business model

Why is the large provider business model obsolescing?

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Margaret Thatcher said, “Anyone who finds themselves on public transport after the age of 26 must consider themselves a failure.” There’s probably some sort of corollary for anyone twice that age that spends part of every day writing to imaginary people on the web.

When I write I like to pick a side and stand by it instead of standing in the middle of the road where you can get run over by the traffic from both sides. Likewise, I don’t look for consensus around an idea. Consensus is the process of everyone abandoning their beliefs and principles and meeting in the middle. When was it decided that meeting in the middle is beneficial? So, achieving consensus about a problem is nothing more than that state of lukewarm affection one feels when one neither believes in nor objects to a proposition.

Having this approach to solving business problems tends to yield a high number of critics. I don’t mind critics; those are the same people who after seeing me walk across a swimming pool would say that my walking only proves that I can’t swim. I rather enjoy it when someone offers a decidedly personal attack on something I wrote if only because it means they can’t find a legitimate business principle on which to base their argument. I love the debate, and I don’t expect anyone to agree with me just because I say it is so.

In trying to promote a different way of looking at the large provider business model, I’ve learned that it’s not possible to lead from within the crowd. The “as-is” hospital business model (how the hospital is run) was created over time, by followers. I may be wrong, but the most innovative alteration I have seen to the hospital business model in the last decade has been the addition of mini Starbucks, and the revamping of their lobbies to make hospitals look more like hotels.  The future will be created by someone who believes the strategy of how hospitals run can be done better. I believe firmly in the notion that improving the business model by building off the current one is like trying to cure a cold with leeches.

The approach that has been used to grow the business for the last fifty years is that the hospital is responsible for everything. And yet, who is responsible for the hospital? Who is accountable for the fact that the business model is obsolescing itself?  We have loads of new stuff—expensive stuff.  No other industry can tout new and improved services better than healthcare.  However, in those industries new and improved means faster, smaller, cheaper–it means adding services to reach significantly more customers, not fewer.

Each new and improved procedure with its more costly overhead has application to a smaller percentage of the health population, thereby allocating that overhead across fewer patients.  In turn, that makes the low-margin services unprofitable.  Those services will be cut lose, picked up by new entrants with lower overhead.  Those entrants will make a good business out of services discarded by hospitals.  The cycle will repeat, as it has for decades.  The profitable new entrants will move up-market.

Is it a question of scale versus scope, or scale and scope?  What happens if instead of continuing to repeat the cycle, large healthcare providers were to invert it?  What makes them more relevant, adding the capability to perform a procedure used once a month or one used once an hour?  Which is more important to the future model, inpatient care or outpatient care?  I suggest that “in” or “out” will become irrelevant.

Those phone booths in the photo used to be the way to make public calls, now you can’t even find a booth.  Maybe some day someone will take a photo of a group of hospitals stacked next to each other in a vacant lot.

Hospital Business Strategy–One size fits none

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One size fits none, or is it one.  The patient rarely buys what the hospital is selling.  The hospital sells a hip replacement—the patient is buying the ability to play golf for ten more years.

Clayton Christensen conducted a study which showed that seventy percent of today’s patients would have been in the ICU thirty years ago, and seventy percent of the patients in today’s ICUs would have died thirty years ago.  The question the study seemed to leave unaddressed is who is now caring for those patients who were not in the ICU and who didn’t die.  Wanna’ bet most have been outsourced to non-hospital care givers?

There was a successful business model in that group of patients when they were treated at the hospital thirty years ago.  There is an even larger business model today for that same set of patients; only it is no longer owned by the hospital.  Neither are the associated revenues.

Hospitals have more high-end capability—and cost—than the average patient will utilize—sort of an 80/20 rule on steroids.  Each successive clinical breakthrough enables the hospital to solve a problem for a mere handful of patients; one that will have no application to 99% of patients in their service area.

What if instead of continuing to expand the reach for the stars model ad nauseam, the hospital flipped the model on its side and catered to the ninety-nine percent?  What if the business model centered on serving mainstream customers?  But then who or what would handle the other one percent of the cases?  An autonomous business unit could be established to serve those cases, or they could be outsourced to a group which did.

