One of the great things about my job is getting the opportunity to talk with healthcare CEOs around the country on a regular basis.
Lately, every CEO I talk with tells me how hard it is to run a healthcare organization in 2023.
These are people with long experience, people who over time have pushed the right buttons and pulled the right levers to make their organizations successful and to give their communities the care they need.
Hearing these recent comments from CEOs takes us back to the concept of “wicked problems,” which we’ve referred to in the past, and suggests that the current hospital operating environment is overwhelmed by wicked problems.
As a reminder, the wicked problem concept was developed in 1973 by social scientists Horst Rittel and Melvin Webber.
Unlike math problems, wicked problems have no single, correct solution. In fact, a solution that improves one aspect of a wicked problem usually makes another aspect of the problem worse.
Poverty is a common example of a wicked problem.
According to Rittel and Webber, all wicked problems have these five characteristics:
They are hard to define.
It’s hard to know when they are solved.
Potential solutions are not right or wrong, only better or worse.
There is no end to the number of solutions or approaches to a wicked problem.
There is no way to test the solution to a wicked problem—once implemented, solutions are not easily reversable, and those solutions affect many people in profound ways.
Healthcare is one of our nation’s critical wicked problems, and the broad and persistent effects of COVID have made that problem worse.
Like all wicked problems, the wicked problem of healthcare can be defined in many different ways and from many different perspectives.
If we were to frame the wicked problem of healthcare just in the context of hospitals and health systems coming off of their worst financial year in memory, it could look something like this:
Hospitals and health systems need to make a margin in order to carry out their “duty of care”—that is, their responsibility to improve health for communities, which increasingly include public health undertakings.
However, in 2022, more than half of hospitals in America had negative margins due largely to macroeconomic factors related to labor, inflation, utilization, and insufficient revenue growth.
The actions then needed to improve financial performance likely involve reducing labor costs and eliminating unprofitable services.
But these solutions in the hospital world are seen as another wicked problem, and actions taken to improve financial and clinical operations are often cautiously approached in order to protect the organization’s duty of care.
As you can see, the very actions to solve the wicked problem of provider healthcare may likely make aspects of the strategic problem worse.
Everyone reading this blog is dedicated to solving these and other wicked problems related to health and healthcare and the provision of sufficient care to the American community.
Solutions to healthcare’s wicked problems are never clear, and those solutions are not easily tested and eventually can affect many.
And in the wicked problem lexicon, once uncertain solutions have been implemented they are very hard to undo.
And healthcare’s many and varied dissatisfied stakeholders demand rapid solutions and then complain loudly when those solutions fall short, as any one solution inevitably will when the problem is as wicked as the current healthcare environment.
This is the new role of healthcare leaders: solvers of wicked problems.
Published in the April edition of Health Affairs Forefront, this piece unpacks why payers and other corporations have replaced health systems as the top bidders for primary care practices, driving up practice purchase prices from hundreds of dollars to tens of thousands of dollars per patient. While corporate players like UnitedHealth Group, Amazon, and Walgreens have spent an estimated $50B on primary care, it pales in comparison to the potential “$1T opportunity” in value-based care projected by McKinsey and Company.
The authors argue that this tantalizing opportunity exists because the Centers for Medicare and Medicaid Services (CMS) invited corporations to “re-insure” Medicare through capitated arrangements in Medicare Advantage (MA) and its Direct Contracting program.
While CMS intended to promote risk and value-based incentives to improve care quality and costs, the incentive structures baked into these programs have afforded payers record profits, despite neither improving patient outcomes nor reducing government healthcare spending.
The Gist: While the critiques of MA reimbursement structures in this piece are familiar, they are woven together into a convincing rebuke of the “unintended consequences” of CMS’s value-based care policy.
Through poorly designing incentives, CMS paved a runway for corporate America to capture the lion’s share of the financial returns of value-based care, paying prices for primary care that health systems can’t match.
Meanwhile, despite skyrocketing valuations for primary care practices, primary care services remain underfunded and inadequately reimbursed, pushing primary care groups closer to payers with excess profits to invest.
The film “American Hospitals: Healing a Broken System” premiered in Washington, D.C., on March 29. This documentary exposes the inconvenient truths embedded within the U.S. healthcare system. Here is a dirty dozen of them:
Hospitals are largely unaccountable for poor clinical outcomes.
The cost of commercially insured care is multiples higher than the cost of government-insured care for identical procedures.
Customer service at hospitals is dreadful.
Frontline clinicians are overburdened and leaving the profession in droves.
Healthcare still operates the same way it has for the last one hundred years — delivering hierarchical, fragmented, hospital-centric, disease-centric, physician-centric “sick” care. Accordingly, healthcare business models optimize revenue generation and profitability rather than health outcomes. These factors explain, in part, why U.S. life expectancy has declined four of the five years and maternal deaths are higher today than a generation ago.
It’s hard to imagine that the devil itself could create a more inhumane, ineffective, costly and change-resistant system. Hospitals consume more and more societal resources to maintain an inadequate status quo. They’re a major part of America’s healthcare problem, certainly not its solution. Even so, hospitals have largely avoided scrutiny and the public’s wrath. Until now.
“American Hospitals” is now playing in theaters throughout the nation. It chronicles the pervasive and chronic dysfunction plaguing America’s hospitals. It portrays the devastating emotional, financial and physical toll that hospitals impose on both consumers and caregivers.
