Innovation in Healthcare Delivery

To paraphrase Clayton Christensen (The Innovator's Dilemma) when discussing healthcare, disruptive forces set the stage for meaningful innovation and consumer cost reductions. This is where we now find ourselves. What percentage of our nation's GDP is reasonable to spend on healthcare - 15%, 20%, 25%? What adaptations are necessary to maintain high quality for those who now receive it and simultaneously provide access to primary care and preventive services to the ~50 million in the US who are presently uninsured? Can we achieve this dual goal, is it a reasonable goal, a moral imperative, a fiscally practical and prudent consideration? Whatever your political leanings or interpretation of the individual mandate present in the ACA that just turned one year old this week, these are important questions to ponder.

Clearly, change by definition tends to be disruptive. And such disruption e.g. in how and how much we are compensated for our work, requires a response. If our "cheese" gets moved, we can simply complain and fail by rejecting the notion of changing (recall the starving mouse in "Who Moved My Cheese?"), or we can adapt, that is we can innovate, to succeed within the new system, the new reality. Can we mitigate otherwise adverse consequences of this disruption, maybe even improve upon our present state?

How are physicians adapting or preparing now?
PHOs appear to be making a comeback, perhaps as a first step toward an ACO. More physicians are gaining employment by hospitals and health systems. We're somewhat nervously waiting for the Final Rule proposal from CMS re: ACOs to see what the future might hold for healthcare delivery and payment. Some are preparing for EHR Meaningful Use and the attendant bonus; others appear to be eschewing EHRs, willing to forego the bonus and wager that the penalty in future years will either not apply to them (work for a hospital or retire or ?) or on balance will be worth it to avoid experiencing the costs of purchase, implementation and use of electroninc record-keeping. Others, although in the minority, are actively engaging hospitals/healthcare systems in the formation of ACOs.

I imagine that adjustments by physicians are going to be made on a larger scale only after the disruptions are clearer and any new reality that emerges to replace current systems is known.

Practice Prosperity: The Myth of "Zero Sum"

Practice prosperity: How to achieve it through growth and diversification.

Regardless of the method of reimbursement, the importance and relevance of increases in local market demand for health care services, such demand being the major economic factor that creates opportunities for business growth, is often under-appreciated by busy physician practices.

The trigger for adding a physician to a practice is typically either a response to being unable to sustain the current workload with existing personnel or a desire to proactively add partners to establish a more significant competitive presence in anticipation of future needs. It is a well-appreciated truth in business that failure to anticipate or recognize and respond to the opportunities of a growing market will often result in a quantitative service/product gap that reduces the barriers to entry for competition. Either way, the decisions made at this juncture are likely to become self-fulfilling prophecies. If your market grows and you fail to grow with it, someone will step in to fill the gap. Unfortunately, the consequence of added competition is reduced market share, resulting in erosion of business volume over time. And that is something from which it is difficult to recover.

Emotionally charged concerns that adding physicians to a practice's payroll will only increase fixed costs that cannot be hurdled for the economic value added benefit of existing partners are often cited as reasons for decisions to stand pat. Such concerns, even when refuted by facts that clearly establish that such growth has always resulted in increased revenue diversification opportunities and physician compensation, persist in those who find themselves experiencing what I think is fair to characterize as cognitive dissonance, i.e. the experience of seeing the truth but refusing to believe it because it doesn't jibe with existing, contradicting beliefs. One sees the numbers, and even experiences the financial benefits, but this experience can't possibly be a result of a contradicting scenario.

