The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
The concept of the second curve has found its way into healthcare. It first came to prominence in Ian Morrison’s 1996 bestseller, “The Second Curve: Radical Strategies for Managing Change.” Its thesis is that after a successful run, organizations hit a plateau during which uncertainty about the future is heightened. Some are paralyzed; others chart a new course–their second curve.
Friday’s opening of the Starbucks’ Reserve Roaster and Tasting Room in Seattle is part of its second curve play. The company faced challenging same-store growth projections for its 11,000 U.S. coffee shops complicated by its menu expansion from 181 to 255 items that slowed customer service time by its baristas and associates. So Starbucks’ second curve centers on opening 2,700 new cafes in the next few years.
In January, the American Hospital Association published, “Your Hospital’s Path to the Second Curve: Integration and Transformation” based on the insights of 25 industry leaders led by Presbyterian Healthcare Services (Albuquerque) CEO Jim Hinton. Its central premise: “The healthcare field will ultimately shift from the “first curve,” where hospitals operate in a volume-based environment, to the “second curve” where they will be building value-based care systems and business models.”
The goal, per this report, is that hospitals improve care delivery and population health and reduce the total cost of care over the next five years by up to 25%. It sets forth a framework to achieve that end, with risk-based contracting by a fully-integrated health system as the central organizing model.
It makes sense: health costs are accelerating at a non-sustainable pace, so hospitals and health systems face increased pressure from plans, employers and Medicare to reduce costs and share financial and clinical risk. But, there’s more to the second curve, and perhaps bigger opportunities in healthcare, beyond value-based contracting as the exclusive focus of second curve efforts.
In some communities, employers and health insurers will stick with fee-for-service payments for years to come. Employers will shift financial responsibility to employees via high-deductible benefits plans, embrace public and private health exchanges as their purchasing channels and walk away. While Medicare and Medicaid pursue managed care, accountable care, bundled payments, patient centered medical homes and other models to shift risk to providers, many individuals in a community will not be impacted by these risk arrangements. Lacking an opportunity to engage payers in risk contracts, some hospitals might simply seek to stay on the first curve and hope for the best. But there are huge opportunities in the second curve that center on the evolving needs, preferences and values of individuals at every stage of life and circumstance as they navigate the health system.
The successes of Zappos, Netflix, Uber and many others are the result of their keen insight into how end users, consumers, their customers, behave and what they value. Each uses innovative technologies to enable scalable solutions and operating models that reinforce their vast advantages over “traditional incumbent competitors.” For hospitals, significant second curve opportunities for services targeted to individuals in local and cyber communities exist.
Our system of delivering health services resembles an assembly line: It’s all about how modern our manufacturing plants are and how our workforce efficiency is impacted. We run volume-driven enterprises wherein the efficiency for our assembly line workers is often more important than the value we provide to individuals, our customers.
In most communities, the second curve opportunities for hospitals are profoundly different than their first curve. They’re about more than adapting to risk-based contracts with payers. They center around a clinical model that’s holistic and individualized, technology that’s digital and shared, and processes built around tools and techniques to empower self-care. The defining concept in the second curve is the shift of focus from patient to person that produces profoundly different mechanisms to address populations, demand, volume and throughput.
At a high level, the first curve (i.e. curve 1 hospital) is a modernized assembly line where the hub of activity is the manufacturing facility. In the curve 2 health system, the hub is a network of connected places and devices where individuals engage with the system of care they use—their homes, workplaces, schools, and others. They’re connected, accessible, navigable, and mobile. The distinctions between curve 1 hospitals and curve 2 health systems are significant. Among them:
Each of these distinctions is challenging. Together, they’re transformational. They’re about systems of care, not a collection of services that share space and risk. They’re about technology-enabled, guided, self-care management for individuals in social networks connected to their care teams. They’re about systems of care that focus on persons, not facilities that focus on patients.
The second curve challenge for hospitals is bigger than the change in payer incentives from volume to value.
Paul
Sources: “Your Hospital’s Path to the Second Curve: Integration and Transformation,” American Hospital Association, January 2014; Julie Jargon, “Starbucks aims to double U.S. Food Sales,” Wall Street Journal, December 4, 2014; Stephanie Strom, “Starbucks, Facing A Saturated Market, Looks to the High End,” New York Times, December 4, 2014; Bruce Horovitz, “Starbucks goes upscale with fancy coffee emporium,” USA Today, December 5, 2014; Douglas MacMillan, Sam Schechner, Lisa Fleisher, “Uber Snags $41 Billion Valuation,” Wall Street Journal, December 5, 2014; Ryan Knutson, Theo Francis, “Basic Costs Squeeze Families,” Wall Street Journal, December 1, 2014; Stephanie Armour, “More Cost of Health Care Shifts to Consumers,” Wall Street Journal, December 3, 2014; Consumer Expenditure Survey based on analysis of 2013 out of pocket spending for the middle 60% of the population by income (those earning between $18,000-$95,000/yr), Bureau of Labor Statistics, September 9, 2014
The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.
© 2014 Navigant Consulting, Inc.