Despite its critical lens, “American Hospitals” is not a diatribe against hospitals. Its contributors include some of healthcare’s most prominent and respected industry leaders, including Donald Berwick, Elizabeth Rosenthal, Shannon Brownlee and Stephen Klasko. The film explores payment and regulatory reforms that would deliver higher-value care. It profiles Maryland’s all-payer system as an example of how constructive reforms can constrain healthcare spending and direct resources into more effective, community-based care.
The United States already spends more than enough on healthcare. It doesn’t need to spend more. It needs to spend more wisely. The system must downsize its acute and specialty care footprint and invest more in primary care, behavioral health, chronic disease management and health promotion. It’s really that simple.
My only critique of “American Hospitals” is many of its contributors expect too much from hospitals. They want them to simultaneously improve their care delivery and advance the health of their communities. This is wishful thinking. Health and healthcare are fundamentally different businesses. Rather than pivoting to population health, hospitals must focus all their efforts on delivering the right care at the right time, place and price.
If hospitals can deliver appropriate care more affordably, this will free up enormous resources for society to invest in health promotion and aligned social-care services. In this brave new world, right-sized hospitals deliver only necessary care within healthier, happier and more productive communities.
All Americans deserve access to affordable health insurance that covers necessary healthcare services without bankrupting them and/or the country. Let me restate the obvious. This requires less healthcare spending and more investments in health-creating activities. Less healthcare and more health is the type of transformative reform that the country could rally behind.
At issue is whether America’s hospitals will constructively participate in downsizing and reconfiguring the nation’s healthcare system. If they do so, they can reinvent themselves from the inside out and control their destinies.
Historically, hospitals have preferred to use their political and financial leverage to protect their privileged position rather than advance the nation’s well-being. Like Satan in Milton’s “Paradise Lost,” they have preferred to reign in hell rather than serve in heaven.
Pride comes before the fall. Woe to those hospitals that fight the nation’s natural evolution toward value-based care and healthier communities. They will experience a customer-led revolution from outside in and lose market relevance. Only by admitting and addressing their structural flaws can hospitals truly serve the American people.
I have been both a frontline officer and a staff officer at a health system. I started a solo practice in 1977 and cared for my rheumatology, internal medicine and geriatrics patients in inpatient and outpatient settings. After 23 years in my solo practice, I served 18 years as President and CEO of a profitable, CMS 5-star, 715-bed, two-hospital healthcare system.
From 2015 to 2020, our health system team added 0.6 years of healthy life expectancy for 400,000 folks across the socioeconomic spectrum. We simultaneously decreased healthcare costs 54% for 6,000 colleagues and family members. With our mentoring, four other large, self-insured organizations enjoyed similar measurable results. We wanted to put our healthcare system out of business. Who wants to spend a night in a hospital?
During the frontline part of my career, I had the privilege of “Being in the Room Where It Happens,” be it the examination room at the start of a patient encounter, or at the end of life providing comfort and consoling family. Subsequently, I sat at the head of the table, responsible for most of the hospital care in Southwest Florida. [1]
Many folks commenting on healthcare have never touched a patient nor led a large system. Outside consultants, no matter how competent, have vicarious experience that creates a different perspective.
At this point in my career, I have the luxury of promoting what I believe is in the best interests of patients — prevention and quality outcomes. Keeping folks healthy and changing the healthcare industry’s focus from a “repair shop” mentality to a “prevention program” will save the industry and country from bankruptcy. Avoiding well-meaning but inadvertent suboptimal care by restructuring healthcare delivery avoids misery and saves lives.
RESPONDING TO AN ATTACK
Preemptive reinvention is much wiser than responding to an attack. Unfortunately, few industries embrace prevention. The entire healthcare industry, including health systems, physicians, non-physician caregivers, device manufacturers, pharmaceutical firms, and medical insurers, is stressed because most are experiencing serious profit margin squeeze. Simultaneously the public has ongoing concerns about healthcare costs. While some medical insurance companies enjoyed lavish profits during COVID, most of the industry suffered. Examples abound, and Paul Keckley, considered a dean among long-time observers of the medical field, recently highlighted some striking year-end observations for 2022. [2]
Recent Siege Examples
Transparency is generally good but can and has led to tarnishing the noble profession of caring for others. Namely, once a sector starts bleeding, others come along, exacerbating the exsanguination. Current literature is full of unflattering public articles that seem to self-perpetuate, and I’ve highlighted standout samples below.
The Federal Government is the largest spender in the healthcare industry and therefore the most influential. Not surprisingly, congressional lobbying was intense during the last two weeks of 2022 in a partially successful effort to ameliorate spending cuts for Medicare payments for physicians and hospitals. Lobbying spend by Big Pharma, Blue Cross/Blue Shield, American Hospital Association, and American Medical Association are all in the top ten spenders again. [3, 4, 5] These organizations aren’t lobbying for prevention, they’re lobbying to keep the status quo.
