The Opportunity in Disruption, Part 3: The Shape of Things to Come

The Opportunity in Disruption, Part 3: The Shape of Things to Come


Picture, if you will, a healthcare sector that costs less, whose share of the national economy is more like it is in other advanced economies—let’s imagine 9% or 10% rather than 18% or 19%.

A big part of this drop is a vast reduction in overtreatment because non-fee-for-service payment systems are far less likely to pay for things that don’t help the patient. Another part of this drop is the greater efficiency of every procedure and process as providers get better at knowing their true costs and cutting out waste. The third major factor is that new payment systems and business models actually drive toward true value for the buyers and healthcare consumers. This includes giving a return on the investment for prevention, population health management, and building healthier communities. This incentive would reduce the large percentage of healthcare costs due to preventable and manageable diseases, trauma, and addictions.

Picture, if you
will, a healthcare sector in which prices are real, known, and reliable.
Price outliers that today may be two, three, five times the industry median
have rapidly disappeared. Prices for comparable procedures have normalized in a
narrower range well below today’s median prices. Most prices are bundled, a
single price for an entire procedure or process, in ways that can be compared
across the entire industry. Prices are guaranteed. There are no circumstances
under which a healthcare provider can decide after the fact how much to charge,
or a health insurer can decide after the fact that the procedure was not
covered, or that the unconscious heart attack victim should have been taken to
a different emergency department farther away.

Picture a
well-informed, savvy healthcare consumer, with active support and incentives
from their employers and payors, who is far more willing and eager to find out what their choices are and exercise that
. They want the same level of service, quality, and financial choices
they get from almost every other industry. And as their financial burden
increases, so do their demands.

Picture a reversing
of consolidation
, ending a providers’ ability to demand full-network
contracting with opaque price agreements—and encouraging new market entrants
capable of facilitating a yeasty market for competition. Picture growing
disintermediation and decentralization of healthcare, with buyers increasingly
able to act like real customers, picking and choosing particular services based
on price and quality.

Picture an
industry whose processes are as revolutionized by new technologies
as the news industry has been, or gaming, or energy. Picture a healthcare
industry in which you simply cannot compete using yesterday’s technologies—not
just clinical technologies but data, communications, and transaction

True Value

industries define their “value proposition” as: How do we succeed by bringing
the customer greater real value, with products and services that have some
combination of lower price, greater reliability, and more functionality? The
question is: “How do we get the job done better at a reasonable price?”

That would be a
radical re-definition for healthcare
. It is simply not what today’s
structures are built for. The fee-for-service model by its nature cannot drive
toward true value for the customer. Yet this radical re-definition is exactly
what all of healthcare’s customers and buyers and all of the new disruptive
entrants in the healthcare market are pushing for. Their question, getting more
and more urgent by the moment, is: “How do we get what we pay for in healthcare?”

Will we
succeed? Do we really have to adapt ourselves to this radical re-definition? Or
can we count on the basic underpinnings of the market staying mostly the same
for the foreseeable future? Obviously, we can’t know. The shifts above suggest
that the market is moving in a new direction, but that move has not yet reached
a tipping point.

But the real
question to ask is not whether it will happen or not. The right question is: What’s
the smart bet for a payer or provider CFO?

smart bet is to act as if this radical re-definition of our value is going to
happen and shift your strategies to account for it.

Here’s the argument for why this will happen:

  • The shifts in the marketplace, new entrants, and enabling technologies indicate that at least some significant portion of your market is going to be able to find their way to this new value proposition.
  • The strategies that providers and insurers and new entrants are testing are not mere tweaks, not small programs for particular customers, but systemic changes and strategic shifts across the entire system.
  • Developing the ability to partner, to know your real costs, to tough-love bargain with suppliers, and to create bundled offerings at the right price will put you in a stronger market position whether the market shifts a little or a lot. Developing new revenue streams and new organizational capabilities never hurts.
  • Betting that this market shift won’t happen enough to affect you leaves you dependent on the single insured fee-for-service revenue model. You’re like a farmer with a single crop in a market with only a few buyers. Your guess about the future had better be right.

So what are the key strategies for managing this turbulence? We’ll discuss that in Part 4.

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.

Leave a Reply

Your email address will not be published. Required fields are marked *