Fitting Your Square Hospital into a Round ACO Hole

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(reposted from this week’s healthsystemcio.com)

I have spent time over the past few weeks speaking with healthcare executives to get their perspective on ACOs, also known as Attorneys and Consultants Opportunities. For the most part, people are in general agreement when it comes to describing the function of an ACO.

So much for the good news. Where the process breaks down is when those same executives were asked to describe what approach is required to enable an ACO to work in a generic hospital.

While there are many people claiming to know the in’s and out’s of ACOs, we all know there is not a lot of expertise regarding how to implement an ACO. There are not a lot of people who have “Been there, done that, got the T-shirt.”

When faced with finding a solution to a problem which I have no way to solve, I find it helpful to redefine the problem into one which I do know how to solve. If I take this approach with ACOs, it helps me to redefine it for what it is—a big, ugly program—a BUP. The good news is that I know what works and what does not work when it comes to dealing with BUPs.

There are two ways to tackle a BUP. One way is to study your organization and figure out how to get the program to work within your hospital’s framework. The other way is to figure out what the program needs to deliver, and then determine what needs to happen to the framework to enable the program to work.

I liken the two approaches to fitting puzzle pieces together. Let us define Puzzle A as the hospital’s framework, and Puzzle B as the ACO program (not an IT program). Under the first approach, you remove pieces from Puzzle B until you get it to fit. The problem with this approach is that by the time you finally get it to fit Puzzle B, the ACO no longer resembles an ACO.

Using the other approach — figuring what pieces must be removed from Puzzle A in order for Puzzle B, the ACO, to remain whole — provides the best chance of creating a viable ACO. One may wish to argue against this approach by saying that to create the ACO requires dismantling part of the hospital’s framework.

Indeed it does, but maybe that is not as bad as it sounds.

Many EHRs were implemented in such a way as to dismantle a lot of their functionality in order to get the EHR to fit the hospital’s framework. This “lesser” EHR is now part of that disrupted framework and has made it even more disrupted.

Perhaps the time has come to think about reengineering the framework before sacrificing the functionality of yet another program.

When your ACO gives you lemons—make Lemonade

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This weekend the temperature warmed enough to cause the neighborhood children to set up the season’s first lemonade stand.  One of the moms suggested the stand be set up in the corner of the cul-de-sac.  By definition, a cul-de-sac is roundish, as in no corners.  When I laughingly questioned the mom as to which corner of the round cul-de-sac she had in mind, she failed to see my humor.

Each of the children brought different supplies; lemons, paper cups, a table, a hand-painted sign, water, and pre-mixed lemonade.

By closing time they had collected twenty-one dollars and seventeen cents.  They met at our house to divide the spoils of their venture, a task that sounded easier than it was.  The corner cul-de-sac child felt the money should be divided equally.  As her only contribution to the venture had been a tablecloth, her suggestion was met with a robust debate.

I suggested they look at using some of the money to pay back those children according to what their supplies cost—according to the children the supplies did not cost them anything because they took them from their homes.

By now you have figured out where this ACO conversation is going.  Without knowing ones’ costs, how can one really allocate profits against those costs?  The children knew what they charged, and they knew what they made, but they knew nothing of their costs.  The same concept applies when viewing the problem of performing a hip replacement instead of simply selling lemonade.

Perhaps providers should start with opening a lemonade stand to get a better understanding of the business requirements, and then work their way up to the ACO model.

EHR Strategy: The Wildebeest Postulate

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The Kalahari; vast, silent, deadly. The end of the rainy season, the mid-day heat surpasses a hundred and twenty. One of the varieties of waterfowl, most notably the flame red flamingo that nested in the great salt pans in Botswana, has begun its annual migration. In the muck of one of the fresh-water pools that had almost completely evaporated, writhes a squirming black mass of underdeveloped tadpoles. A lone Baobab tree pokes skyward from the middle of the barren savanna. In its shade, standing shoulder to shoulder and facing out, a herd of wildebeest surveys the landscape for predators.  Sir David Attenborough and PBS can’t be far away.