Concern about consistent quality should always be top of mind. “Diagnostic Errors in the Emergency Department: A Systematic Review,” shared by the Agency for Healthcare Research and Quality, compiled 279 studies showing a nearly 6% error rate for the 130 million people who visit an ED yearly. Stroke, heart attack, aortic aneurysm, spinal cord injury, and venous thromboembolism were the most common harms. The defense of diagnostic errors in emergency situations is deemed of secondary importance to stabilizing the patient for subsequent diagnosing. Keeping patients alive trumps everything. Commonly, patient ED presentations are not clear-cut with both false positive and negative findings. Retrospectively, what was obscure can become obvious. [6, 7]
Spending mirrors motivations. The Wall Street Journal article “Many Hospitals Get Big Drug Discounts. That Doesn’t Mean Markdowns for Patients” lays out how the savings from a decades-old federal program that offers big drug discounts to hospitals generally stay with the hospitals. Hospitals can chose to sell the prescriptions to patients and their insurers for much more than the discounted price. Originally the legislation was designed for resource-challenged communities, but now some hospitals in these programs are profiting from wealthy folks paying normal prices and the hospitals keeping the difference. [8]
“Hundreds of Hospitals Sue Patients or Threaten Their Credit, a KHN Investigation Finds. Does Yours?” Medical debt is a large and growing problem for both patients and providers. Healthcare systems employ collection agencies that typically assess and screen a patient’s ability to pay. If the credit agency determines a patient has resources and has avoided paying his/her debt, the health system send those bills to a collection agency. Most often legitimately impoverished folks are left alone, but about two-thirds of patients who could pay but lack adequate medical insurance face lawsuits and other legal actions attempting to collect payment including garnishing wages or placing liens on property. [9]
“Hospital Monopolies Are Destroying Health Care Value,” written by Rep. Victoria Spartz (R-Ind.) in The Hill, includes a statement attributed to Adam Smith’s The Wealth of Nations, “that the law which facilitates consolidation ends in a conspiracy against the public to raise prices.” The country has seen over 1,500 hospital mergers in the past twenty years — an example of horizontal consolidation. Hospitals also consolidate vertically by acquiring physician practices. As of January 2022, 74 percent of physicians work directly for hospitals, healthcare systems, other physicians, or corporate entities, causing not only the loss of independent physicians but also tighter control of pricing and financial issues. [10] The healthcare industry is an attractive target to examine. Everyone has had meaningful healthcare experiences, many have had expensive and impactful experiences. Although patients do not typically understand the complexity of providing a diagnosis, treatment, and prognosis, the care receiver may compare the experience to less-complex interactions outside healthcare that are customer centric and more satisfying.
PROFIT-MARGIN SQUEEZE
Both nonprofit and for-profit hospitals must publish financial statements. Three major bond rating agencies (Fitch Ratings, Moody’s Investors Service, and S & P Global Ratings) and other respected observers like KaufmanHall, collate, review, and analyze this publicly available information and rate health systems’ financial stability.
One measure of healthcare system’s financial strength is operating margin, the amount of profit or loss from caring for patients. In January of 2023 the median, or middle value, of hospital operating margin index was -1.0%, which is an improvement from January 2022 but still lags 2021 and 2020.
Erik Swanson, SVP at KaufmanHall, says 2022,
“Is shaping up to be one of the worst financial years on record for hospitals. Expense pressures — particularly with the cost of labor — outpaced revenues and drove poor performance. While emergency department visits and operating room minutes increased slightly, hospitals struggled to discharge patients due to internal staffing shortages and shortages at post-acute facilities,” [11]
Another force exacerbating health system finance is the competent, if relatively new retailers (CVS, Walmart, Walgreens, and others) that provide routine outpatient care affordably. Ninety percent of Americans live within ten miles of a Walmart and 50% visit weekly. CVS and Walgreens enjoy similar penetration. Profit-margin squeeze, combined with new convenient options to obtain routine care locally, will continue disrupting legacy healthcare systems.
Providers generate profits when patients access care. Additionally, “easy” profitable outpatient care can and has switched to telemedicine. Kaiser-Permanente (KP), even before the pandemic, provided about 50% of the system’s care through virtual visits. Insurance companies profit when services are provided efficiently or when members don’t use services. KP has the enviable position of being both the provider and payor for their members. The balance between KP’s insurance company and provider company favors efficient use of limited resources. Since COVID, 80% of all KP’s visits are virtual, a fact that decreases overhead, resulting in improved profit margins. [12]
On the other hand, KP does feel the profit-margin squeeze because labor costs have risen. To avoid a nurse labor strike, KP gave 21,000 nurses and nurse practitioners a 22.5% raise over four years. KP’s most recent quarter reported a net loss of $1.5B, possibly due to increased overhead. [13]
The public, governmental agencies, and some healthcare leaders are searching for a more efficient system with better outcomes
at a lower cost. Our nation cannot continue to spend the most money of any developed nation and have the worst outcomes. In a globally competitive world, limited resources must go to effective healthcare, balanced with education, infrastructure, the environment, and other societal needs. A new healthcare model could satisfy all these desires and needs.
Even iconic giants are starting to feel the pain of recent annual losses in the billions. Ascension Health, Cleveland Clinic, Jefferson Health, Massachusetts General Hospital, ProMedica, Providence, UPMC, and many others have gone from stable and sustainable to stressed and uncertain. Mayo Clinic had been a notable exception, but recently even this esteemed system’s profit dropped by more than 50% in 2022 with higher wage and supply costs up, according to this Modern Healthcare summary. [14]
The alarming point is even the big multigenerational health system leaders who believed they had fortress balance sheets are struggling. Those systems with decades of financial success and esteemed reputations are in jeopardy. Changing leadership doesn’t change the new environment.
Nonprofit healthcare systems’ income typically comes from three sources — operations, namely caring for patients in ways that are now evolving as noted above; investments, which are inherently risky evidence by this past year’s record losses; and philanthropy, which remains fickle particularly when other investment returns disappoint potential donors. For-profit healthcare systems don’t have the luxury of philanthropic support but typically are more efficient with scale and scope.
