The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article.
Throughout my 40-year health services research career, the axiom that ‘all healthcare is local’ has been widely accepted as fact and with good reason. The dynamics in most markets are similar:
Physicians compete against other practitioners for patients. Hospitals compete against each other for volume and for alignment with targeted physicians. Health insurers vie among themselves for enrollees through their individual and group plan offerings. And others, such as sleep centers, pain management clinics, alternative health retail clinics and a wide array of post-acute facilities operate, within these dynamics as well. That’s the competitive landscape in most communities.
| Physicians | Hospitals | Insurance Plans | |
|---|---|---|---|
|
Primary mission
|
Manage patient care | Accommodate medical needs of the community |
Manage cost, Hold providers accountable |
|
View of the other
|
‘Hospitals are our lab’ ‘Plans are a nuisance, adding no value’ |
‘Physicians are central to care and our natural partners’ ‘Plans are a nuisance and add limited value’ |
‘Physicians are important but need discipline, tools and sensitivity to costs’ ‘Hospitals are inefficient, non-transparent and the root cause of high costs’ |
|
Major concern
|
Protection of clinical autonomy, patient trust & economic security |
Sustainability: protection of operating margin as bad debt and operating costs increase and plans negotiate more aggressively Capital: to transition from acute to population-health focus |
Protection of role as organizer of health services, driver of cost accountability |
|
Key asset
|
Patient trust Clinical knowledge |
Local reputation Technology Access to capital (declining) |
Data (clinical, financial) Capital Relationships with group purchasers (employer, government) |
|
Key vulnerabilities
|
Data Leadership Capital Scale |
Cost structure Transparency Physician resistance to change |
Trust Differentiation |
In most communities, local competition is increasing as cost containment pressures force organizations to position for survival and growth. The transformation of the system from fee-for-service to value-based payments as a result of the Affordable Care Act means every player faces disruptive changes in their business models, operating policies and procedures, partnerships and alignment, and capital deployment. And these changes are playing out in the bright glow of media scrutiny and social media-driven consumerism.
At a higher level, competition in communities is playing out between the three major sectors—physicians, hospitals and health insurers. Each believes its purpose unique and sometimes superior to the other two. Each holds strong beliefs about the roles each sector should play, and each is focused on gaining leverage to advantage its own interests.
Like sumo wrestlers in the ring, each of the three is pushing and shoving to gain leverage on the other. Consolidation is accelerating in all three—larger group practices, diversified health systems transitioning to regional care management organizations, and bigger plans with regional or national muscle.
How will all this play out? It’s hard to say. Physician-hospital alignment is proceeding at warp speed. Health insurers are pulling out the stops to grow enrollment. Hospitals are expanding regionally and retail health — clinics, over-the counter therapies, complementary medicine, et al—is gaining a foothold as an important fourth sector.
What’s clear is that the three major players are changing, perhaps begrudgingly, to adapt to a ‘new normal’ wherein size and scale are table stakes, reputation alone is insufficient to maintain market share, and the regulatory atmosphere intense.
Employers are seeking better value for their dollar spent, contracting with out-of-town providers to manage high cost medical problems for their employees. Consumers are online, purchasing non-conventional therapies and tapping into databases that allow them to compare local options to others.
So, ‘all healthcare is local’ is no longer the case. It’s more accurate to say ‘most healthcare is local, and everything in healthcare is changing.’
And it’s clear that the efforts of the three major sectors in each community and at a national level will continue to evolve as the leverage game plays out.
Paul
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.
