The old conversation: “You cost too much.”
“But we have these sunk costs, patients who can’t pay … ”
“OK, how about a little less then?”
The new conversation: “You cost too much. We will pay half, or a third, of what you are asking. Or we will take our business elsewhere. Starting now.”
“But … but … how?”
Exactly: How will you survive on a lot less money? What are the strategies that turn “impossible” to “not impossible”?
The old conversation arises from the classic U.S. health care model: a fully insured fee-for-service system with zero price transparency, where the true costs of any particular service are unknown even to the provider. The overwhelmingly massive congeries of disjointed pieces that we absurdly call our health care “system” rides on only the loosest general relationship between costs and reimbursements.
It’s a messy system littered with black boxes labeled “Something Happens Here,” full of little hand waves and “These are not the droids you’re looking for.”
With bundling, medical tourism, mandated transparency, consumer price shopping, and reference pricing by employers and health plans, we increasingly are being forced to name a price and compete on it. Suddenly, we must be orders of magnitude more precise about where our money comes from and where it goes: revenues and costs.
We must find ways to discover how each part of the strategy affects others. And we need some ability to forecast how outside forces (new competition, new payment strategies by employers and health plans, new customer handling technologies) will affect our strategy.
Key Strategy Questions
For decades, whenever some path to profit in health care has arisen (in vitro fertilization, urgent care, retail, wellness and the others) most hospitals have said as if by ritual, “That is not the business we are in.” As long as we got paid for waste, few health care organizations got serious about rooting it out.
And most have seemed content with business structures that put many costs and many sources of revenue beyond their control.
In the Next Health Care, the key strategy questions become:
- Why are you not capturing as many revenue streams as possible?