The most stable and predictable source of revenue in the past was from patient care. As the healthcare industry’s cost to society continues to increase above 20% of the GDP, most medically self-insured employers and other payors will search for efficiencies. Like it or not, persistently negative profit margins will transform healthcare.
Demand for nurses, physicians, and support folks is increasing, with many shortages looming near term. Labor costs and burnout have become pressing stresses, but more efficient delivery of care and better tools can ameliorate the stress somewhat. If structural process and technology tools can improve productivity per employee, the long-term supply of clinicians may keep up. Additionally, a decreased demand for care resulting from an effective prevention strategy also could help.
Most other successful industries work hard to produce products or services with fewer people. Remember what the industrial revolution did for America by increasing the productivity of each person in the early 1900s. Thereafter, manufacturing needed fewer employees.
PATIENTS’ NEEDS AND DESIRES
Patients want to live a long, happy and healthy life. The best way to do this is to avoid illness, which patients can do with prevention because 80% of disease is self-inflicted. When prevention fails, or the 20% of unstoppable episodic illness kicks in, patients should seek the best care.
The choice of the “best care” should not necessarily rest just on convenience but rather objective outcomes. Closest to home may be important for take-out food, but not healthcare.
Care typically can be divided into three categories — acute, urgent, and elective. Common examples of acute care include childbirth, heart attack, stroke, major trauma, overdoses, ruptured major blood vessel, and similar immediate, life-threatening conditions. Urgent intervention examples include an acute abdomen, gall bladder inflammation, appendicitis, severe undiagnosed pain and other conditions that typically have positive outcomes even with a modest delay of a few hours.
Most every other condition can be cared for in an appropriate timeframe that allows for a car trip of a few hours. These illnesses can range in severity from benign that typically resolve on their own to serious, which are life-threatening if left undiagnosed and untreated. Musculoskeletal aches are benign while cancer is life-threatening if not identified and treated.
Getting the right diagnosis and treatment for both benign and malignant conditions is crucial but we’re not even near perfect for either. That’s unsettling.
In a 2017 study,
“Mayo Clinic reports that as many as 88 percent of those patients [who travel to Mayo] go home [after getting a second opinion] with a new or refined diagnosis — changing their care plan and potentially their lives. Conversely, only 12 percent receive confirmation that the original diagnosis was complete and correct. In 21 percent of the cases, the diagnosis was completely changed; and 66 percent of patients received a refined or redefined diagnosis. There were no significant differences between provider types [physician and non-physician caregivers].” [15]
The frequency of significant mis- or refined-diagnosis and treatment should send chills up your spine. With healthcare we are not talking about trivial concerns like a bad meal at a restaurant, we are discussing life-threatening risks. Making an initial, correct first decision has a tremendous influence on your outcome.
Sleeping in your own bed is nice but secondary to obtaining the best outcome possible, even if car or plane travel are necessary. For urgent and elective diagnosis/treatment, travel may be a
good option. Acute illness usually doesn’t permit a few hours of grace, although a surprising number of stroke and heart attack victims delay treatment through denial or overnight timing. But even most of these delayed, recognized illnesses usually survive. And urgent and elective care gives the patient the luxury of some time to get to a location that delivers proven, objective outcomes, not necessarily the one closest to home.
Measuring quality in healthcare has traditionally been difficult for the average patient. Roadside billboards, commercials, displays at major sporting events, fancy logos, name changes and image building campaigns do not relate to quality. Confusingly, some heavily advertised metrics rely on a combination of subjective reputational and lagging objective measures. Most consumers don’t know enough about the sources of information to understand which ratings are meaningful to outcomes.
Arguably, hospital quality star ratings created by the Centers for Medicare and Medicaid Services (CMS) are the best information for potential patients to rate hospital mortality, safety, readmission, patient experience, and timely/effective care. These five categories combine 47 of the more than 100 measures CMS publicly reports. [16]
A 2017 JAMA article by lead author Dr. Ashish Jha said:
“Found that a higher CMS star rating was associated with lower patient mortality and readmissions. It is reassuring that patients can use the star ratings in guiding their health care seeking decisions given that hospitals with more stars not only offer a better experience of care, but also have lower mortality and readmissions.”
The study included only Medicare patients who typically are over 65, and the differences were most apparent at the extremes, nevertheless,
“These findings should be encouraging for policymakers and consumers; choosing 5-star hospitals does not seem to lead to worse outcomes and in fact may be driving patients to better institutions.” [17]
Developing more 5-star hospitals is not only better and safer for patients but also will save resources by avoiding expensive complications and suffering.
As a patient, doing your homework before you have an urgent or elective need can change your outcome for the better. Driving a
couple of hours to a CMS 5-star hospital or flying to a specialty hospital for an elective procedure could make a difference.
Business case studies have noted that hospitals with a focus on a specific condition deliver improved outcomes while becoming more efficient. [18] Similarly, specialty surgical areas within general hospitals have also been effective in improving quality while reducing costs. Mayo Clinic demonstrated this with its cardiac surgery department. [19] A similar example is Shouldice Hospital near Toronto, a focused factory specializing in hernia repairs. In the last 75 years, the Shouldice team has completed four hundred thousand hernia repairs, mostly performed under local anesthesia with the patient walking to and from the operating room. [20] [21]
THE BOTTOM LINE
The Mayo Brother’s quote, “The patient’s needs come first,” is more relevant today than when first articulated over a century ago. Driving treatment into distinct categories of acute, urgent, and elective, with subsequent directing care to the appropriate facilities, improves the entire care process for the patient. The saved resources can fund prevention and decrease the need for future care. The healthcare industry’s focus has been on sickness,
not prevention. The virtuous cycle’s flywheel effect of distinct categories for care and embracing prevention of illness will decrease misery and lower the percentage of GDP devoted to healthcare.