Let's look at a nephrology practice that starts out with revenue coming exclusively from patient fees in the office and hospital, and steadily grows to also include physician services for patients in one or more dialysis facilities. Soon an opportunity arises to assume a Medical Director position, adding to practice revenue. A new partner is added as above, and the process repeats itself. Now an opportunity arises to invest in a de novo joint venture dialysis facility, further expanding the probability of revenue diversification and enhancement. As the practice grows in patient numbers, an opportunity to partner with another group of similar size in a Vascular Access Center further diversifies and expands revenue streams. New partners are added and the process becomes self-reinforcing. Perhaps the 2 groups merge. Now their combined size allows greater administrative efficiencies (lower overhead as a percentage of revenue), the ability to explore other clinical revenue areas such as acute dialysis service contracts, added medical director agreements, clinical research participation, care of patients with kidney transplants, more joint venture dialysis opportunities, etc. Whereas patient volume per FTE physician is not likely to have changed significantly, revenue per FTE from all sources has increased, and practice expense per FTE is likely to have been lowered. This gives the practice greater leverage to invest in more such service lines, sometimes in new, neighboring markets. As long as the practice's (expanding) market demands more than the practice is presently able to supply, the opportunity exists to grow, steadily and prosperously.

In such a scenario, an individual's prosperity is protected and enhanced by the prosperity of the growing collective. "Zero sum" turns out to be a myth.

Shift Happens. Re-evaluating Strategy: Is what constitutes Competitive Differential Advantage about to change?

OK, if you've read my earlier posts or heard me speak, you know that traditional thought about successfully competing in medical practice has had little to do, typically, with providing higher quality care. That's because it's been difficult in most circumstances to show clinical superiority, and with prices more or less "fixed" by the MFS, service has been the mainstay - the principle differentiator. But all of that may be about to change.

We are entering a new era, a new paradigm in health care, a shift in how care is compensated, and thus how it is delivered. The change has been incremental, first with pay-for-reporting bonuses from Medicare, and now Meaningful Use incentives for(and then penalties for failing to use) EHRs, and very soon, Shared Savings opportunities via Accountable Care Organizations. As Michael Porter recently exhorted in the New England Journal of Medicine (December 9, 2010), the key word in healthcare is rapidly becoming VALUE, defined as outcome divided by cost. Critically important to understand in a world where VALUE (to the consumer - the patient) is demanded, is that the VOLUME of INPUTS per se will no longer be as relevant to calculating physician compensation as it is now. Key of course will be accurate definition and measurement of desired outcomes. Evidence will help drive what those outcomes should be.

The door is not yet closed on traditional fee for service compensation, but it seems clear that this method is unsustainable. Looks like practice strategy will have to adapt to this inevitable shift.

Is any of this relevant if physician fees are cut?

You try to do the right things to sustain your business. You set high standards for delivery of quality care, follow the basic tenets of marketing, align your organization so that everyone in your firm "gets it", avoid unnecessary expenses but identify important growth opportunities and prudently invest so that you remain competitive and serve your patients well. But can you afford investing in the assets you require to become or remain successful in this new era of health care reform? For example, can you afford an electronic health record system? Even absent a Meaningful Use bonus, the penalty looming in 2015 for those who fail to adopt EHR-Meaningful Use creates a financial disincentive for failing to make the leap. Even those who have recently purchased or intend to purchase an electronic system face significant (and expensive) implementation challenges in order to convert to e-charting, let alone use such a system "meaningfully". Can you afford not to invest in an EHR system?

And what of the SGR-mandated cuts to the Medicare Fee Schedule due to take effect on December 1, 2010 and again on January 1, 2011, etc? What many lay folks fail to understand is that this would, unless Congress acts now, not only quite negatively impact Medicare fees, but that our commercial insurance contracts are also at risk as these are typically tied to this very same Medicare fee schedule, albeit a couple of years behind the current year's rates.

Furthermore, while Paul Revere's warnings were inarguably of more dire significance, it's nevertheless true that "The ACOs are coming!" (January 1, 2012), with an attendant, inevitable, continued shift to a pay-for-performance, "captitated" payment system (both government and private) rather than the likely unsustainable pay-per-encounter methodology currently used to compensate physician and hospital services.

