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The Keckley Report

What’s the Future for Hospitals?

By July 31, 2017March 1st, 2023No Comments

In San Diego last week, at the American Hospital Association’s Annual Leadership Summit, attendees were treated to 39 workshops and 5 keynote presentations that all pointed to the same surmise: the future for hospitals ain’t what it used to be.

With the majority of attendees breathing a sigh of relief that the GOP Senate had rejected its skinny Repeal bill in the wee hours Friday morning, hallway discussion shifted to what’s next. The conference theme, innovating in a Time of Change, seemed appropo. Presenters offered their views about consumerism, value-based payment models, workforce, risk management, cyber security, governance, leadership and more, and keynoters brought outside-in perspective that the macro environment in which hospitals operate is increasingly relevant to prospects for hospitals.

Coincident with the AHA meeting, Amazon released its second quarter 2017 earnings:  revenues increased 25% for the quarter to $38 billion, net income was $197 million, and earnings per share were 40 cents vs. the street’s estimate of $1.42 per share.  As the bell rings on Wall Street today, the stock will open at 1020.04, down 2.48% from last week’s announcement. It market capitalization is $487 billion, bigger than the combined value of Walmart, CVS, Walgreens and Target.

Ordinarily, when a mega-company misses its earnings, investors probe for underlying cause. Is the company competing in a sector with systemic challenges like declining demand, strong competition or regulatory headwinds that make its financial performance long-term difficult? Or are there issues inside the company that are problematic—the effectiveness of the management team, its cost structure, the efficiency of its use of capital, reputation risk, culture and so on. Investors in Amazon see little to be concerned about in either.

In its earning news release Thursday, Jeff Bezos, Amazon founder and CEO Jeff Bezos alerted investors to his plan for the company’s doubling down on innovation and growth:

“Our teams remain heads-down and focused on customers. In the last few months, we launched Echo Show (our newest Echo device with a video screen), introduced calling and messaging via Alexa on all Echo devices, debuted Inside Edge on Prime Video (the first of 18 Indian Original Series), introduced Amazon Channels in both the U.K. and Germany, launched four new Fire tablets, expanded Amazon Fresh to Germany, launched Prime Now in Singapore, launched our 25th airplane with Prime Air, hired more than 30,000 new employees, opened three new Amazon Books stores, launched more than 400 significant AWS features and services, migrated more than 7,000 databases using AWS Database Migration Service, and held our third annual Prime Day — signing up more Prime members than ever before. It’s energizing to invent on behalf of customers, and we continue to see many high-quality opportunities to invest.” And analysts are still bullish on the company’s bid to acquire Whole Foods for $13.7 billion, which puts it in the grocery business against #1 Walmart with 431 locations and a healthy food brand, 365, that it can expand globally. All this while Macy’s, Sears, JC Penney, Staples, Kmart and other established players are closing stores, PayLess, Gander Mountain, Limited and others have filed bankruptcy and companies like Target and Walmart are re-engineering their strategies to compete more effectively against Amazon.

The hospital business is highly regulated, labor intense and capital dependent. It’s a risky business, where big financial bets are made on technologies, facilities and workforces that aspire to deliver patient care that’s safe and effective. We depend on our affiliated and employed physicians to do what’s best for our patients, which they consider theirs. We depend on insurers Medicare and Medicaid to pay us for we do, which they value less than we do. We know challenging social determinants and income disparity result in unequal access, unnecessary costs and suboptimal outcomes. And we guard our reputations while fending off efforts to disclose our outcomes, safety, patient experience and cost data. Our industry faces systemic challenges and in many ways, they’re unique. But how we navigate them, especially now, is key.

Amazon sees an expanding market for its service, entering heretofore uncharted turf boldly. It made its offer for Whole Food a month after meeting with John Mackey and the Whole Food C suite the first time. Our acquisitions tend to be slow and operating costs post-merger/acquisition don’t go down.

Amazon sees a marketplace that’s global; most hospital boards and C suites think locally.

Amazon sees consumers, their needs and wants, and orchestrates in company to maximize their satisfaction and loyalty; hospitals think about patients as users, but physicians as their customers, and under-estimate opportunities to address patient needs

Amazon sees an unlimited range of products and services as their domain; hospitals think in terms of inpatient, outpatient and medical staff services, and modest attentiveness to healthiness and well-being

Amazon sees the convergence of clicks and bricks in the delivery of its products and services; hospitals bet on buildings and clinical programs with digital health still an after-thought for many.

Amazon sees growth potential in sectors and takes no prisoners in its execution. The retail department store sector has seen a 12% decline in earnings and apparel retailers’ earnings are down 8.5% decline (FactSet) vs. Amazon’s meteoric growth; hospital growth strategies tend to be less dramatic and predictable.

It seems to me we need to think differently about the future for our hospitals and make that case boldly in our communities, to policymakers and with our employees. We should be in the health and well-being business while streamlining our programs and services targeted to the sick and injured. We should operate as regional systems of health responsible for the delivery and financing of care so efficiency and effectiveness are balanced and optimized. We should locate our clinicians and care teams in concentrated, strategically located facilities closer to where our populations live and work and embed digital technologies in their homes, work places, schools and personal communication devices. And we should empower individuals to make decisions for themselves, for their families.

Every hospital and health system faces headwinds. But winning in our testy market requires fresh thinking, bold leadership, and decisive efforts to transition our organizations to regional systems of health. It requires new competencies, new approaches to our bricks and expansion of our use of clicks to enhance access and delivery of our services. Per the illustration below, these systems of health will build on, but not be defined by traditional operational capabilities nor paralyzed by sacred cows.  Measures of success will transition from admissions, visits and procedures to lives saved, disease prevented and utilization managed in clinics, homes, schools, worksites and a range of virtual networks of care.

Amazon’s news release closed with “Amazon is guided by four principles: customer obsession rather than competitor focus, passion for invention, commitment to operational excellence, and long-term thinking.” These easily apply to hospitals.


P.S. My mail box has been flooded with questions about what’s next with Repeal and Replace. Realistically, lots can change as the GOP-led Congress grapples with stabilization of the individual insurance market as the most urgent. The focus now will shift back to the House where a one-year authorization of the cost sharing subsidies will be likely to keep insurers in the marketplaces through the 2018 election cycle (polls show the GOP at risk in the 2018 cycle if it doesn’t appear to try to fix). Secretary Price and CMS Director Verma will use their administrative powers to channel funds toward simplification of reporting requirements, lessening of regulations, and incentives for states to try new ways to manage health programs. But the near-term action to watch will be in the management of the federal debt ceiling which we hit in late September and the concomitant spending associated with the FY18 budget being finalized in the House. The Senate Health, Education, Labor and Pensions Committee chaired by Lamar Alexander (R-TN) and Patti Murray (D-WA) will likely begin hearing about the ACA and the House Budget Committee chaired by Diane Black (R-TN) will be the focus of FY18 budget negotiations. It’s anyone’s guess where the GOP Repeal and Replace effort goes, but it’s clear health reform is not going away. Stay tuned.