The Opportunity in Disruption, Part 5: Five Strategies of Cooperation


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.

There are five ways that both healthcare providers and payers can cooperate while they compete to bring the highest value forward to the customer.

  1. Align incentives in the contracts: Healthcare providers must be able to provide performance guarantees that give at least some of the bottom-line risk to them. Work with third-party companies that can actually audit organizations’ abilities to give performance guarantees consistently over time.

  2. Eschew embiggening: Size per se is not a safe harbor from risk. There are few economies of scale in healthcare. Concentration within a given market can be essential to success in offering a true range of services, well supported, at a lower price, customized to the regional population, the provider mix, the state laws, and the local economy. But local concentration is not the same thing as size per se.

    And size does not help the customer. There just are no examples in the history of healthcare in which size alone has returned greater value to the patient, the consumer, or the buyer, whether lower cost, greater reliability, or higher quality. 
  3. Expand the definition: Widen the “medical services” that you fund and offer to include services such as functional medicine, chiropractic, acupuncture, and various other modalities that have been shown to be highly effective at far lower cost. There absolutely are ways to do this within licensing requirements.
  4. Integrate behavioral health: Find ways to fund behavioral health and addiction treatment. Integrate behavioral health directly into the patient experience, triaging at the door to the Emergency Department and in every primary encounter. Find local innovators that can help pre-empt costly crises. Partner with community health, housing, and nutrition advocates. Helping people change their habits, manage their lives, and get beyond their addictions is far less expensive than fixing them over and over.
  5. Retrain clinicians: Physicians and other clinicians are heavily trained to create and document reimbursable events. If you change the economics so that the system finds ROI in promoting health, preventing disease, managing population health, producing cures and reducing suffering as efficiently as possible, those very same clinicians will need to be retrained. Most of them will be deeply grateful, because they, like you, genuinely want to bring real value to the customer. In fact, if you do this you could end the physician shortage and the nurse shortage. People will flock back to do what they became a doctor or a nurse to do: Help people. 

Taking advantage of disruption. Easy? Hard.

None of this easy. It is extraordinarily difficult and fraught with risks. But so is the future looming before you. Doing things the same old way doesn’t lower your risk, it raises it. There is no quick way out of this pickle. Healthcare CFOs have a chance to help their organizations survive this looming transformation, but only by embracing change, building new kinds of relationships, shifting financial dynamics and looking for opportunities within the disruption.

“I don’t know why,” musical revolutionary John Cage is said to have said, “people are so afraid of new ideas. I’m afraid of the old ideas.”

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.

2 replies »

  1. I’ll offer several thoughts on this.

    First, it’s estimated that 75%-80% of healthcare costs relate to the management of chronic disease including virtually all of my own claims. Doctors simply can’t control patient compliance whether it’s taking medications as prescribed or adhering to sensible lifestyle choices — diet, exercise, smoking, drugs, etc. That makes it hard for them to absorb financial risk.

    Second is the issue of administrative complexity. I note that Germany, Switzerland and the Netherlands all use insurance companies yet have healthcare costs as a percentage of GDP roughly in line with the countries that use a single payer system. It’s possible to develop common claims forms and other simplification techniques that would reduce the administrative burden on providers though the insurance industry may need an anti-trust exemption to make that happen.

    Third is the issue of excessive hospital charges, especially in markets where there is a high concentration in both hospitals and physician groups owned by a single system. I think we should mandate the elimination of all or none contracting so insurers can contract with some hospitals within a system but not others and there should be no restrictions on physician referrals to less expensive providers outside of a market dominant hospital system. Perhaps the biggest hospital systems with near monopoly power in a region should be treated as regulated utilities which means they should be allowed to earn a return within a zone of reasonableness assuming they are efficiently run and have a sustainable occupancy rate. Out of network charges should be capped at some reasonable percentage above Medicare, especially in the case of doctors that the patient has no role in choosing as well as ambulance charges.

    We also need cultural changes in the form of malpractice litigation reform that gets these cases out of the hands of juries who can be easily swayed by emotion in favor of specialized health courts with judges empowered to hire neutral experts to help sort through conflicting scientific claims. That could help to reduce defensive medicine over time. Second, we need a more sensible approach to end of life care. Today we have too much marginally useful at best and futile at worst care being delivered at or near the end of life. In other developed countries, the culture leans more toward not imposing unreasonable costs and expectations on your fellow citizens.

  2. Joe, Nice job in your series in laying out the rationale for 1) why today’s fee-for-service model CANNOT provide value and is destined for the junk heap, and 2) describing a vision of what the health system of tomorrow SHOULD be doing.

    That said, most of these arguments were made to health systems a decade ago…and for the most part they’ve resisted the movement toward value…and in hindsight that looks like a pretty good (financial) decision as health systems have been able to continue to milk the financial benefits of fee-for-service.

    So, other than a conclusionary statement of “trust me, things are REALLY different in 2019 and you (the health system) MUST transform”, why should health system and payer execs follow your advice today? why not continue the “drag our feet” strategy of the past decade?

    Not trying to be snarky…just searching for the uniqueness in your POV.