In Healthcare, NOW and NEAR are on the Radar, but it’s Back to the Drawing Board for FAR

Across the U.S. health industry, the Covid-19 virus has wreaked havoc. Though infection rates appear to be decreasing in some areas, we’re far from being out of the woods. As a result, plans beyond the pandemic are on the back burner for most healthcare organizations. That’s a problem.

In leading Ford Motor Company through a difficult turnaround, CEO Jim Hackett used the framework he developed in his previous role as CEO of Steelcase. Essentially, it challenges organizations to work simultaneously in three-time dimensions, concentrating resources and attention equally in all three: NOW, NEAR, and FAR.

• Now: ‘Be successful in the now and simultaneously make the critical pivot to the far.’

• Near: ‘Place bets on the future and pivot resources to support those bets.’

• Far: ‘Envision a future state and future role, knowing that any prediction is uncertain and subject to change.’

NOW

For the past two months, almost every healthcare organization has been necessarily focused on NOW: how to meet payroll, how to protect workers, how to stay afloat and so on. Social distancing and the COVID-19 surge shut down fitness centers, primary care, imaging centers, dentistry and everything “non-essential.” And the virus traumatized hospitals, emergency responders and frontline caregivers ill-prepared for the worst. For most, NOW includes debt restructuring, cost-cutting and long hours. It’s about survival.

NEAR

In the past two weeks, some organizations have pivoted to NEAR. They’re integrating telehealth, social distancing and zoom in their operations. They are revising budgets, cutting costs and putting off capital projects. There’s re-thinking staffing, procurement, outsourcing, partnerships and affiliations.  They’re betting a second surge can be avoided and a strong economic recovery achievable. And they’re counting on the availability of mass testing, vaccines and drugs next year to keep their workforces healthy. The NEAR focus is a return to pre-coronavirus normalcy. Understandable but incomplete.

FAR

The harsh realities are these: strategic plans based on lag indicators about supply, demand, competition and regulation are now obsolete. Long-term financial forecasts are fiction and assumptions about the future state of healthcare in the U.S. speculative at best. That’s why attention to FAR is so vital today. As Hackett cautions, planning about FAR can ill-afford to be set aside even when NOW and NEAR pressures are strongest. Experience shows that some companies emerge stronger after calamities like the coronavirus, but many don’t. The differences between the two seem to be foresight about how things will be different and leadership that’s unafraid of radical change.

Traditionally, healthcare has been prone to radical incrementalism: we’re comfortable with incumbents, business models and leaders who don’t rock the boat. Due to the pandemic, plans for FAR not on the radar. As leaders and boards think forward, 3 harsh realities will likely frame the vision and strategy each pursues:
 

Deficits will force Significant Cuts to Healthcare Spending by the Federal Government

The key word is SIGNIFICANT. Last year, the U.S. federal government took in $3.464 trillion and spent $4.448 trillion—a deficit of $984 billion. This year, it expects to take in $3.706 trillion and spend $4.490 trillion—a deficit of $1.083 trillion. Pre-coronavirus, annual federal deficits were forecast to peak at 4.9% of the GDP in 2020 and slowly shrink for a decade. That was before passage of the $2.2 trillion CARES Act last month and another round targeting small businesses soon to follow.

The national debt in 2020 will exceed $20 trillion. That’s 90% of our total GDP ($22,211 trillion) and problematic: interest on the debt will exceed 5.4% of total GDP forcing Washington to raise taxes and cut spending—not something voters like.

Healthcare spending is 27% of federal spending: it is likely be a major target for spending cuts for three reasons: it’s considered wasteful by lawmakers, it’s considered unaffordable by voters and it’s BIG. 

Incremental approaches will fall short: reducing waste, cutting Medicare and Medicaid reimbursement can only go so far. These cuts will be deep prompting food fights between sectors bent on protecting their piece of the $3.7 trillion pie. Plans for FAR require thoughtful consideration of radically-more efficient models of delivery, financing, drug and device manufacturing and so on. And the competitive landscape in FAR is likely to include new entrants whose integrated technologies and workflows slay sacred cows about who does what, when and how.

The explosion of federal deficits as a result of the CARES Act compounded with annual deficits puts a big target on healthcare to perform better. The Congressional Budget Office forecast for annual health expenditure growth of 5.4% per year until 2028 is cause for concern.
 

Capital for Healthcare Organizations will be Less Accessible and More Expensive

Healthcare is a capital-intense industry. For most organizations, capital comes from debt, operating margins and investments. The reality is this: operating margins in most healthcare organizations have been destroyed by the coronavirus. A few sectors, like sanitizer manufacturers, testing facilities and telehealth providers, are exceptions. But for most, access to capital through emergency loans/grants vis a vis the CARES Act will allow only temporary relief.

In FAR, securing capital from lenders and investors will be tougher. Debt to equity ratio’s will be lower. Liquidity will be key. Companies that avoided high levels of debt pre-coronavirus will be in the driver’s seat. Their capital costs will be lower and their growth faster. That means vertical consolidators offering delivery and financing of health services on a large scale will likely replace those whose sole focus is local. And that means the competitive landscape will feature bigger players with deeper pockets.