Some things never change. I make my way across the freshly laid macadam to meet the school bus. Fifty feet in front of me is a young silver maple tree, the buds of its green leaves yielding only the slightest hint of spring hidden deep within. The late afternoon sun casts a slender shadow across the sodded common area. One by one they come—soccer moms; big moms, little moms, moms who climb on rocks; fat moms, skinny moms, even moms with chicken pox—sorry, I couldn’t stop myself—as they will every day at this same time, seeking protection in its shade. My neighbors.  It’s only sixty-five today, yet they seek protection from the nonexistent heat, a habit born no doubt from bygone sweltering summer days. A ritual. An inability to change. In a few weeks the leaves will be in their full glory, and the moms will remain in the shadow of what once was, standing shoulder to shoulder facing outward, scanning the horizon for the bus. A herd. Just like wildebeest.

The children debus–I invented the word.  Mine hand me their backpacks, lunch boxes, and musical instruments.  I look like a Sherpa making my way home from K-2.

I shared this analogy with the neighborhood moms—the bruises will fade gradually. I can state with some degree of certainty they were not impressed with being compared to wildebeest. So here we go, buckle up. By now you’re thinking, “There must be a pony in here somewhere.”

Some things never change; it’s not for lack of interest, but for lack of a changer.  For real change to occur someone needs to be the changer, otherwise it’s just a bunch of people standing shoulder to shoulder looking busy. How are you addressing the change that must occur for EHR to be of any value?  EHR is not about the EHR.  It’s not about ARRA money, and it is not about IT.  It is about moving from a 0.2 business model to 2.0.  You need someone who sees the vision of what is is—sorry, too Clintonian—must lead.  Be change.

One of the great traits of wildebeest is that they are great followers.

 

What if hospital business models weren’t so tribal?

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I tend to look at it from the perspective of the business model of many hospitals.  How does one transform a 0.2 business model to function in today’s let alone tomorrow’s changing healthcare model?

The clinical side of healthcare, the healthcare business, in juxtaposition to the business of healthcare, would never quarter to the idea of buying millions of dollars of technology without first knowing how they were going to use it.

Plenty can be gained by applying what other industries have done to become more effective.  In some respects the inherent structure, cost duplication, and rigid departmental silos remind me a lot of how the various agencies under Homeland Security function, operating in isolation, performing much of the same work, and not sharing information.

Other industries operate with a much less tribal model than healthcare.  Hospitals have created tribes and tribal chiefs.  In some hospitals the tribes have names like radiology, general surgery, psychiatry, and OBG/YN.  Other hospitals have redundant tribes named admissions, human resources, IT, and payroll.  Each tribe is run by the tribe’s chief.  The chief’s dominant weapon is his or her budget which is lorded over its individual tribe, and a dispute vehicle of the other tribes.

The tribal organization is more a reflection of how the hospital evolved over the years, not a result of an inept business strategy.  Nobody set out to build an ineffective and internally competitive model, or one that duplicated support functions.  Acquisitions have reinforced and exacerbated the problem, duplicating and increasing costs without yielding a resultant increase in value.

Before the business of healthcare is prepared to cope with the unknowns of the myriad of external influences it will face in the next few years, it must first change how it functions under its current structure.  It might begin by revisiting its present structure and making sure that its performance and quality precede the application of technology.

I frown on using the term efficient.  To me, efficiency implies speed, and doing bad things faster is no solution.  Let us work at improving effectiveness and good things will happen.

 

Abi-normal

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I remember the first time I entered their home I was taken aback by the clutter.  Wet leaves and small branches were strewn across the floors and furniture. Black, Hefty trash bags stood against the walls filled with last year’s leaves. Dozens of bright orange buckets from Home Depot sat beneath the windows. The house always felt cold, very cold. After a while I learned to act normally around the clutter.

There came a time however when I simply had to ask, “Why all the buckets? What’s the deal with the leaves?”

“We try hard to keep the place neat,” she replied.

“Where does it all come from?” I asked.

“The open windows, the stuff blows right in.”

I looked at her somewhat askance. “I’m not sure I follow,” I replied as I began to feel uneasy.

“It’s not like we like living this way; the water, the cold, the mess. It costs a fortune to heat this place.  And, the constant bother of emptying the buckets, and the sweeping of the leaves.”

Trying to assume the role of thought leader I asked, “Why don’t you shut your windows? It seems like that would solve a lot of your problems.”