Editor’s note: This is a multi-part series on reinventing the healthcare industry. Part 2 addresses physicians, non-physician caregivers, and communities’ responses to the coming transformation.
The health of a community is measured by the health of its individual members, and the health of its members depends on their access to local, high-quality medical care. Health coverage is a key indicator of the health and wellness of an individual. When people have health insurance, they have greater access to care, reduced mortality, and better health outcomes, according to a report from the American Hospital Association.
However, the current approach taken by some of the nation’s largest health insurers, or payers, is putting this at jeopardy as payers focus on profits and quarterly earnings, strip rates and put the long-term viability of health systems at risk. With hospitals in the middle of the worst economic performance in decades, it is time for payers to own up to how their actions negatively impact the communities and those they claim to serve.
As a physician and the chief of population health at a large metro-area health system, Northeast Georgia Health System, my patients’ ability to readily access medical care at our facilities — and have that care be covered by insurance — matters greatly. Any disruption in a patient’s experience, such as restricting access to care by their health plan or going out of network with an insurance company, can wreak havoc on population health. It’s no secret that many health systems across the country have felt the weight of increased administrative and contractual burdens from health insurers as denial rates continue to creep upwards.
Health insurance companies, like the nation’s largest, UnitedHealthcare, have seen profits soar in recent years. UnitedHeatlhcare’s profits were up 28 percent during the third quarter of 2022 – achieving a profit of $5.3 billion in just those three months – before closing the year at $28.4 billion in net earnings in 2023. Elevance (formerly Anthem), Cigna, and Aetna have also posted record profits recently.
We have seen the impact of the pressure payers are putting on hospitals across the country. Nearly 200 hospitals have closed since 2005, according to the Sheps Center for Health Services Research at the University of North Carolina. Many of these hospitals have closed because they failed to receive fair contracted rates from large payers and thus were insolvent.
Community benefits like charity care, health education and economic impact are provided by hundreds of hospitals nationally, but that impact is at risk if they are not fairly compensated for the services they provide.
In healthcare, as in life, people devote a lot of time and attention to the way things should be. They’d be better off focusing on what actually could be.
As an example, 57% to 70% of American voters believe our nation “should” adopt a single-payer healthcare system like Medicare For All. Likewise, public health advocates insist that more of the nation’s $4 trillion healthcare budget “should” be spent on combating the social determinants of health: things like housing insecurity, low-wage jobs and other socioeconomic stresses. Neither of these ideas will happen, nor will dozens of positive healthcare solutions that “should” happen.
When the things that should happen don’t, there’s always a reason. In healthcare, the biggest roadblock to change is what I call the conglomerate of monopolies, which includes hospitals, drug companies, private-equity-staked physicians and commercial health insurers. These powerful entities exert monopolistic control over the delivery and financing of the country’s medical care. And they remain fiercely opposed to any change in healthcare that would limit their influence or income.
This article concludes my five-part series on medical monopolies with an explanation of why (a) “should” won’t happen in healthcare but (b) industrywide disruption will.
Why government won’t lead the way
With the U.S. Senate split 51-49 and with virtually no chance of either party securing the 60 votes needed to avoid a filibuster, Congress will, at most, tinker with the medical system. That means no Medicare For All and no radical redistribution of healthcare funds.
Even if elected officials started down the path of major reform, healthcare’s incumbents would lobby, threaten to withhold campaign contributions (which have exceeded $700 million annually for the past three years) and swat down any legislative effort that might harm their interests.
In American politics, money talks. That won’t change soon, even if voters believe it should.
American employers won’t lead, either
Private payers wield significant power and influence of their own. In fact, the Fortune 500 represents two-thirds of the U.S. GDP, generating more than $16 trillion in revenue. And they provide health insurance to more than half the American population.
With all that clout, you’d think business executives would demand more from healthcare’s conglomerate of monopolies. You might assume they’d want to push back against the prevailing “fee for service” payment model, replacing it with a form of reimbursement that rewards doctors and hospitals for the quality (not quantity) of care they provide. You’d think they would insist that employees get their care through technologically advanced, multispecialty medical groups, which deliver superior outcomes when compared to solo physician practices.
Instead, companies take a more passive position. In fact, employers are willing to shoulder 5% to 6% increases in insurance premiums each year (double their average rate of revenue growth) without putting up much or any resistance.
One reason they tolerate hefty rate hikes—rather than battling insurers, hospitals and doctors— involves a surprising truth about insurance premiums. Business leaders have figured out how to transfer much of their added premium costs to employees in the form of high-deductible health plans. A high deductible plan forces the beneficiary to pay “first dollar” for their medical care, which significantly reduces the premium cost paid by the employer.
Businesses also realize that high deductibles will only financially burden employees who experience an unexpected, catastrophic illness or accident. Meaning, most workers won’t feel the sting in a typical year. As for employees with ongoing, expensive medical problems, employers typically don’t mind watching them walk out the door over high out-of-pocket costs. Their departures only reduce the company’s medical spend in future years.
Finally, businesses know that employee medical costs are tax deductible, which cushions the impact of premium increases. So, what starts as a 6% annual increase ends up costing employees 3%, the government 1% and businesses only 2%. In today’s strong labor market, which boasts the lowest unemployment rate in 54 years, businesses are reluctant to demand changes from healthcare’s biggest players—regardless of whether they should.