FAR will likely feature a land of giants whose access to and efficient use of capital are strategic differentiators.
 

Consumers will Demand Ethicality from Healthcare Organizations

FAR planning is also about consumers—the patients, enrollees and voters too often under-appreciated by the industry. Consumers think the healthcare system is essential but flawed. They decry its lack of price transparency and worry about its affordability and accessibility. They love their doctors and nurses but despise a system that creates obstacles to access: their applause for frontline caregivers and first responders is instinctive.

The coronavirus pandemic is a game-changer for consumers: they’ve seen firsthand the disconnect between public health and local hospitals. They don’t understand how “the world’s best healthcare system” was unprepared and how the 22 million who lost their jobs as a result will survive. And their hearts are broken for the 42,000 who lost their lives, most drawing their last breath isolated from their loved ones.

The pandemic has exposed our health system’s flaws to consumers: disproportionate death rates among persons of color, inadequate safety for seniors in nursing homes, lack of lifesaving equipment, vaccines and drugs, insurer concessions for those with coverage but nothing for those without and chronic finger-pointing between local, state and federal officials lawmakers seeking to cast blame.

Last year, corporate America acknowledged widespread public pushback against capitalism: The Business Roundtable, World Economic Forum and others called for business leaders to balance shareholders and profit with purposeful attention to social and environmental concerns that matter to consumers.

For healthcare, FAR means intensified sensitivity among consumers how ‘profit’ is defined, created and used, how executives are paid, how boards operate, how organizations treat employees and partners and whether their values really matter. The ethicality of every organization in our ecosystem will be in full view. Nothing will be off-limits. And it will fundamentally alter how FAR opportunities are defined and pursued.

FINAL THOUGHT

The coronavirus’ impact on our society will be significant well beyond 2020. It will change how we live and interact as a society. And it will fundamentally change long-range plans for every organization in the system today.

When Jim Hackett took the reins from Mark Fields at Ford in 2017, he knew little about car manufacturing. He had run an industrial furniture manufacturing company and athletics at the University of Michigan. He knew Ford was a turnaround opportunity with huge challenges. He’s under pressure to deliver NOW and NEAR, but most observers think his pursuit of FAR will be his greatest accomplishment.

The same will be true for leaders in our healthcare organizations today. While everyone’s focused on NOW and NEAR, assessing options for FAR is a necessary focus.

Paul
 

P.S. A prominent theme in NEAR and FAR planning is the notion of value-based purchasing (VBP): the mechanisms whereby payers like Medicare structure incentives so providers are at greater risk for better quality and lower costs. Before the coronavirus hit, I conducted a two-day focus group with 7 chief strategy officers of major U.S. health systems in Big Sky, Montana sponsored by Lumeris. Their views about VBP are particularly insightful, especially as organizations consider their NEAR and FAR plans: Proceedings: The Big Sky Summit on Value in Healthcare
 

CORONAVIRUS UPDATE

Gilead Covid-19 Drug Shows Promise but Inconclusive Results

A Chicago hospital treating severe Covid-19 patients with Gilead Sciences’ antiviral medicine remdesivir in a closely watched clinical trial reported rapid recoveries in fever and respiratory symptoms with nearly all patients discharged in less than a week. But the trial involving 125 subjects with severe symptoms did not include a control arm for comparison so public health officials are guarded about its potential efficacy and effectiveness.

Feuerstein et al “Early peek at data on Gilead coronavirus drug suggests patients are responding to treatment” STAT April 16, 2020 https://www.statnews.com/2020/04/16/early-peek-at-data-on-gilead-coronavirus-drug-suggests-patients-are-responding-to-treatment/?utm_campaign=breaking_news&utm_source=hs_email&utm_medium=email&utm_content=86422815&_hsenc=p2ANqtz-8wEBIeDoL-HiRqyDVMmGOwhxbv8J_uidC3WaXC-XP8P5j1vrqARbsP2YKKsT4zOWrCcxAO7t-LB-qvZBmy7ABwivab8A&_hsmi=86422815

CT Scans Expensive Alternative to Coronavirus Testing

Swab tests for the novel coronavirus are missing up to 30% of infected people, according to the CDC. CT scans are more expensive, exposing patients to a low dose of radiation, but they are widely used in China for testing and getting attention in the U.S. As published in the Radiology, scientists in China reported that used a chest CT found 97% of Covid-19 infections vs. 48% of patients who had negative results on the swab test. The rate of false negatives from molecular testing, as well as delays in getting receive results, is driving more and more medical centers like Mt. Sinai (NY) to adopt CT scans for Covid-19 testing despite recommendations by the American College of Radiology and the CDC. Their major concern is that CT scans cannot easily distinguish between Covid-19, SARS, MERS, and other viral pneumonias, including from influenza.

