Health Policy

The Opportunity in Disruption, Part 2: The Shape of Today’s System

By JOE FLOWER

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.

Healthcare CFOs must look at the environment in which their system lives: Since 2007 the actual costs for the average middle-class family for many of the basics of life have decreased in real terms, while their actual costs for healthcare have risen 25%, or even more counting co-pays, deductibles, and out-of-pocket expenses. This long, continuing rise in the costs along with the continuing and increasing unreliability of the healthcare system (“Will it actually be there for me when I need it? Will it bankrupt me?”) create unyielding disruption.

Instability: Omens

I am no fortune teller, but here are some things we can see right now that give us a sense of what’s coming.

  • Political shift: Public opinion has shifted. When polled about actual policies, healthcare has been cited repeatedly as the top concern of voters across the country. Voters’ top concerns are cost, the risk to patient protections in the ACA, and threats to “reform” Medicare by weakening it. The popularity of “single payer” proposals is a direct result of the cost and uncertainty of healthcare, a simple cry to “Do something!” Under this pressure we are more likely to see drastic solutions proposed and passed at the federal and state level or embodied in regulatory changes and lawsuits against industry practices.
  • Degradation of American life: With the opioid epidemic, the rise in suicides, the actual regression in life expectancy, and the increasing income and wealth divide, people increasingly feel that the healthcare industry is just not helping. They feel it is in fact part of the problem. The feeling that there is no one there to help us adds to the desperation of many parts of American society and heightens the political cost of the healthcare issue.
  • Public awareness: Healthcare is intensely personal, visceral. It’s crazy-making. Surprise bills, balance bills, other bills slipped through loopholes in the fine print or even in unwritten industry practices—what the industry considers standard operating procedure, the customers view as shocking, aggressive, and financially crushing.
  • The rebellion of the buyers: The percentage of buyers—such as employers, unions, and pension plans—telling various polls that healthcare costs represent a major problem for their business has more than doubled in the last five years and is now a majority. Buyers are pushing for choices to control costs and manage quality. They are beginning in greater numbers to demand reference pricing tied to Medicare rates, direct access to competitive bundled prices, and price transparency through centers of excellence, high performance networks and accountable care organizations. Some 65% of employers plan on implementing direct primary care in onsite or near-site clinics by 2020. Buyers are increasingly willing to take their beneficiaries elsewhere if your business can’t meet their demands.

New entrants in the marketplace: In response we are seeing a thousand new flowers bloom in the healthcare marketplace. We are seeing never-before-seen congeries of insurers and providers, of insurers and retail pharmaceutical chains, with CVS buying Aetna and CIGNA buying Express Scripts. The Blues are bankrolling Sanitas primary care centers in multiple states. CVS Health, Walgreens Boots Alliance and Wal-Mart are already eating into hospital volume with their in-store health centers, and Amazon’s new chain of grocery stores will have a healthcare component as well. UPS is even partnering with Merck to launch an in-your-home vaccination project. The high-tech giants all have plays offering to straighten out the kinks in the system. The new virtual/direct primary care company 98point6 is off the ground with 50 companies signed up. Multiple new primary care chains (Zoom+, Iora, ChenMed, OneMedical), free-standing emergency centers, and enhanced urgent care centers with overnight stays, infusion, and other services are popping up, almost all with different business models, workflows, efficiencies, and pricing structures.
 
It’s classic capitalism: If you fail to meet the needs of your customers, someone else will show up who can do the job better. In the end, the only opinion that counts is the buyers’ opinion.

  • New transparency: All HIPAA covered entities are now required to have digital interfaces to give patients the full and free access to their medical records, and the patients are free to share that information with any other entity. This is a great step for the patient. For healthcare organizations, it can have revolutionary effect. In your organization, you may think of the EMR database as “your” records, but any new competitor in any particular niche can get those records just by asking the customer for them. And yes, there will be apps for doing that.
  • Shifts in pricing and reimbursement: Currently, a physician’s office performing an X-ray (for instance) bills at one level, while a hospital bills at a significantly higher level, and often adds on “facility fees” and other fees. It is not uncommon for a bill for the same service—even using the same machines and personnel—to be ten times as much coming from a hospital as from a physician group working in the hospital. This practice has been one major driver of the vast consolidation we have seen over recent years. CMS has announced that this practice will end. Reimbursement in the future will be “site agnostic.” Similarly, CMS has announced the end of accountable care arrangements in which healthcare providers do not actually take on any risk. In the future, providers will get a risk payment only if they can show that they have actually reduced overall costs—a demand that itself calls for a whole new level of metrics, of transparency, of financial infrastructure.
  • Limits of “value” arrangements: Over the past decade and more the response by providers to the spiraling costs have been to attempt a shift from “volume to value” through a variety of market experiments. Increased value to the customer means either giving the customer the same product at a lower cost, or giving them a better product (more complete, more appropriate, more reliable) at the same cost. The fact that the cost of healthcare has continued to rise represents an enormous market opportunity for any organization that can offer true value in healthcare: Actual reduced costs for standard products, or product that is greatly enhanced in reliability, appropriateness, and quality at the same cost. Don’t kill me, don’t bankrupt me, don’t bleed me dry: This is the huge business awaiting whoever can put it together.
  • New tech: Finally, we are seeing more and more technologies arising that can enable greater efficiencies in healthcare, from the clinical to the administrative to patient engagement. Every medical tech conference I have gone to for years has featured one or more bits of tech whose proponents proclaim, “This changes everything!” Every time, I feel, “No. Not by itself. But it will help when the time comes to change the fundamentals.” That time is near.

So where is this leading us? Part 3 will look at The Shape of Things To Come

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.

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