Leading the healthcare transformation
If there were a job opening for “Leader of the American Healthcare Revolution,” the applicant pool would be shallow.
Elected officials would shy away, fearing the loss of campaign contributions. Businesses and top executives would pass on the opportunity, preferring to shift insurance costs to employees and the government. Patients would feel overwhelmed by the task and the power of the incumbents. Doctors, nurses and hospitals—despite their frustrations with the current system—would want to take small steps, fearful of the conglomerate of monopolies and the risks of disruptive change.
To revolutionize American medicine, a leader must possess three characteristics:
Sufficient size and financial reserves to disrupt the entire industry (not just a small piece of it).
Presence across the country to leverage economies of scale.
Willingness to accept the risks of radical change in exchange for the potential to generate massive profits.
Whoever leads the way won’t make these investments because it “should happen.” They will take the chance because the upside is dramatically better than sitting on the sidelines.
The likely winner: American retailers
Amazon, CVS, Walmart and other retail giants are the only entities that fit the revolutionary criteria above. In healthcare’s game of monopoly, they’re the ones willing to take high-stakes risks and capable of disrupting the industry.
For years, these retailers have been acquiring the necessary game pieces (including pharmacy services, health-insurance capabilities and innovative care-delivery organizations) to someday take over American healthcare.
CVS Health owns health insurer Aetna. It bought value-based care company Signify Health for $8 billion, along with national primary care provider OakStreet Health for $10.6 billion. Walmart recently entered into a 10-year partnership with the nation’s largest insurance company, UnitedHealth, gaining access to its 60,000 employed physicians. Walmart then acquired LHC, a massive home-health provider. Finally, Amazon recently purchased primary-care provider One Medical for $3.9 billion and maintains close ties with nearly all of the country’s self-funded businesses.
Harvard business professor Clay Christensen noted that disruptive change almost always comes from outsiders. That’s because incumbents cling to overly expensive and inefficient systems. The same holds true in American healthcare.
The retail giants can see that healthcare is exorbitantly priced, uncoordinated, inconvenient and technologically devoid. And they recognize the hundreds of billions of dollars of revenue and they could earn by offering a consumer-focused, highly efficient alternative.
How will the transformation happen?
Initially, I believe the retail giants will take a two-pronged approach. They’ll (a) continue to promote fee-for-service medical services through their pharmacies and retail clinics (in-store and virtual) while (b) embracing every opportunity to grow their market share in Medicare Advantage, the capitated option for people over age 65.
And within Medicare Advantage, they’ll look for ways to leverage sophisticated IT systems and economies of scale, thus providing care that is better coordinated, technologically supported and lower cost than what’s available now.
Rather than including all community doctors in their network, they’ll rely on their own clinicians, augmented by a limited cohort of the highest-performing medical groups in the area. And rather than including every hospital as an inpatient option, they’ll contract with highly respected centers of excellence for procedures like heart surgery, neurosurgery, total-joint replacement and transplants, trading high volume for low prices.
Over time, they’ll reach out to self-funded businesses to offer proven, superior clinical outcomes, plus guaranteed, lower total costs. Then they’ll make a capitated model their preferred insurance plan for all companies and individuals. Along the way, they’ll apply consumer-driven medical technologies, including next generations of ChatGPT, to empower patients, provide continuous care for people with chronic diseases and ensure the medical care provided is safe and most efficacious.
Tommy Lasorda, the long-time manager of the Los Angeles Dodgers, once remarked, “There are three types of people. Those who watch what happens, those that make it happen and those who wonder what just happened.”
Lasorda’s quip describes healthcare today. The incumbents are watching closely but failing to see the big picture as retailer acquire medical groups and home health capabilities. The retail giants are making big moves, assembling the pieces needed to completely transform American medicine as we think of it today. Finally, tens of thousands of clinicians and thousands of hospital administrators are either ignoring or underestimating the retail giants. And, when they get left behind, they’ll wonder: What just happened?
The conglomerate of monopolies rule medicine today. Amazon, CVS and Walmart believe they should rule. And if I had to bet on who will win, I’d put my money on the retail giants.
Radio Advisory’s Rachel Woods sat down with Advisory Board‘s Aaron Mauck and Natalie Trebes to talk about where leaders need to focus their attention on longer-term industry challenges—like growing competition, behavioral health infrastructure, and finding success in value-based care.
Rachel Woods: So I’ve been thinking about the last conversation that we had about what executives need to know to be prepared to be successful in 2023, and I feel like my big takeaway is that the present feels aggressively urgent. The business climate today is extraordinarily tough, there are all these disruptive forces that are changing the competitive landscape, right? That’s where we focused most of our last conversation.
But we also agreed that those were still kind of near-term problems. My question is why, if things feel like they are in such a crisis, do we need to also focus our attention on longer term challenges?
Aaron Mauck: It’s pretty clear that the business environment really isn’t sustainable as it currently stands, and there’s a tendency, of course, for all businesses to focus on the urgent and important items at the expense of the non-urgent and important items. And we have a lot of non-urgent important things that are coming on the horizon that we have to address.
Obviously, you think about the aging population. We have the baby boom reaching an age where they’re going to have multiple care needs that have to be addressed that constitute pretty significant challenges. That aging population is a central concern for all of us.
Costly specialty therapeutics that are coming down the pipeline that are going to yield great results for certain patient segments, but are going to be very expensive. Unmanaged behavioral needs, disagreements around appropriate spending. So we have lots of challenges, myriad of challenges we’re going to have to address simultaneously.