Is all of this (and more) enough to make doctors eschew private practice for salaried positions with hospitals or large multi specialty group practices? Or a career as a physician altogether? Over half of physicians in the US are now employed by hospitals/group practices, the first time since such statistics have been recorded that those employed this way exceeded those in private practice. And with the "individual mandate" to have health insurance on the horizon, it's likely that the shortage of physicians, especially primary care, will be exacerbated in a few years. This, despite the fact that many medical schools have recently expanded their incoming class sizes, and new US medical schools are being added. Even with 4 years of college, another 4 years of medical school, and several years of post-medical school residency training in a prospective doctor's future, and with mounds of resulting debt, being a physician and taking care of patients obviously remain highly valued by those who covet entry into the medical profession, and to be sure, those who are from time to time in need of medical care.

Spencer Johnson's "Who Moved My Cheese?" provides some common sense consultation that is applicable today, even though it was written in 1998. Not specific "how to" advice per se, his story is about change that is scary and potentially life-altering - recognizing when it happens or is about to happen and making adjustments as needed. If the cheese you've become accustomed to enjoying is no longer to be found, go forth and find new cheese.

What does this mean for medical practices?
Here's a present day example. Last week I attended a lecture by Dr. Patricia Gabow, CEO of Denver Health and Hospitals, a largely indigent demographic health care system in Denver, CO. It was quite remarkable to learn that despite almost half of their patients being uninsured, they found a way to become profitable and sustain this profitability year after year while simultaneously improving the care of their patients. In fact, an obvious conclusion to draw from their experience is that healthier patients utilize fewer costly resources. Thus, their focus is on prevention, reducing hospital admissions and lengths of stay, arranging follow up care to prevent costly readmissions, etc. They implemented a system wide EHR. They employ a large staff of physicians, many of whom are engaged in leading the way toward more efficient and effective care. Their organization is aligned with a common purpose.

Maybe the "handwriting on the wall" is not that we will lose our autonomy or that the physician-patient relationship will suffer, or that the positive aspects of health care in the US will vanish under excessive regulation and fee cuts, but that we can refocus our efforts to create and expand health care systems in a way that is professionally satisfying, provides better care for more of our citizenry while continuing to provide high quality care to those already able to get it, and provides reasonable physician compensation that is in line with the many years devoted to becoming a physician, as well as the costs of this education.

Perhaps this evolutionary process will create systems that will in effect become the new cheese. Are you prepared to go forth and find it?

What is Your "Elevator Speech?"

Can you succinctly state what your company does, where it’s headed and how you plan for it to get there? In the April 2008 edition of Harvard Business Review, Collis and Rukstad ask an important question: “Can you say what your strategy is?” Of course, they ask this because their research found that many firms’ CEOs cannot succinctly summarize their organization’s strategy. And if the CEO cannot do this, then it’s a logical assumption, which they found to be true, that the firm’s employees cannot either. As they state, “it is a dirty little secret that most executives don’t actually know what all the elements of a strategy statement are, which makes it impossible for them to develop one”. They offer a straightforward solution: define what the elements of strategy are so that its formulation becomes easier, with subsequent implementation becoming much simpler because the strategy can now be easily communicated and understood by everyone in the company.

The value of this clarity to a medical practice, as in any organization, is alignment (as eloquently stated by Harvard’s Michael Porter and noted in one of my previous posts on this blog). Here’s an example. Your front office employee receives a call from a concerned referring physician who wants one of her patients seen by your specialist practice within the next day or 2. Your employee knows that you and your partners are booked solid for the next 3 weeks. She has some options. She can tell the referring doctor that you’re booked and the next available office slot is in 3 weeks, and if this doctor says in response that never mind, she’ll call your competitor because they’ll make room, she responds with something like “that’s just the way it is if you want to see Dr. ___, good luck”, you will understand one reason why your market share is being eroded over time. If your goal is to maintain and/or grow your practice, and you plan to do this via a strategy of superior customer service, it will be critical for your front-line staff to understand this so they can help prevent situations like in this example. Perhaps they now will say to the referring doctor something like, “I don’t see an opening on Dr ___’s schedule this week, but we know how important it is to all concerned to get urgent patients like this one in ASAP. Please provide the patient’s phone number to me – I’ll let Dr. ___ know what the problem is and see if he can squeeze this patient in tomorrow, and then I’ll call the patient and see if we can work out a time that’s convenient for him. Should I have Dr. ___ call you?” Imagine what market share might look like over time if this was the essence of the conversation.

