Health Policy

The Opportunity in Disruption, Part 1


The system is unstable. We are already seeing the precursor waves of massive and multiple disturbances to come. Disruption at key leverage points, new entrants, shifting public awareness and serious political competition cast omens and signs of a highly changed future.

So what’s the frequency? What are the smart bets for a strategic chief financial officer at a payer or provider facing such a bumpy ride? They are radically different from today’s dominant consensus strategies. In this five-part series, Joe Flower lays out the argument, the nature of the instability, and the best-bet strategies.

“It’s a buckdancer’s choice, my friend. Better take my advice. You know all the rules by now, and the fire from the ice.”

— Robert Hunter, “Uncle John’s Band”              

Chief Financial Officer: tough gig. Seriously. Whether for a payer or a healthcare provider, the CFO’s job is the exact point where the smiling faces on the billboards meet the double entry, the financing, the payer mix, the debt structure. And it all has to work out in the black. It has to do that sustainably, not only this year but next year and five years from now. Best guess? It’s going to get a lot tougher, with shifting revenue streams, market boundaries, new technologies, growing consumer expectations and uncertain politics. 

Raise your hand if you can tell me the significance of these names: Univac, Control Data, Burroughs, Digital, Honeywell, IBM, NCR.

These companies dominated the computer world in 1980. As of 1990, all but IBM were gone, bankrupt, subsumed into some other company, or just out of the computer business. The one that survived, IBM, is the one that said, “Maybe we should at least get a toehold in this new personal computer game, even though it is risky for our main revenue streams.” All the others went “poof.”

A number of factors—radical new technologies with vast potential, ramifying customer frustration, shifting user base—are coming together to put healthcare today at exactly the place the computing world was in 1980.

A Beautiful System In Danger

The U.S. healthcare system is in many ways a beautiful system. We can be proud of our world-leading technology, gorgeous physical plants, and a vigorous sector fairly fountaining the best jobs.

In many ways, the system is doing really well at what it is designed to do. But we have to ask: What is it designed to do?

The medical care system and the clinicians who work in it are focused on curing people, keeping people healthy, fixing them where they are broken.

The healthcare system that now envelops, manages, and pays for all that wonderful work is designed for a different aim. No one person or group designed it this way. It is a complex adaptive system with many interacting parts that developed over the last half century or so. It is, in a sense, self-designed.

An economic market that works brings together healthcare consumers with providers who can give them what they need at a price they can afford. 

The fee-for-service system is working at cross-purposes to the needs of consumers, employers and other buyers. Healthcare costs far too much, is far too wasteful, and still can’t seem to take care of everyone.

No system can long survive working so vividly at cross-purposes to the needs of its real customers and buyers. Eventually that mismatch generates unrecoverable instability in the system.

The U.S. system has almost exclusively a single financial input: code-driven, incident-focused, insurance-supported, fee-for-service payments. Its other key inputs are not financial but human: the needs of patients, and the commitment and passion of the clinicians and caregivers.

The problem expressed in the iron tongue of financials is: How do we close the gap between our customers’ and clinicians’ real needs and the financial engineering of our systems? How do we shift from the current single-input model to new models that will bring us closer to our customers and help us do the job we are here to do? What are the new dynamics? Who are our new partners and allies? No one does this alone.

So here’s the nut: Disruption, opportunity, direction

Disruption: Few healthcare customers can rely on any assurances about which provider is in or out of network, what is covered, or what any given encounter will actually cost them. Yet getting this wrong can mean life-changing debt and bankruptcy.

Opportunity: This fact represents the biggest business opportunity in healthcare. “Promise me that you won’t bankrupt me or bleed me dry, and stand behind that promise—and I will be your customer for all of my natural-born days.”

Direction: So with this background, where will the combination of new market entrants and the more militant buyers take us?

The clearest direction is toward:

1) a more fluid market, and

2) new ways of paying for healthcare such as various population health management packages, direct pay primary care, bundled payments, and medical tourism—all of which shift the risk onto the healthcare provider to get the price and offering right.

Part 2 of this series will examine the current dynamics of healthcare to find its vulnerabilities and therefore its opportunities.

Joe Flower has 40 years of experience in the healthcare world and has emerged as a thought leader on the deep forces changing the system in the United States and around the world.

3 replies »

  1. “Non profit” health systems are not profit maximizing entities: they are revenue maximizing entities. That is worse, because at least for profit organizations try to maximize efficiency. Revenue maximization organizations have little interest in efficiency….just keep prices secret, reduce competition by acquisition (and get higher facility fees), ..

  2. Yes, Barry, these are the easy pickings if, as you say, “they really wanted to.” For the most part, they don’t want to. I believe that in these and many other ways they are missing big opportunities in what will become an increasingly disrupted environment.

  3. Putting a stop to surprise bills from radiologists, anesthesiologists, pathologists and emergency medicine doctors would be a big step in the right direction. Hospitals could fix this if they really wanted to by guaranteeing patients and payers that they would not be responsible for more than the payer’s in network rate if the hospital itself is in the network. Hospitals could make agreements with the doctors to pay them more than the in network rate, which would be negotiated between the parties, and build any loss into the negotiated payer rate for in network hospital care.

    The other big source of surprise bills is for ambulance services. This may require a political solution involving the towns where the ambulances operate. A reasonable minimum charge plus a sensible per mile charge would be appropriate with some of the payment coming from states and localities if the ambulance is out of network as many are today.