Natalie Trebes: Yeah, that’s right. And I would add that all of those things are at threshold moments where they are pivoting into becoming our real big problems that are very soon going to be the near term problems. And the environment that we talked about last time, it’s competitive chaos that’s happening right now, is actually the perfect time to be making some changes because all the challenges we’re going to talk about require really significant restructuring of how we do business. That’s hard to do when things are stable.
Woods: Yes. But I still think you’re going to get some people who disagree. And let me tell you why. I think there’s two reasons why people are going to disagree. The first reason is, again, they are dealing with not just one massive fire in front of them, but what feels like countless massive fires in front of them that’s just demanding all of their strategic attention. That was the first thing you said every executive needs to know going into this year, and maybe not know, but accept, if I’m thinking about the stages of grief.
But the second reason why I think people are going to push back is the laundry list of things that Aaron just spoke of are areas where, I’m not saying the healthcare industry shouldn’t be focused on them, but we haven’t actually made meaningful progress so far.
Is 2023 actually the year where we should start chipping away at some of those huge industry challenges? That’s where I think you’re going to get disagreement. What do you say to that?
Trebes: I think that’s fair. I think it’s partly that we have to start transforming today and organizations are going to diverge from here in terms of how they are affected. So far, we’ve been really kind of sharing the pain of a lot of these challenges, it’s bits and pieces here. We’re all having to eat a little slice of this.
I think different organizations right now, if they are careful about understanding their vulnerabilities and thinking about where they’re exposed, are going to be setting themselves up to pass along some of that to other organizations. And so this is the moment to really understand how do we collectively want to address these challenges rather than continue to try to touch as little of it as we possibly can and scrape by?
Woods: That’s interesting because it’s also probably not just preparing for where you have vulnerabilities that are going to be exposed sooner rather than later, but also where might you have a first mover advantage? That gets back to what you were talking about when it comes to the kind of competitive landscape, and there’s probably people who can use these as an opportunity for the future.
Mauck: Crises are always opportunities and even for those players across the healthcare system who have really felt like they’re boxers in the later rounds covering up under a lot of blows, there’s opportunities for them to come back and devise strategies for the long term that really yield growth.
We shouldn’t treat this as a time just of contraction. There are major opportunities even for some of the traditional incumbents if they’re approaching these challenges in the right fashion. When we think about that in terms of things like labor or care delivery models, there’s huge opportunities and when I talk with C-suites from across the sector, they recognize those opportunities. They’re thinking in the long term, they need to think in the long term if they’re going to sustain themselves. It is a time of existential crisis, but also a time for existential opportunity.
Trebes: Yeah, let’s be real, there is a big risk of being a first mover, but there is a really big opportunity in being on the forefront of designing the infrastructure and setting the table of where we want to go and designing this to work for you. Because changes have to happen, you really want to be involved in that kind of decision making.
Woods: And in the vein of acceptance, we should all accept that this isn’t going to be easy. The challenges that I think we want to focus on for the rest of this conversation are challenges that up to this point have seemed unsolvable. What are the specific areas that you think should really demand executive attention in 2023?
Trebes: Well, I think they break into a few different categories. We are having real debates about how do we decide what are appropriate outcomes in healthcare? And so the concept of measuring value and paying for value. We have to make some decisions about what trade-offs we want to make there, and how do we build in health equity into our business model and do we want to make that a reality for everyone?
Another category is all of the expensive care that we have to figure out how to deliver and finance over the coming years. So we’re talking about the already inadequate behavioral health infrastructure that’s seen a huge influx in demand.
We’re talking about what Aaron mentioned, the growing senior population, especially with boomers getting older and requiring a lot more care, and the pipeline of high-cost therapies. All of this is not what we are ready as the healthcare system as it exists today to manage appropriately in a financially sustainable way. And that’s going to be really hard for purchasers who are financing all of this.
In an effort to rein in healthcare costs for its employees, Walmart sends them directly to health systems that demonstrate high-quality care outcomes, otherwise known as Centers of Excellence.
Through the COE program, Walmart will cover the travel and treatment costs for employees seeking a range of services, but only with providers the company is contracted with. Walmart then reimburses with bundled payments negotiated with the providers.
To determine which providers get access to its 1.6 million employees, Walmart starts by examining health systems. Lisa Woods, vice president of physical and emotional well-being at Walmart, and her team analyze public data, distribute requests for information and conduct detailed on-site visits.
Below are the 18 health systems or campuses to which Walmart will refer patients for defined episodes of care in 2022. (See how COE participants have evolved since 2019 or 2021.)
IBM Watson Health, in partnership with Fortune, has released its top 15 health systems, which they find set an example for health systems and hospitals across the nation. With its data, the report will continue to stand as a resource for these groups to improve their quality of care and efficiency.
In its 14th year of publishing this study, IBM Watson Health found that the top 15 health systems had better survival rates, fewer patient complications, fewer healthcare-associated infections, better long-term outcomes, better 30-day mortality/revisitation rates and more. The study also found that patients revered the top 15 hospitals more than peer system hospitals.
Fortune/IBM Watson Health divides its top 100 hospitals into three main categories listed below. It is noted that each system in the table is featured in alphabetical order and does not reflect performance rating. The full report, which includes further details on the methodology of rankings, can be found here.
Top 5 large health systems
Allina Health (Minneapolis)
Baylor Scott & White Health (Dallas)
Mayo Clinic (Rochester, Minn.)
Penn Medicine (Philadelphia)
Rush University System for Health (Chicago)
Top 5 medium health systems
Cone Health (Greensboro, N.C.)
