In most industries, business leaders tend of think of changes as evolutionary (slow market shifts that require strategic adjustments and operational refinements) or revolutionary (with more profound impacts necessitating bigger bets on new products, new markets or major redirects).
In healthcare, a risk-averse industry (thanks to the presence of large institutions and even larger economic stakes), the rate of change often seems slow, or evolutionary. But, in truth, hospital systems and healthcare organizations (HCOs) now face multiple revolutions at the same time. These changes – which may have begun gradually – are now gathering momentum and occurring at multiple dimensions of the business, which makes them seem more revolutionary in nature.
Consider the underlying economics of the industry. Only a few years ago, individuals and families were responsible for a very small percentage of the cost of healthcare. Today, that number has soared to 40% or more by some estimates. Yes, the change has been slow, but the profound impact is just now being felt; consumers are now more likely to compare prices or question the need for expensive procedures, particularly in services like physical therapy or medical imaging, where location, convenience and price are often key driver in the patient’s selection of a provider. Compared to the recent past, patients are now more involved in the process of determining their own care. And for all the discussion of consumer-driven care during the last few years, the industry still has work to do to get prepared.
The next tectonic change in healthcare economics will be the shift away from fee-for-service models, which remain prevalent today, and toward outcome-based or fee-for-value structures, which are slowly gaining traction. Those procedures that are highest-grossing and highest-margin in your acute care center today may not be in a fee-for-value world. The incentives and economic calculus will change significantly. The impact of this change can scarcely be overestimated, even if it won’t happen overnight.
It’s also worth noting the regional differences. In some places, fee-for-value is taking hold more rapidly. Large employers in the Pacific Northwest (Boeing and Intel most notably) are increasingly involved in setting baseline costs and determining quality metrics for certain types of care.
The ongoing migration to outpatient care delivery settings is related to this reimbursement revolution. More and more procedures are moving to outpatient environments. Leading healthcare consultancy Sg2 predicts that outpatient spine surgeries, including increasingly complex procedures, will grow 12% from 2015 to 2020, while inpatient volumes continue to decrease. Certain procedures – like decompressions (25%) and fusions (100%) – will migrate even faster. Somewhere between 60-70% of all surgical procedures now take place in outpatient facilities.
The so-called “consumer-ization” and “retail-ization” of care, along with the rise of home healthcare, are related trends with similar impacts. Here again, a gradual migration has now reached a tipping point. The huge flagship hospital facilities that were at the center of the healthcare universe are faced with shrinking revenue streams, even if they are still essential components in a more distributed healthcare system.
This shifting landscape goes right to the bottom line; more revenue now comes from outside the main flagships, which means hospitals need to think in terms of “systems of care,” to use Sg2’s term. And as patients adjust to the new world of care, where they are economically incented to take more responsibility for their care, hospitals will be under increased pressure to track the movement of patients through complex care paths. Again, the potential impacts look revolutionary. As a recent Harvard Business Review article put it:
“It’s time for a fundamentally new strategy. We must move away from a supply-driven health care system organized around what physicians do and toward a patient-centered system organized around what patients need.”
The same tension between big-and-centralized vs. light-and-distributed applies to healthcare technology. Many HCOs invested tens of millions of dollars in large-footprint systems for electronic health records (EHRs). That was a great idea when it looked like most care would remain centralized in large hospitals. But in a more distributed and decentralized system – with more facilities and specialists involved, and patients taking a greater role – the EHR model looks increasingly like a species destined for extinction. Connectivity and interoperability (certainly not the strong suit of EHRs) will soon become necessary characteristics for top technology in healthcare.
It’s not news that healthcare is facing big, revolutionary change. Though disruption doesn’t happen overnight, the revolutionary forces are happening now. That means the organizations and leaders that make decisions today based on the scope and severity of these disruptions are likely to succeed in the brave new world of tomorrow. They must be evaluating the investments they make today in terms of the likely changes in the industry landscape tomorrow. They must evolve better and faster, even as the revolution threatens to change everything around them.