Begley “Covid-19 testing issues could sink plans to re-open the country. Might CT scans help? “STAT April 16, 2020 https://www.statnews.com/2020/04/16/ct-scans-alternative-to-inaccurate-coronavirus-tests/?utm_source=STAT+Newsletters&utm_campaign=fffd3e2a6e-Daily_Recap&utm_medium=email&utm_term=0_8cab1d7961-fffd3e2a6e-151199453

IMF: Global economy shifts to negative growth: Rich countries hardest hit

In January, the International Monetary Fund (IMF) predicted that the global economy would grow at a “sluggish” pace of 3.3% in 2020. In its report last week, the IMF forecasts that output will shrink by 3%–the first since a 0.1% decline in 2009. Output in advanced economies, which represent 70% of global GDP, is expected to shrink by 6.1% in 2020; in poorer countries, it is forecast to fall 1%.IMF forecasts strong global GDP growth in 2021 when the pandemic passes: up 4.5% in rich countries and up 6.6% in poorer countries in 2021.

“The global economy is expected to shrink by 3% this year” The Economist April 14, 2020 https://www.economist.com/graphic-detail/2020/04/14/the-global-economy-is-expected-to-shrink-by-3-this-year

FDA urged to invoke Emergency Use Authorization (EUA) for vaccines, drugs

Public desire for a COVID-19 drug is palpable with “many clinicians embarking on ill-advised and uncontrolled human experimentation with unproven treatments” and growing pressure on the FDA invoke Emergency Use Authorization (EUA) for unverified therapies such as chloroquine and hydroxychloroquine. The culprit: the clinical research process—it’s systematic and rigorous but slow. Goodan and Borio lay out an excellent view on how the EUA process works and where we are in the search for coronavirus vaccines and therapies.

Goodman and Borio “Finding Effective Treatments for COVID-19 Scientific Integrity and Public Confidence in a Time of Crisis” JAMA. April 16, 2020. doi:10.1001/jama.2020.6434 https://jamanetwork.com/journals/jama/fullarticle/2764823?guestAccessKey=de068a71-5879-459a-b61e-655b55939a0e&utm_source=silverchair&utm_medium=email&utm_campaign=article_alert-jama&utm_content=olf&utm_term=041620

Update: CARES Act Grants, Loans Overwhelm System

The Coronavirus Aid, Relief, and Economic Security (CARES) Act specifies that providers are eligible for grants if they “provide diagnoses, testing, or care for individuals with possible or actual cases of COVID-19” and be used to “prevent, prepare for, and respond to coronavirus.” Last week, HHS clarified that diagnoses, testing and care don’t have to be specific to COVID-19, and that any patient that walked through a practice/hospital doors since January 31 qualifies as a potential COVID-19 patient. Update:

• To date, $30 billion of the $100 billion earmarked in the CARES Act for emergency relief has gone out the door primarily to hospitals but also to physician practices. The remaining $70 will soon be released using a different distribution model than used in the first wave. Expected targets are providers in hotspot markets, rural hospitals, and safety net providers.

• The American Hospital Association, Federation of American Hospitals, Association of American Medical Colleges, and America’s Essential Hospitals want an additional $100 billion for hospitals.

• Safety net hospitals are pushing for a formula that favors hospitals with high amounts of uncompensated care. Rural health providers are hoping they get at least 20% of funds since they serve 20% of the population.

• Venture-backed physician practices are eligible for federal funds through the program, but private-based practices are excluded.

Breaking news: this week, a second round of funding–$310 billion for small business and $300 for individuals—is expected to pass Congress. Details to follow.

“Hospital groups float new wish lists for funds flowing from Washington” Modern Healthcare April 14, 2020 https://www.modernhealthcare.com/politics-policy/hospital-groups-float-new-wish-lists-funds-flowing-washington?utm_source=modern-healthcare-covid-19-

Cohrs “CARES Act direct deposits surprise, confuse specialty physicians” Modern Healthcare April 15, 2020 https://www.modernhealthcare.com/finance/cares-act-direct-deposits-surprise-confuse-specialty-physicians?utm_source=modern-healthcare-daily-finance-thursday&utm_medium=email&utm_campaign=20200416&utm_content=article2-headline

CDC: 19% of Healthcare Workers Infected

During February 12–April 9, 19% of those infected were identified as HCP. Their median age: 42 years, 73% were female and 38% reported at least one underlying health condition. Most 90% were not hospitalized; however, severe outcomes, including 27 deaths, occurred across all age groups; deaths most frequently occurred in HCP aged ≥65 years.

“Characteristics of Health Care Personnel with COVID-19 — United States, February 12–April 9, 2020” CDC COVID-19 Response Center April 14, 2020 https://www.cdc.gov/mmwr/volumes/69/wr/mm6915e6.htm?s_cid=mm6915e6_w&utm_source=newsletter&utm_medium=email&utm_campaign=newsletter_axiosvitals&stream=top

RESOURCES

“A Budget for America’s Future: Fiscal Year 2021” U.S. Office of Management and Budget www.omb.gov

“The global economy is expected to shrink by 3% this year” The Economist April 14, 2020 https://www.economist.com/graphic-detail/2020/04/14/the-global-economy-is-expected-to-shrink-by-3-this-year

Howard “Facing skepticism, Ford CEO Jim Hackett defends his leadership style: ‘I’m pushing people’ Detroit Free Press February 25, 2019 https://www.usatoday.com/story/money/cars/2019/02/22/ford-ceo-jim-hackett/2952001002/