Edward-Elmhurst Health (Naperville, Ill.)
PIH Health (Whittier, Calif.)
Scripps Health (San Diego)
St. Luke’s Health System (Boise, Idaho)
Top 5 small health systems
Asante (Medford, Ore.)
CHI Memorial (Chattanooga, Tenn.)
CHI St. Vincent (Little Rock, Ark.)
Franciscan Sisters of Christian Charity Sponsored Ministries (Manitowoc, Wis.)
Prioritizing outcomes in healthcare is long overdue and now within reach following Oracle’s acquisition of Cerner. To achieve more seamless, coordinated care, technology must play a greater role in reframing solutions for health and well-being around the world.
Combining Cerner’s clinical capabilities with Oracle’s enterprise platform, analytics, and automation expertise will change health and wellness in a way that simply hasn’t been possible before. We’ll provide secure and reliable solutions that deliver health insights and experiences to dramatically change how health is managed by patients, providers, and payors. The industry has never been riper for change.
Designing for people
Healthcare is innately personal; however, the industry often loses sight of the human side of health as delivering and understanding care has become increasingly disconnected and complex. Research reveals that doctors spend nearly twice as much time on administrative work as they do engaging with patients. If we replaced clinicians’ time spent performing administrative tasks with patient interactions, imagine how dramatically we could improve quality of care. Technology-induced administrative burden contributes to burnout, which has, in part, resulted in a workforce shortage and overshadowed the true benefits of healthcare technology. Clinicians didn’t enter medicine to spend half of their time conducting routine tasks and completing required documentation; they chose their profession to practice at the top of their license. We’re working to make this a reality, providing a toolset that supports clinical decision making and prioritizes the user experience.
For care delivery organizations, we’ll develop new cloud-enabled capabilities allowing providers to access the information they need, where and when they need it, on an interface that is easy to use. This will significantly reduce the time and effort required to find a patient’s information, even if the information is scattered across different providers or care settings. We’ll help people access and manage their own health information from wherever they are, so that they have a stronger voice in their care and can conduct more meaningful conversations with their providers. When successful, these improvements ultimately increase the value of healthcare and have the additional benefit of contributing data to population health insights.
Collaborative, interoperable care
In a complex and inefficient healthcare industry, interoperability is critical; but, it hasn’t been widely adopted between organizations. From the patient perspective, data silos limit patients’ empowerment and involvement in their health and well-being. It is vitally important that medical records are portable. Regardless of where someone receives care, their records should be accessible and unified. From a clinical perspective, interoperability ensures clinicians can properly review a patient’s entire medical history within their workflow and provide appropriate, contextual treatment.
A recent survey shows a staggering 97% of healthcare executives have called for increased healthcare data interoperability, the lack of which inhibits digital transformation and innovation within organizations and throughout the broader industry. Oracle is committed to open APIs to ensure any authorized user can consume health data and insights. We know a closed system will not create connectivity and unification across the many existing players and systems. Creating more solutions without an open ecosystem commitment would only contribute to the problems we see today with fractured and siloed systems.
Oracle will harness the power of data to create a collaborative ecosystem where people, patients, providers, and payors can securely access clinical, operational, and financial data on the cloud. These efforts will break down data silos and provide open systems that talk to—and connect with—one another to generate actionable, scalable, and global insights previously unavailable. Industry fragmentation impacts both patients and providers, but Oracle has the power to aggregate data into a single source of truth to achieve better outcomes.
Improved efficiency across the system
While enhanced clinical systems will improve experiences bedside and lead to better public health outcomes, back-office operations must also be improved to drive true efficiency, reduce costs, and make the business of healthcare more predictable. Oracle’s Fusion application suite can create this bridge between the bedside and the back-office, enhancing employee experience (better retention, less administration), streamlining the supply chain (reduced shrinkage, better inventory management), and giving the executive a better understanding of the issues impacting their business (greater predictability and cost control).
Secure healthcare data
Unfortunately, we know that retail, finance, and health data are the most targeted in security breaches. Patient privacy and the security of health data, when left unaddressed, threaten what the information of health exchange is solely meant to protect: patient safety. It’s time to raise health data security to an unprecedented level of investment and focus.
Oracle is an industry leader in securely storing, processing, and analyzing large volumes of cloud-based data. We’ll continue to apply the same security-obsessed focus to healthcare as we do to all industries, allowing people, patients, providers, and payors to safely access insights that improve care and advance decision-making. Oracle has been trusted with some of the world’s most sensitive and regulated data for more than 44 years. For the financial services industry specifically, Oracle already serves customers in more than 140 countries and manages risk for 24 of the world’s 28 systemically important financial institutions (SIFIs).
Meeting the moment
While we already knew this industry was ready for change, the pandemic amplified and accelerated the world’s readiness to see that change. We aim to meet this moment leveraging the technology and expertise that have revolutionized other industries, as well as applying new innovations to transform these systems of record into systems of intelligence.
Combining our existing healthcare industry solutions—from clinical trials to health insurance payor solutions to public health analysis systems—with our acquisition of Cerner, we believe Oracle has a uniquely positioned opportunity to offer new solutions to a broken healthcare system. We plan to support the entire lifecycle of healthcare, going beyond traditional health IT to integrate our infrastructure, platform, and applications capabilities for a more fully connected operational, administrative, and clinical system.
We are fully committed to the partnerships that will be instrumental to this journey. The technology and the world are ready for transformation. This is just the beginning.
HENRY KOTULA 