She looked at me like I had just tossed her cat in a blender.

When you see something abnormal often enough it becomes normal. Sort of like in the movie The Stepford Wives.  Sort of like Patient Experience Management (PEM). The normal has been subsumed by the abnormal, and in doing so is slowing devouring the resources of the hospital.

Are you kidding me? I wish. It’s much easier to see this as a consultant than it is if you are drinking the Kool Aid daily. When I talk to people about a statistic that indicates that 500 people called yesterday about their bill, and everyone looks calm and collected, it makes me feel like I must be the only one in the room who doesn’t get it—again with The Stepford Wives.

If I ask about the high call volume they always have an answer, the same answer.  “Billing calls are usually around 500 a day.”  They say that with a straight face as though they are waiting to see if I will drink the Kool Aid. It’s gotten to the point where no matter how bad things get, as long as they are consistently bad, there not bad at all.

This is the mindset that enables the PEM manager (I know you don’t have one—I am being facetious) to be fooled by his or her own metrics. When is someone going to understand that repeatedly having thousands of people calling to tell your organization you have a problem, means you have a problem?

It would probably take less than a week to pop something on your web site, and post a YouTube video explaining how to read the bill.  Next week, do the same thing and help patients understand how to file claims and disputes—granted, you may need more than a week for this one.

 

 

What is IT’s role in Accountable Care Organizations?

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I published this article today in healthsystemcio.com (http://ow.ly/4ecmg), and thought you might find it interesting. Please feel free to comment.

 

 

 

When was the last time you looked at a hospital bill, or one sent directly from your physician? The reason I ask is I have been spending some time trying to develop a clear enough picture of Accountable Care Organizations (ACOs) to describe them easily. After all, ACOs are not something you can touch and see. You cannot just walk up to the third floor of Our Lady of Perpetual Billing and be shown an ACO.

 

I think it is extremely important to understand what an ACO is before trying to build one. Much of the difficulty in building an ACO has to do with the fact that something, in fact a great many somethings, will have to change for an ACO to function. The question then becomes, change from what to what?

Back to the hospital bill. Scan through the list of charges, and then press the F5 key to let me know when you are ready. Now, highlight all the line items that charge you for the care you received … I found the same thing; there are not any. Volume versus value. Caring for you versus doing stuff to you. The bill of charges under today’s business model is a blow-by-blow description of what was done to you; x-rays, medicines given, IVs, etc.

Hospital billing is not unlike a hotel bill; it is just longer and you do not earn frequent illness points. Embedded in your hospital bill are charges for food and cable television, just like you had been staying at the Four Seasons.

So, as we move from volume to value, how will that impact healthcare information technology, assuming anyone remains standing after Meaningful Use and ICD-10? I keep preaching about how the hospital’s business model must change in order to understand what will be required of IT. To do so, let us compare two very different business models and their operations, both of which are in the same industry.

Hyundai and Bentley. Volume to value. Just-in-time manufacturing versus don’t-rush-me manufacturing. Nobody would argue with the fact that the information systems and business processes needed to run Hyundai’s business are very different from those of Bentley.

I watched a show on how Bentleys are built. A team of people is assigned to each car. Depending on the car’s options, some people roll off the team and others are added, but the team “owns” the car from start to finish, and each subsequent person inspects the work of the prior person.

At Hyundai, it is not apparent that anyone “owns” the car. People have line responsibility; they own a piece of a process. I could be the “left lug nut guy,” having absolutely no responsibility for the rest of the car.

I think this is the degree of change an ACO will require in order to be effective. We will have to change from being lug nut specialists to becoming care owners. This then brings us back to the question of what IT systems will be needed to charge for and manage care.

Unlike moving from ICD-9 to ICD-10, there is no mapping model to guide the change from today’s business model to an ACO model. Three IVs and one MRI do not translate well to 4.5 Accountable Care Units (ACUs) which are then billed at whatever happens to be the going rate.

Today’s systems calculate charges based on what was done to you — $86 million gazillion for the MRI. If requested, nobody in finance or information technology will be able to vivisect the bowels of SAP or Lawson and show you where the information is that records how much the MRI procedure costs. Few can explain how the business processes and information systems that support today’s lug-nut charging model can support and report how the hospital manages its business. Nobody even pretends to explain how effective those same processes and systems are at reporting the quality of care delivered.

