16% since the summer of 2013. Student loan, medical and mortgage debt are the culprits. As households face higher deductibles, affordable options will be on their radar. Out-of-market healthcare services offered at a lower price by a reputable provider will be attractive. And the entry of Amazon-JPMorgan-Berkshire Hathaway into the fray of employer benefits and health cost containment promises to spark increased consideration of new models and strategies.
The bottom line is this: healthcare is no longer about competition between insurers, physicians and hospitals operating in a relatively confined hospital referral region. It’s about health facilities and services offered by parties that bet local consumers will respond favorably to their pitches.
The reality is that consumers are finding alternatives to local care: some to obtain services they can’t get at home and many for care they think better, cheaper or easier to access elsewhere.
For the least fortunate in our communities, staying at home for care is reality. For others, out of town options are expanding.
Strategies that presume all healthcare is local are bound to the same fate as Borders, Blockbuster and 10,000 other retailers who’ve ceased operations in the past decade as their markets changed (National Retail Federation). They recognized the retail apocalypse too late to respond.
So, at best, some healthcare is local, but not all.