Here’s a pearl of wisdom attributed to Yogi Berra. “If you don’t know where you’re going, you may not get there.” Rukstad (see above) identified objective, scope and advantage as critical components of a good strategy statement, a road map to getting where you want to go. What do you want to achieve and in what time frame? What products/services will you provide, and in what kind of setting? What will you do differently that will give you an advantage over your competitors?

Food for thought.

What/Who Constitutes Your Market?

The obvious answer is "patients". We provide services and in some instances products for patients. We receive compensation for doing this. It's instructive to ponder the source of these patients. How do they get to us? What other people and institutions play a role in this process. Existing satisfied customers? Other physicians? Hospitals? Health plans? Other institutions? Tracing the sources is a critical exercise if we are to become and remain successful, i.e. enjoy a continuous flow of business in our direction.

So part of maintaining this flow is keeping existing patients and acquiring new ones. Remember that quality alone rarely provides a signifcant competitive differential advantage, usually because your competitors are typically equally qualified. Cost factors are potentially relevant for specialized areas such as cosmetic procedures, but most often for the majority of physicians is removed from the marketing equation by the egalitarian nature of insurance contracts. Yes, it's service that comes to the forefront. In some cases that's relationships with referring colleagues, in others it's prompt and courteous attention to patients, patient access to their records electronically, etc.

How do we know if we're employing and delivering a successful strategy for at least maintaining, if not gaining market share? How do we know if our efforts are working? As with most questions like this, it requires data. We need to define the quantity of purchasers available to us, identify the market's potential for use of our services/products, and then we can assess what share of that our business is doing.

Is it true that "if you are not growing your business's market share, you are shrinking"? Certainly in a growing market, that's mathematically correct. If there is demand for the service or product you provide but you fail to meet that demand, others will step in to fill the void.

This evaluative process informs our expansion decisions. When to hire a new partner, add a nurse or nurse practitioner, look for additive revenue sources. It truly is difficult to manage what you have not measured.

Marketing

Levitt's classic paper, "Marketing Myopia" (Harvard Business Review), opens our eyes to the critical importance of knowing the business we're in, and who our customers are. His example of an incorrect approach is so often quoted that it's become part of the marketing lexicon like Kleenex became for tissues. He cites the railroad companies as failing to see that they were in the transportation business, not the railroad business, in the mid 20th century. Think about that for a few minutes. They made their living transporting people and products via rail. Did it not occur to them that other modes of transport could supplant or reduce their business's prosperity?

Levitt implores the reader to understand the business they are in, and who their customers are, what those customers want, and for us to think about how to find and satisfy those customers and make a positive impact to our bottom lines. This has become classic marketing wisdom - provide what the customer is asking for either more cheaply, with better quality and/or with better service. It's clear that marketing is pretty closely tied to strategy. Do what you do, do it uniquely to gain a competitive advantage, and do it in a way that customers will want to buy from you.

In The Innovator's Dilemma, Clayton Christenesn raises a somewhat different approach. Perhaps one way to effectively engage your customer base is to create something that they didn't know they wanted or needed. An example might be Apple's products, such as the iPhone and iPad.

OK, we have a mission, a vision, core values, a product/service to provide, a pretty good idea of how we want to do business and gain competitive advantage, lots of potential customers/patients. How do we put this all together, make our organizations run properly to support our vision? More on that next time.