The ACO model will require processes and systems that capture, allocate, and report costs. The ACO model will also require processes and systems that can aggregate people and procedures into ACUs and relate patient costs against those ACUs.

We do not have those systems. Since current hospital systems are incapable of really managing today’s business requirements, we should not adapt them to the ACO model.

 

Reinventing the healthcare insurance business model

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If there is a more obtuse business model than the one used by insurance companies I have not seen it.  While I am not an advocate of privatization—because I am a right-wing nut who favors capitalism—I do think there is a smarter way to earn profits.

Taken to its extreme, the ideal way for a payor to earn profits is for payors to take in money without ever having to pay out money.  This is the same model your cable company uses—people simply send them money every month, and never get it back.

To contrast the healthcare insurance model with an insurance model that actually provides some degree of benefit, one needs look no further than the automotive insurance model.  While nobody loves paying car insurance, we do so somewhat secure in the fact that if we are in an accident our insurance will cover us.

A large reason we feel this way is because we have a choice in which auto insurer we select.  If we do not like the coverage, we change providers.  Our employers do not tell us which auto insurer we must purchase, and yet they do when it comes to providing health insurance, and yet ninety-nine percent of the people who work for a firm drive, so the insurable population is about the same size for health and auto.

With health insurance, they best we can do when we are ill is hope our insurance will cover us, and we do so with the hidden expectation that it will not.

Health insurers need to change their model.  If a single payor changed its model to actually cover the claims made by its members it would not have to worry about being profitable because they would be beating people off with a stick.

Instead of hiring so many people to figure out how not to reimburse their members, why not change to model to one by which they actually provided their members with what those members need?

 

What is troubling hospitals? What isn’t?

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I wrote this as a comment to Barbara Duck’s fine post in her blog, http://ow.ly/3tFPx

Part of the problem, at least in my mind is that many of the large and small provider business models are trapped in what any MBA student would label an 0.2 model. The two biggest adversaries to provider’s success and limiting their ability to change, the two industries constraining the providers’ ability to run a profitable business, pharmaceuticals and the payors, exercise power that comes from their scale.

Add to that complexities brought to bear by other large external influencers—the rule-makers, makes it almost impossible to know what business model to build and under which to operate because providers must build strategies designed to hit unknown and moving targets; reform, regulation, and Medicaid, Medicare. Whatever strategy they design will be ineffective by the time it is implemented.

It is important to note that healthcare providers represent the only industry which does not know the cost of ninety percent of the services they deliver. They do not know what something costs, but they do know what they charge. Even the identical procedure at the same hospital will produce a different bill. How does one run a business suing those pricing models?

You may or may not know that Shakespeare spelled his own name five different ways. While that worked out okay for him, using that as a pricing model—I know this analogy is a stretch—makes no sense.

Compare hospital pricing to McDonald’s who knows how profits will be impacted if they so much as add another pickle to a hamburger.
Nobody can tell you what a tonsillectomy costs, or the profit earned from the procedure. Even for hospital IDNs, the same service will be priced differently, will be charged differently, and will be reimbursed differently.

Through acquisition and mismanagement many hospitals have multiple occurrences of large business processes; to name a few—admissions, IT, HR, payroll, pharmacy.

The time has come to separate the hospital business model into two components; the business of healthcare—how it is run, and the healthcare business—the care component. Care is delivered using a best-process model, whereas some will argue the business of healthcare is often managed no better than a lemonade stand.

There are no measures used by hospitals that allow them to calculate the ROI of a patient or a physician over five or ten years. There is no Patient Equity Management process to reduce patient or physician churn.

Large hospitals have spent more than $100,000,000 to implement failed EHRs—sixty percent of them fail. Hospitals are rushing through their implementations to try to secure minimal ARRA payments. Many hospitals are on EHR 2.0 thinking that by changing their EHR vendor they will have a better chance of succeeding. To that model they hope to incorporate ACOs.

Maybe before they boldly go where no man has gone before, they should pause and come up with a real plan of attack.