Healthcare Disrupted
Next Generation Business Models and Strategies
By Jeff Elton & Anne O’Riordan | Reviewed by Susan Nowell, PT, DPT
The adage, “With adversity comes great opportunity” certainly rings true for physical therapy private practice owners of today. The health care climate is rapidly changing. In light of increasing reimbursement-based demands, the need to implement new national health care delivery systems is evident; however, definitive, strategic paths remain to be seen. The United States spends more than any other developed country on health care, and the costs continue to rise. With increasing administrative burdens, declining payment for services, and growing patient cost-sharing, more physical therapy providers are implementing alternative services and payment streams into practice as a way to maximize both overall revenue and the quality of patient care.
The anatomy of health care is shifting along the current fault lines of technological, scientific, political, and socioeconomic change. We may be on the brink of a total paradigm shift in which the roles of patients, providers, and payers in the industry will all change.
Elton and O’Riordan’s book, Healthcare Disrupted, aims to recognize and acknowledge this catalytic moment in history, and to predict and discuss the potential business models that can and should evolve. The book presents a four-part analysis of industry changes, models of value-based care, organizations based on new models of collaboration and competition, and future paradigms in the new age of health care. The book takes a positive stance with regard to the current shifts, endorsing change as opportunity for the growth of new health care delivery models and greater value-based patient care.
The Tsunami of Change
Health care costs in most countries are rising faster than gross domestic product (GDP). We are experiencing elevated global awareness of the importance of health to national economic productivity. Seismic shifts in the health care industry have already begun, and we are witnessing the formation of large-scale collaborations across industry boundaries. Disruptive indicators lead the way in all major marketplace changes. We’re seeing these indicators in the health care industry: with an unprecedented number of mergers and acquisitions in pharmaceutical and medical device companies, emerging new business models with collaborative pairings, and new industry players resetting the expectations of what’s possible.
The aim of health care reform in the U.S. and abroad has been to resolve the problem of incongruence between value and expense. For years, under the fee-for-service approach, the industry has increased expenditures without improving returns to health. In other words, there have been increased payments for procedures done, but not for procedural outcomes. Under health care reform for this weighty feefor- service, input-based model, health care “fixes” such as capitation and coding with DRGs (diagnostic-related groups) have been employed, but ultimately they have failed. Elton and O’Riordan propose that real reform changes will occur through broader implementation of the accountable care organizations (ACOs); “ACOs are the bridge from the fee-for-service foundation of the old healthcare system to the value-based system of the future.” Health care reform is also taking place outside of the U.S. In socialized medicine systems throughout Europe and in Japan and China, the current focus is on increased efficiency and effectiveness. The book emphasizes that health care companies must make strategic choices to gain and maintain leading market positions. These strategic choices include marketing directly to clients with value-based “reimbursement” and leveraging real-world data and analytics for valuable outcomes.
FROM STRATEGY TO VALUE WITH NEW BUSINESS MODELS
The pressures of health care costs, the increasing role of the patient as a consumer, and the availability of real-world patient data both for research and commercialization have all influenced expectations around value. According to Healthcare Disrupted, we have four emerging health care models that are coming into focus under this context. These models can be arrayed along two primary dimensions: (1) the value they deliver and (2) who pays for that value. Under this array, the four models are: (1) Lean Innovators, (2) Around-the-Patient Innovators, (3) Value Innovators, and (4) the New Health Digitals.
Lean Innovators are very global and very efficient. The prototypical Lean Innovators are companies like Valeant Pharamaceuticals and Allergan PLC. These companies are minimizing R&D and focusing more on optimizing product portfolios and leveraging mergers and acquisitions to drive shareholder returns.
Around-the-Patient Innovators are high science, high service, and high value. These companies are focused on the most devastating of diseases—those with the highest health burden on patients and the highest resource burden on health systems. They are willing to reshape the market by bringing sets of technologies and services together to accommodate gaps in current care models and redefine modes of competition. Novartis is an example of a company with this type of model. Where this company lacks capabilities in-house, they are reaching out to Apple, Qualcomm, Google, and others to drive partnerships that enable new offerings to the health care world.
Value Innovators focus completely on integrated solutions and clinical outcomes. They go an extra step beyond Around-the-Patient Innovators; they focus on population health through alignment with providers and payers on targeted outcomes. They are willing to link payment to their ability to achieve those outcomes. Medtronic is a strong example of a Value Innovator. In 2013, the company initiated its Medtronic Hospital Partnership program to improve efficiencies, reduce costs, and improve patient access and outcomes. To support this overall mission, Medtronic has engaged in acquisitions with Corventis and Cardiocom to improve the value of patient care through remote heart monitoring services.
New Health Digital models are giving clients greater potential for directed awareness and control of their health, potentially reshaping the definition of health care service. A number of well-known digital companies (e.g., Apple, Google, Samsung) have entered the space; the book refers to these as “Digital Gone Healthcare” companies. Complementing and competing with these companies are “Healthcare Gone Digital” businesses led by IBM, Qualcomm, GE, and Philips. In addition, there are a number of new “Start-Up Digital” companies entering the health care space for the dual purpose of connecting patients to providers and making their communications more meaningful through obtaining and transmitting patient data in real time.
According to Healthcare Disrupted, the Health Digitals have the most significant presence in all global markets of any of the models discussed; “no sector of our economy will remain the same after the forces of digital disruption converge and the capabilities of the New Health Digitals are brought to bear on existing industries” and it will be up to each player in the health care system to determine how to engage. Some useful questions to ask in making these decisions are: How can digital technologies help us achieve the outcomes we seek? How will we incorporate digital disruption into our current services? How might our competitors get ahead—both direct competitors (Healthcare Gone Digital) and indirect competitors (Digital Gone Healthcare)? What capabilities do we need and should we build, acquire, or collaborate to gain them?
BUILDING NEW ORGANIZATIONS: TOWARD A NEW MODEL OF COLLABORATION AND COMPETITION
In this evolving, collaborative era, new health care businesses and models will need to embrace technologies that are fundamentally collaborative to build ecosystems of value-enabling partnerships. Traditional health care has been governed by regulations that have limited interactions among health providers, health payers, and manufacturers; the players in health care were kept at a distance from one another to prevent market influence from biasing decisions. However, we are experiencing a shift in which all the health care players are operating with the same information and the same analytic needs. Health providers are increasingly managing both clinical and financial outcomes, health payers are assuming responsibility for care and clinical outcomes, and manufacturers may allow the prices of their products to be driven by validated outcomes. Elton and O’Riordan propose that through joint commitments to collaboration and health care disruption along nontraditional lines, we can improve the standards of care on a global scale. As front-line providers of health care, physical therapists need to maintain positive awareness of shifting global markets, search for ways to collaborate with competitors, and embrace new real-world data and analytics to drive and uphold value-centric care.
Susan Nowell, PT, DPT, is a PPS member and founder of Endurellect Therapies, practicing physical therapy in San Francisco. She can be reached at sunowell@gmail.com.